BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1171|
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THIRD READING
Bill No: SB 1171
Author: Hueso (D)
Amended: As introduced
Vote: 21
SENATE JUDICIARY COMMITTEE : 7-0, 5/6/14
AYES: Jackson, Anderson, Corbett, Lara, Leno, Monning, Vidak
SUBJECT : Real property transactions: agents: obligations
SOURCE : Author
DIGEST : This bill extends disclosure requirements made to the
seller and buyer in a residential real property transaction, to
transactions involving commercial property.
ANALYSIS :
Existing law:
1.Requires 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 the agents to the
buyer and seller.
2.Requires those listing and selling agents to provide the
seller and buyer with a copy of a specified disclosure form
and to obtain a signed acknowledgment of receipt from that
seller or buyer as follows:
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A. The listing agent, if any, shall provide the disclosure
form to the seller prior to entering into the listing
agreement;
B. The selling agent shall provide the disclosure form to
the seller as soon as practicable prior to presenting the
seller with an offer to purchase, unless the selling agent
previously provided the seller with a copy of the
disclosure form;
C. Where the selling agent does not deal on a face-to-face
basis with the seller, the disclosure form prepared by the
selling agent may be furnished to the seller by the listing
agent, or the selling agent may deliver the disclosure form
by certified mail addressed to the seller at his/her last
known address, in which case no signed acknowledgment of
receipt is required; and
D. The selling agent shall provide the disclosure form to
the buyer as soon as practicable prior to execution of the
buyer's offer to purchase, except that if the offer to
purchase is not prepared by the selling agent, the selling
agent shall present the disclosure form to the buyer not
later than the next business day after the selling agent
receives the offer to purchase from the buyer.
1.Provides that in any circumstance in which the seller or buyer
refuses to sign an acknowledgment of receipt of the disclosure
form, the agent, or an associate licensee acting for an agent,
shall set forth, sign, and date a written declaration of the
facts of the refusal.
2.Provides a specified form detailing the fiduciary duties of
care owed by the listing or selling agent and the agent's
conflict of interest disclosures that the agent is required to
give to the seller or buyer.
3.Requires the listing or selling agent to disclose to the buyer
and seller whether the selling agent is acting in the real
property transaction exclusively as the buyer's agent,
exclusively as the seller's agent, or as a dual agent
representing both the buyer and the seller. This relationship
is required to be confirmed, as specified, in the contract to
purchase and sell real property or in a separate writing
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executed or acknowledged by the seller, the buyer, and the
selling agent prior to or coincident with execution of that
contract by the buyer and the seller, respectively.
4.Prohibits a selling agent in a real property transaction from
acting as an agent for the buyer only, when the selling agent
is also acting as the listing agent in the transaction.
5.Provides that the payment of compensation or the obligation to
pay compensation to an agent by the seller or buyer is not
necessarily determinative of a particular agency relationship
between an agent and the seller or buyer. A listing agent and
a selling agent may agree to share any compensation or
commission paid, or any right to any compensation or
commission for which an obligation arises as the result of a
real estate transaction, and the terms of any such agreement
shall not necessarily be determinative of a particular
relationship.
6.Prohibits a dual agent from disclosing to the buyer that the
seller is willing to sell the property at a price less than
the listing price, without the express written consent of the
seller. Prohibits the dual agent from disclosing to the
seller that the buyer is willing to pay a price greater than
the offering price, without the express written consent of the
buyer.
7.Provides that a listing agent is not prohibited from also
being a selling agent, and the combination of these functions
in one agent does not, of itself, make that agent a dual
agent.
8.Defines real estate listing and selling agent, buyer, seller,
and specifies that "real property" means any estate in
property which constitutes or is improved with one to four
dwelling units, any leasehold in this type of property
exceeding one year's duration, and mobilehomes, when offered
for sale or sold through an agent.
This bill adds "commercial property" to that definition of "real
property," thus applying all of the above disclosure
requirements to commercial property sale and leasehold
transactions.
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Background
Prior to 1984, the law required a real estate broker to disclose
to a buyer, material defects known to the broker but unknown to
and unobservable by the buyer. In 1984, case law provided that
the broker also owed a duty to disclose defects which the broker
should have discovered through reasonable diligence. In Easton
v. Strassburger (1984) 152 Cal.App.3d 90, the court held that
real estate licensees owed certain duties of care to the
property buyers, including while representing the sellers in a
residential home transaction. That court refrained from
extending these duties to commercial property transactions,
stating in dictum: "unlike the residential home buyer who is
often unrepresented by a broker, or is effectively unrepresented
because of the problems of dual agency a purchaser of commercial
real estate is likely to be more experienced and sophisticated
in his dealings in real estate and is usually represented by an
agent who represents only the buyer's interests. " (Id. at p.
102, fn. 8.)
After the Easton decision, there was extensive discussion in the
real estate industry on how those duties were to be interpreted.
SB 453 (Robbins, Chapter 223, Statutes of 1985) clarified the
duties of real estate brokers and buyers in real property
transactions. However, the law was still unclear as to whether
real estate brokers had 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 dictum,
held that real property brokers had a duty to inspect the
property and to disclose to the plaintiff any material defects
affecting the value or desirability of the property.
In 1995, the Easton decision was further clarified and codified
in SB 467 (Leonard, Chapter 428, Statutes of 1995) to require
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 whether the agent represents the buyer, the seller,
or both the buyer and seller (known as dual agency).
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 5/7/14)
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Anametrix, Inc.
Atessa Benefits, Inc.
BIS2
Breeze IT, Inc.
Browning Hocker
California Asian Pacific Chamber of Commerce
California Grocers Association
California Hispanic Chambers of Commerce
California Retailers Association
Coast Appraisal Services
E3 Advisors
Hughes Marino
Huntington Capital
Law Offices of Timothy E. Fields
McAteer & McAteer
MPC
National Federation of Independent Business
Trovagene
Walk San Diego/Move San Diego
Yunker & Schneider
OPPOSITION : (Verified 5/7/14)
California Association of Realtors
ARGUMENTS IN SUPPORT : According to the author:
"As written, the protections outlined in Civil Code Sections
2079.14 to 2079.24 cover only residential real estate
transactions and do not extend to commercial real estate
transactions."
"There is a common misconception that parties involved in
commercial real estate transactions are (1) sophisticated; (2)
of equal bargaining power; or (3) equally knowledgeable and
experienced in real estate as the other party or the brokers
involved. This is not always the case. For example, a small
business owner whose only real estate transaction over the next
five years will be his/her office lease is not going to be as
sophisticated as a landlord whose primary business is real
estate and who is negotiating multiple leases a year with the
help of a team of sophisticated professionals. That business
owner is at a severe disadvantage at the bargaining table and
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should be educated on the duties or limited duties the licensed
real estate professionals involved in the transaction owe to all
parties."
"The objective of SB 1171 is clear and simple: to educate the
parties to all real estate transactions as to the duties and
responsibility of a listing agent, selling agent, landlord
agent, tenant agent or dual agent."
ARGUMENTS IN OPPOSITION : The California Association of
Realtors writes, "When our association sponsored the original
agency disclosure legislation, including the written form
requirement that now applies to residential agency, and
commercial transactions were deliberately not required to use
the same forms as residential transactions. The reason for the
different rule is the different level of sophistication and
complexity that exist in non-residential transactions. We
believed, and experience seems to bear it out, that simply
requiring disclosure of
multiple agency relationships and allowing commercial
practitioners to utilize their own contracts and forms is
sufficient to protect the parties."
AL:e 5/8/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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