BILL ANALYSIS                                                                                                                                                                                                    



                                                                    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









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          California Association of Realtors 




          Opposition


          None on file 




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