BILL ANALYSIS Ó AB 1750 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1750 (Dodd) As Amended April 18, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | 76-0 | (March 14, |SENATE: | 37-0 |(June 30, 2016) | | | |2016) | | | | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: JUD. SUMMARY: Specifies that certain definitions apply to related 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. The Senate amendments make a technical and clarifying change. 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. AB 1750 Page 2 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. FISCAL EFFECT: None 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. 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. Article 2 (commencing with Section 2079) of Civil Code Part IV Title 6 Chapter 3 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 AB 1750 Page 3 the seller or agent should use in making disclosures. As part of this revision, the bill added a definitional section but only applied the definitions to the new sections 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. 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, Civil Code 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 Identification Line applies to both lease agreements and sales contracts for residential real property. Finally, AB 1750 Page 4 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. 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. Analysis Prepared by: Thomas Clark / JUD. / (916) 319-2334 FN: 0003471 AB 1750 Page 5