BILL ANALYSIS Ó
AB 1750
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Date of Hearing: March 8, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 1750
(Dodd) - As Introduced February 2, 2016
PROPOSED CONSENT
SUBJECT: Real property transactions: definitions
KEY ISSUE: SHould the scope of definitions used in a statute
relating to required real estate disclosures be clarified?
SYNOPSIS
Sponsored by the California Association of Realtors, this
non-controversial bill clarifies that a definitional section of
the Civil Code relating to required real estate disclosures
applies to all sections of a particular article, specifically
Article 2 (commencing with Section 2079) of Chapter 3 of Title 6
of Part IV of the Civil Code. Article 2 sets forth certain
disclosure requirements in commercial and residential real
estate transactions. In 1995, Article 2 was amended to include
a section that defined certain key terms, such as "agent,"
"seller," "buyer," and so on. However, as structured, the
definitions only applied to several subsequent sections that
were added to Article 2 at the same time, even though many of
the same terms were used in prior existing sections. According
to the sponsor, this has resulted in some confusion as to what
definitions apply when those same terms are used in the prior
existing sections. For example, "seller" is defined to include
both a seller and a "lessor" (landlord), because a lease, like a
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sale, also transfers a property interest and creates a similar
duty to disclose to the buyer/lessee information about defects
or other conditions of the property. According to the sponsor,
it was always the intent of the Legislature to require similar
disclosures whether the property interest transferred takes the
form of a title or a lease. Applying the definitions to the
entire article will not increase or lessen any duties currently
owed by a seller/lessor to a buyer/lessee; it will simply
clarify, consistent with the overall statutory scheme, that key
terms have the same meaning throughout the article. There is no
known opposition to this bill.
SUMMARY: Specifies that certain definitions apply to all
sections of an article setting forth the duties that a seller,
agent, or real estate broker owes to the prospective buyer of a
real property interest.
EXISTING LAW:
1)Imposes on real estate brokers and sellers of real property a
duty to make certain disclosures to the purchasers of real
property about any conditions that may affect the value or
desirability of the property. (Civil Code Section 2079 et
seq.)
2)Defines various terms for the purposes of some, but not all,
provisions relating to the duties of disclosure in a real
estate transaction. Specifies, for these purposes, that a
seller includes both a vendor and a lessor. (Civil Code
Section 2079.13.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
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COMMENTS: Under existing law a seller of real property, or a
listing agent or broker acting on the seller's behalf, owes
certain duties to a prospective purchaser of that property. For
example, a real estate agent has a duty to conduct a reasonably
diligent inspection of property offered for sale and to disclose
to the prospective buyer any conditions that might materially
affect the value or desirability of the property. (Civil Code
Section 2079.) In addition to this general statutory duty,
under the common law of torts a seller or broker has a duty to
disclose to a buyer any material defects that are known to the
seller or broker but unknown to, and unobservable by, the buyer.
(Cooper v. Jevne (1976) 56 Cal. App. 860, 866.) A seller or
broker who fails to disclose a material defect may be liable for
negligence if the defect should have been known through a
reasonably diligent inspection, and a seller or broker may be
liable for fraud or misrepresentation if he or she intentionally
conceals or misrepresents a defect. (Warner Construction Co. v.
City of Los Angeles (1970) 2 Cal 3d 285, 293-294.) In addition
to these general duties, the Legislature has added other
specific notice and disclosure requirements, from providing
general information about seismic hazards to requiring
residential leases and sales contracts to contain information
about the Sex Offender Identification Line. (See e.g. Civil
Code Sections 2079.8 and 2079.10a.)
The Problem that this Bill Addresses. Article 2 (commencing
with Section 2079) of Chapter 3 of Title 6 of Part IV of the
Civil Code sets forth both general and specific duties of
disclosure in commercial and residential real estate
transactions. In 1995, the Legislature added new sections to
Article 2 in order to clarify the respective duties of sellers,
brokers, and real estate agents (in response to a court case
that had allegedly created confusion about those duties) and
added several sections relating to the appropriate forms that
the seller or agent should use in making disclosures. As part
of this revision, the bill added a definitional section (Section
2079.13) but only applied the definitions to the new sections
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added by the bill rather than to the Article as a whole. The
new sections defined several terms used both in the
then-existing law and in the newly added sections, including
such basics terms such "agent," "buyer," "listing agent," and
"seller," among others. Prior to the 1995 changes, Article 2
did not contain any definitions, apparently assuming that such
terms were so well understood in this context that there was no
need to define them. According to the sponsor, however, because
the new definitional section was placed in the middle of Article
2 and only applied to the sections added by the 1995
legislation, it left some doubt as to whether those new
definitions also applied to the other, then-existing sections of
Article 2. Was it the intent of the Legislature that the
meanings of such basic terms as "seller" and "buyer" and "agent"
would have different meanings in the first half of Article 2
than they had in the second half? Given that all of the
sections in Article 2 deal with required disclosures of
information about defects in the real property, there is no
apparent reason why standard legal terms should have different
meanings in the sections added after 1995 than those in
existence before 1995.
The Meaning of "Seller" in Real Property Law. According to the
sponsor, one area of confusion that has arisen involves the
definition of "seller," which was defined in the 1995
legislation to include a "lessor," or landlord. Though in
popular parlance we typically distinguish between "selling" and
"leasing" real estate, from a strictly legal perspective both
selling and leasing involve a transfer of a real property
interest. Indeed, several sections of Article 2 already
expressly or implicitly apply to both sales and leases of real
property. For example, Section 2079.1 states that "provisions
of this article relating to sales transactions of residential
real property comprising one to four dwelling units apply with
equal force to leases of that property that include an option to
purchase, ground leases of land on which one to four units have
been constructed, or real property sales contracts." Section
2079.10a relating to notices about the Sex Offender
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Identification Line applies to both lease agreements and sales
contracts for residential real property. Finally, several
sections relating to information booklets that meet some of the
"sellers" disclosure requirements clearly apply to both sellers
and lessors of residential properties. For example, Section
2079.7 provides that a booklet created by the Department of Real
Estate (DRE) shall be deemed adequate to meet the "seller's"
duty to inform the "transferee" (it does not use the word
"buyer," significantly) regarding common environmental hazards.
That DRE booklet is entitled, "Residential Environmental
Hazards: A Guide for Homeowners, Homebuyers, Landlords and
Tenants." [Emphasis added.] According to the sponsor, the
"seller" referenced in this section was always presumed to
include any transferor of a real property interest, whether the
real property interest transferred is a fee simple estate or a
tenancy. In order to avoid any ambiguity about the
Legislature's intent, it is important to clarify that the
meaning of "seller," defined in the 1995 legislation to include
a "lessor," or landlord, applies to the entirety of Article 2.
The Bill Does Not Change Any Existing Duties. Applying the
definitional section to the entire article does not create,
lessen, or expand any existing duties. The sections affected by
the new definitions deal, as noted above, with prescribed forms
or booklets that are deemed to provide adequate notice, but only
where a duty to provide notice already exists. Indeed, the
sections in which terms "seller" or "broker" or other defined
terms are used expressly state that nothing in the section shall
be construed to increase, decrease, or otherwise alter "duties,
if any, of sellers or brokers." So if a "lessor" did not
already have a duty, applying the expanded definition of
"seller" to the prior sections would not create a duty, nor
would it lessen or alter any existing duties of lessors. (See
Sections 2079.7 (b), 2079.8 (b), 2079.10 (b), and 2079.10.5
(c).)
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ARGUMENTS IN SUPPORT: According to the author, this bill
"clarifies the applicability of definitions relating to real
property transactions, providing needed certainty to the parties
to such transactions. Currently, the code section providing
definitions for the article regarding the duty owed to
prospective purchasers appear in the middle of that article and
only expressly apply to the latter half of the article. This
creates uncertainty as to the definition of those terms in the
first half of the article, which can leave parties to a
transaction uncertain of their rights and responsibilities."
The California Association of Realtors (CAR) adds that the
uncertainty about the applicability of the definitions is not an
abstract problem. CAR writes: "For instance, real estate
sellers and brokers who deliver an Environmental Hazards Booklet
to a purchaser of real property are presumed to have adequately
disclosed the information specified in the booklet. By
clarifying that the definitions are applicable to the entire
article, this bill makes it clear that the same presumption
applies to lessors." CAR notes that this is clearly "already
the intent of the existing booklet, as the state has titled the
booklet 'Residential Environmental Hazards: A Guide for
Homeowners, Homebuyers, Landlords and Tenants.'" Finally, CAR
notes that AB 1750 does "not alter existing definitions, but it
does make clear that the definitions provided in statute are
applied uniformly within the same article." CAR contends that
this clarity "will benefit consumers by providing more direction
on roles and responsibilities and encouraging landlords to
provide the Environmental Hazards Booklet to renters."
REGISTERED SUPPORT / OPPOSITION:
Support
AB 1750
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California Association of Realtors
Opposition
None on file
Analysis Prepared by:Thomas Clark / JUD. / (916) 319-2334