BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular  Session


          AB 1750 (Dodd)
          Version: April 18, 2016
          Hearing Date: June 14, 2016
          Fiscal: No
          Urgency: No
          TH   


                                        SUBJECT
                                           
                       Real Property Transactions: Definitions

                                      DESCRIPTION  

          This bill would clarify that a seller or broker is not required  
          to provide additional information concerning common  
          environmental hazards that can affect real property to a  
          transferee in connection with the transfer of real property,  
          including transactions for the creation of a leasehold exceeding  
          one year's duration, provided the seller or broker transmits to  
          the transferee a specified consumer information booklet  
          concerning such hazards.

                                      BACKGROUND  

          Prior to 1984, existing law required a real estate broker to  
          disclose to a buyer those material defects of a property that  
          were known to the broker but unknown to and unobservable by the  
          buyer.  (See e.g. Lingsch v. Savage (1963), 213 Cal.App.2d 729.)  
           In 1984, Easton v. Strassburger (1984), 152 Cal.App.3d 90,  
          clarified that the duties owed by a broker also included the  
          duty to disclose defects which the broker should have discovered  
          through reasonable diligence.  The Easton court held that real  
          estate licensees owed certain additional duties of care to  
          property buyers, and after the Easton decision, there was  
          extensive discussion in the real estate industry as to how these  
          duties were to be interpreted.  The Legislature responded to the  
          Easton decision with SB 453 (Robbins, Ch. 223, Stats. 1985),  
          which clarified certain duties of real estate brokers and buyers  
          in real property transactions.  However, the law after SB 453  








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          was still unclear as to real estate brokers' disclosure duties  
          to buyers.  In Smith v. Rickard (1988) 205 Cal.App.3d 1354,  
          1360, the court, after examining statutory construction and the  
          Easton case, held that real property brokers had a duty to  
          inspect a property and to disclose to a buyer any material  
          defects affecting the value or desirability of the property. 

          In 1995, the Easton decision, and the disclosure duties owed by  
          real estate brokers, were further clarified and codified in SB  
          467 (Leonard, Ch. 428, Stats. 1995), which required real estate  
          listing and selling agents of residential property to provide  
          specified disclosures to buyers and sellers.  Those disclosures  
          require the real estate listing and selling agents to disclose,  
          among other things, whether the agent represents the buyer, the  
          seller, or both the buyer and seller (known as dual agency).   
          Importantly, SB 467 specified that its provisions applied not  
          only to sales of real property, but also to the creation of a  
          leasehold exceeding one year's duration.

          Prior to SB 467, the Legislature passed AB 983 (Bane, et. al.,  
          Ch. 969, Stats. 1989), which created a safe harbor provision  
          concerning the disclosure of common environmental hazards that  
          can affect real property.  SB 467 directed the Department of  
          Real Estate to develop a booklet to educate and inform consumers  
          on the following:
           common environmental hazards that are located on, and affect,  
            real property, including asbestos, radon gas, lead-based  
            paint, formaldehyde, fuel and chemical storage tanks, and  
            water and soil contamination;
           the significance of common environmental hazards and what can  
            be done to mitigate these hazards; and
           sources that can provide more information on common  
            environmental hazards for the consumer.

          SB 467 further provided that if this booklet were delivered to a  
          transferee in connection with the transfer of real property, a  
          seller or broker would not be required, nor have a duty, to  
          provide additional information concerning those common  
          environmental hazards described in the booklet.  Unlike AB 983,  
          SB 467 did not explicitly state that its provisions applied to  
          property transfers in the form of leaseholds exceeding one  
          year's duration.

          This bill would extend the disclosure safe harbor created by AB  
          983 to real estate brokers who conduct transactions that create  







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          leaseholds in excess of one year by applying to that safe harbor  
          the definitions enacted by SB 467.

                                CHANGES TO EXISTING LAW
           
           Existing law  requires a real property seller, or the seller's  
          agent, to disclose to buyers any material facts that would have  
          a significant and measurable effect on the value or desirability  
          of the property if the buyer does not know, and would not  
          reasonably discover, those facts.  (Karoutas v. Homefed Bank  
          (1991) 232 Cal.App.3d 767; Reed v. King (1983) 145 Cal.App.3d  
          261.)

           Existing law  requires a seller's real estate broker to conduct a  
          reasonably competent and diligent visual inspection of a  
          property offered for sale, and to disclose to potential buyers  
          any facts revealed that would materially affect the value or  
          desirability of the property.  (Civ. Code Sec. 2079.)
           Existing law  does not relieve a buyer or prospective buyer of  
          the duty to exercise reasonable care to protect himself or  
          herself, including those facts which are known to or within the  
          diligent attention and observation of the buyer or prospective  
          buyer.  (Civ. Code Sec. 2079.5.)

           Existing law  states that if a specified consumer information  
          booklet is delivered to a transferee in connection with the  
          transfer of real property, a seller or broker is not required to  
          provide additional information concerning, and the information  
          shall be deemed to be adequate to inform the transferee  
          regarding, common environmental hazards, as described in the  
          booklet, that can affect real property.  Existing law states  
          that nothing in this provision either increases or decreases the  
          duties, if any, of sellers or brokers, or alters the duty of a  
          seller or broker to disclose the existence of known  
          environmental hazards on or affecting the real property.  (Civ.  
          Code Sec. 2079.7.)

           Existing law  requires additional specified disclosures by  
          listing and selling agents to be provided to a buyer and seller  
          of residential real property, and defines the duties owed by  
          those agents to the buyer and seller.  (Civ. Code Sec. 2079.12  
          et seq.)

           Existing law  , for purposes of the above provision, defines real  
          estate listing and selling agent, buyer, seller, and specifies  







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          that "real property" means any estate in property which  
          constitutes or is improved with one to four dwelling units, any  
          commercial real property, any leasehold in these types of  
          property exceeding one year's duration, and mobilehomes, when  
          offered for sale or sold through an agent.  (Civ. Code Sec.  
          2079.13.)

           This bill  provides, for purposes of the safe harbor provision  
          concerning delivery of a specified consumer information booklet  
          describing common environmental hazards, that the above  
          definitions shall apply.
          
                                        COMMENT
           
           1.Stated need for the bill
           
          The author writes:

            Existing law provides for the development of the Environmental  
            Hazards Booklet, which may voluntarily be provided to buyers  
            of single family one-to-four unit properties.  While the law  
            does not relieve the seller or broker of the duty to disclose  
            the existence of known environmental hazards on or affecting  
            the real property, the law does provide that if a seller or  
            broker delivers the booklet to a buyer, the seller or broker  
            enjoys protections from liability for the disclosure of common  
            environmental hazards that are included in the booklet.  The  
            presumption provides a powerful incentive to use the booklet.   
            Therefore, it has become a standard of practice for sellers  
            and agents to use the booklet to inform purchasers of  
            potential environmental hazards.
            The distribution of the booklet by landlords has been  
            encouraged, partly, by the title assigned to the booklet by  
            the state: "California Environmental Protection Agency  
            Residential Environmental Hazards: A Guide for Homeowners,  
            Homebuyers, Landlords and Tenants."  However, the existing law  
            does not specifically mention landlords and tenants . . . ,  
            even though many landlords already distribute the booklet.

            This bill would specify that the definitions in [Civil Code  
            Section 2079.13] also apply to Section 2079.7.  By clarifying  
            that the definitions provided for in Section 2079.13 apply to  
            Section 2079.7, this bill ensures that parties to a real  
            estate transaction are clear on their rights and  
            responsibilities with respect to the Environmental Hazards  







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            Booklet.  This bill does not alter existing definitions, but  
            it does make clear that the definitions provided in statute  
            are applied to Section 2079.7 as well.  This clarity will  
            benefit consumers by providing more direction on roles and  
            responsibilities and encouraging landlords to provide the  
            Environmental Hazards Booklet to renters.

           2.Providing effective environmental hazard disclosures
           
          For over 20 years, California has authorized real estate brokers  
          to make disclosures concerning common environmental hazards like  
          asbestos, radon gas, and lead-based paint, by providing  
          purchasers of real property with an environmental hazards  
          booklet produced by the Bureau of Real Estate.  Typically, this  
          booklet is provided as part of a sale transaction in  
          satisfaction of a broker's duty to inform the purchaser about  
          general environmental hazards that can affect real property.   
          Providing this booklet does not discharge a broker of his or her  
          duty to disclose known environmental hazards that affect the  
          particular property being bought or sold, but it does, by  
          operation of law, discharge the duty to disclose general  
          information about environmental hazards that affect real  
          property.  Existing law does not explicitly offer a similar safe  
          harbor to brokers who sell more limited interests in real  
          property, such as leases of specified dwelling units lasting  
          longer than one year.

          This bill would have the effect of extending the existing  
          disclosure safe harbor to brokers who sell such leasehold  
          interests, and by doing so would ensure that purchasers of  
          long-term leases receive general environmental hazard  
          disclosures that are identical to those provided to other  
          purchasers of real property.  Expansion of the environmental  
          hazard disclosure safe harbor would also help brokers satisfy  
          their existing disclosure duties, in part, by providing a clear  
          metric to determine what level of disclosure is needed to  
          adequately inform consumers about these common hazards.  This  
          bill would not alter any duty of a broker to disclose  
          information about common environmental hazards, but would  
          instead provide a secure path by which a broker may discharge  
          this duty.



           Support  :  North Bay Association of Realtors







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           Opposition  :  None Known

                                        HISTORY
           
           Source  :  California Association of Realtors

           Related Pending Legislation  :  AB 685 (Irwin, 2016) would, among  
          other things, clarify that a seller or broker is not required to  
          provide additional information concerning common environmental  
          hazards that can affect real property to a transferee in  
          connection with the transfer of real property, including  
          transactions for the creation of a leasehold exceeding one  
          year's duration, provided the seller or broker transmits to the  
          transferee a specified consumer information booklet concerning  
          such hazards.

           Prior Legislation  :

          SB 467 (Leonard, Ch. 428, Stats. 1995) See Background.

          AB 983 (Bane, et. al., Ch. 969, Stats. 1989) See Background.

          SB 453 (Robbins, Ch. 223, Stats. 1985) See Background.

           Prior Vote  :

          Assembly Floor (Ayes 76, Noes 0)
          Assembly Judiciary Committee (Ayes 9, Noes 0)

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