BILL ANALYSIS
AB 728
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Date of Hearing: May 14, 2003
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Darrell Steinberg, Chair
AB 728 (Leno) - As Amended: April 10, 2003
Policy Committee: Local
GovernmentVote:8-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill eases requirements for developers to enter into
binding pre-sale contracts with buyers of condominiums, and
increases the presumed valid amount of liquidated damages that
are payable to a developer in the case of breach of a pre-sale
contract. Specifically, this bill:
1)Extends the term of a conditional public report on a
condominium development from six months to three years, and
provides for additional renewal terms of six months each at
the discretion of the Real Estate Commissioner. (Inasmuch as a
conditional public report must be obtained before a developer
can enter into binding pre-sale contracts for condominium
units, this provision allows developers to do so earlier in
the development process, thereby making it easier for the
developer to obtain more favorable project financing terms.)
2)Removes the provision of law that invalidates liquidated
damages for the developer when a buyer defaults on a binding
sales contract, if the amount actually paid by the buyer
exceeds three percent of the purchase price of the residential
property, unless the developer establishes the amount is
reasonable.
3)Establishes that the amount actually paid by the buyer is
reasonable as liquidated damages, unless the buyer establishes
that the amount is unreasonable.
4)Prohibits a governing body from refusing approval of a parcel,
tentative, or final map of a condominium project on account of
the absence of a condominium plan as defined at Section 1351
AB 728
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of the Civil Code.
5)Requires a local agency or government to provide a subdivider
with a written certificate of approval of the subdivision's
tentative map upon request.
FISCAL EFFECT
Minor administrative cost to the Department of Real Estate;
offset by fees.
COMMENTS
1)Background . One way developers for developers to reduce their
financing costs, and the need to attract equity investors
demanding high rates of return on their investments, is to
pre-sell condominiums before they are built. In most cases,
however, California law requires developers to obtain a final
public report (also known as a "white paper") or a conditional
public report from the state Department of Real Estate (DRE)
before they can enter into a binding sales contract. The
purpose of these reports is to demonstrate that the project is
or will be in compliance with applicable land regulations,
protecting buyers from fraud.
The problem faced by developers is that they cannot obtain a
final public report early enough in the development process to
allow them to pre-sell units. Although a conditional public
report developer can be obtained earlier in the development
process, allowing the developer to pre-sell units, the
developer must complete all of the requirements of the final
public report within six months of issuance of the conditional
report, or be required to refund all pre-sale contracts.
Although the law allows the DRE to grant one six-month
extension, this still may not give the developer enough time
to complete the lengthy subdivision map and permitting
requirements.
2)Purpose . This bill extends the maximum term of a conditional
public report from six months to three years, and authorizes
the Commissioner of Real Estate to grant unlimited
discretionary six-month extensions to facilitate the pre-sale
of units and allow developers to obtain more favorable
financing terms. Additionally, the bill would make it easier
for developers to receive liquidated damages when a buyer
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defaults on a binding sales contract. These measures are
intended to spur the development of condominiums in
California.
3)Proposed Amendments . The author will offer an amendment to
limit the applicability of the liquidated damages provision of
this bill to new construction.
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081