BILL ANALYSIS                                                                                                                                                                                                    Ó



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        SENATE THIRD READING
        SB 1171 (Hueso)
        As Amended June 24, 2014
        Majority vote 

         SENATE VOTE  :29-1  
         
         JUDICIARY           9-0                                         
         
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        |Ayes:|Wieckowski, Alejo, Chau,  |     |                          |
        |     |Dickinson, Garcia,        |     |                          |
        |     |Gorell, Maienschein,      |     |                          |
        |     |Muratsuchi, Stone         |     |                          |
        |-----+--------------------------+-----+--------------------------|
        |     |                          |     |                          |
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         SUMMARY  :  Extends disclosure requirements that currently only apply  
        to residential property transactions to commercial property  
        transactions.  Specifically,  this bill  : 

        1)Redefines "real property," for purposes of a statute that requires  
          a real estate agent to make certain disclosures about the nature  
          of the agent's representation, to include commercial real  
          property.

        2)Defines "commercial real property" to mean all real property in  
          this state except single-family residential real property,  
          dwelling units made subject to Chapter 2 (commencing with Section  
          1940) of Title 5 of Part 4 of Division 3 of the Civil Code,  
          mobilehomes as defined in Civil Code Section 798.3, or  
          recreational vehicles as defined in Civil Code Section 799.24.

         EXISTING LAW  : 

        1)Requires listing agents and selling agents to provide the seller  
          and buyer in a real property transaction with a copy of a  
          prescribed disclosure form and to obtain a signed acknowledgement  
          of receipt from that seller or buyer, except as specified.   
          Specifies the information that must appear on the front of the  
          form and requires that the back of the form contain specified  
          provisions of the Civil Code relating to an agent's duties.

        2)Defines "real property," for purposes of the above only, to  








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          include real property which constitutes or is improved with one to  
          four dwelling units, any leasehold in this type of property  
          exceeding one year's duration, and mobile homes, when offered for  
          sale or sold through a real estate agent, as specified. 

        3)Requires, subject to certain exceptions, the transferor of any  
          real property that is improved with or consisting of not less than  
          one or more than four dwelling units to deliver to the prospective  
          transferee a prescribed "Real Estate Transfer Disclosure  
          Statement" that sets forth general safety, structural, and  
          material conditions of the property.   

        4)Provides that the Real Estate Commissioner may, upon his or her  
          own motion, and shall, upon the verified complaint in writing of  
          any person, investigate the actions of any person engaged in the  
          business or acting in the capacity of a real estate licensee  
          within this state, and he or she may temporarily suspend or  
          permanently revoke a real estate license at any time where, among  
          other things, the licensee acts for more than one party in a  
          transaction without the knowledge or consent of all parties  
          thereto.  
         FISCAL EFFECT  :  None 
         COMMENTS  :  Existing law requires a real estate agent to provide the  
        seller and buyer with a statutorily prescribed disclosure form that  
        tells both buyer and seller whether the agent is acting as the  
        buyer's agent exclusively, as the seller's agent exclusively, or as  
        a dual agent representing both the buyer and seller.  The required  
        disclosure form must also generally explain the duties of different  
        agent relationships, and it must contain relevant provisions of the  
        Civil Code relating to these relationships on the back of the form.   
        The rationale for this provision is straightforward: while there may  
        be certain circumstances in which it is appropriate for the same  
        agent to represent buyer and seller, dual agency creates a potential  
        conflict of interest, as the agent attempts to serve the best  
        interest of both buyer and seller simultaneously.  This bill would  
        extend the existing statutory disclosure requirements that now apply  
        in transactions involving the sale of a residential property with  
        four or fewer dwelling units, to transactions involving "commercial  
        real property," as defined.  The bill is premised on the assumption  
        that buyers and sellers of commercial property should also be aware  
        of potential conflicts of interest inherent in dual agency.  

        It is important to note that the Civil Code section that this bill  
        would amend defines "seller" and "buyer" to include a "lessor" and  








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        "lessee," respectively, and it defines a "sale" to include a  
        leasehold exceeding one year's duration.  In other words, this bill  
        would apply to real estate agents that arrange long-term commercial  
        leases as well as agents that arrange commercial property sales.   
        Indeed, the supporters of this bill are primarily associations  
        representing small businesses, such as single-store grocers, who are  
        more likely to lease commercial property than they are to purchase  
        it.  However, the bill will specify that the disclosure requirement,  
        both under this bill and existing law, does not apply to residential  
        leases (though it will apply, as in existing law, to the sale of  
        residential property.)  

        Statutory language, legislative history, and case law all seem to  
        reinforce the view that the existing provisions in the Civil Code  
        requiring real estate agents to disclose the nature of the agency  
        relationship to buyers and sellers applies only to residential  
        property transactions, and not commercial property transactions.   
        For example, in Smith v. Rickard (1988) 205 Cal. App. 3d 1134, the  
        court held that "[Civil Code] Section 2079 et seq.is one of those  
        statutory schemes where the Legislature distinguishes between  
        residential and commercial properties in order to protect  
        unsophisticated buyers and owners of residential properties from  
        those with greater knowledge and bargaining power."  (Richman v.  
        Hartley (2014) 224 Cal. App. 4th 1182.) 

        However, that Civil Code Section 2079 et seq. does not apply to  
        commercial property transactions does not mean that agents selling  
        commercial real property do not have a legal and professional duty  
        to disclose dual agency relationship to buyers and sellers.   
        Business & Professions (B&P) Code Section 10176(d) presumes this  
        duty, even if it does not create it.  Specifically, that section  
        empowers the Commissioner of the Department of Real Estate (DRE) to  
        investigate and, if necessary, suspend or revoke a real estate  
        license if the licensee has acted "for more than one party in a  
        transaction without the knowledge or consent of all parties  
        thereto."  However, unlike Section Civil Code Section 2079 et seq.,  
        B&P Section 10176(d) does not impose an affirmative duty on the real  
        estate agent.  Rather, the agent is presumed to have a preexisting  
        duty; B&P Section 10176(d) only requires the DRE, upon the filing of  
        a complaint against the licensee, to take action.  If a relatively  
        unsophisticated buyer of commercial real property did not already  
        know about the disclosure requirement, he or she would have no  
        reason to file a complaint with the DRE.  









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         Analysis Prepared by  :    Thomas Clark / JUD. / (916) 319-2334 FN:  
        0004072