BILL ANALYSIS Ó
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
AB 1750 (Dodd)
Page 2 of ?
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
AB 1750 (Dodd)
Page 3 of ?
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
AB 1750 (Dodd)
Page 4 of ?
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
AB 1750 (Dodd)
Page 5 of ?
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
AB 1750 (Dodd)
Page 6 of ?
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)
**************