BILL ANALYSIS �
SB 1171
Page 1
SENATE THIRD READING
SB 1171 (Hueso)
As Amended June 24, 2014
Majority vote
SENATE VOTE :29-1
JUDICIARY 9-0
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|Ayes:|Wieckowski, Alejo, Chau, | | |
| |Dickinson, Garcia, | | |
| |Gorell, Maienschein, | | |
| |Muratsuchi, Stone | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Extends disclosure requirements that currently only apply
to residential property transactions to commercial property
transactions. Specifically, this bill :
1)Redefines "real property," for purposes of a statute that requires
a real estate agent to make certain disclosures about the nature
of the agent's representation, to include commercial real
property.
2)Defines "commercial real property" to mean all real property in
this state except single-family residential real property,
dwelling units made subject to Chapter 2 (commencing with Section
1940) of Title 5 of Part 4 of Division 3 of the Civil Code,
mobilehomes as defined in Civil Code Section 798.3, or
recreational vehicles as defined in Civil Code Section 799.24.
EXISTING LAW :
1)Requires listing agents and selling agents to provide the seller
and buyer in a real property transaction with a copy of a
prescribed disclosure form and to obtain a signed acknowledgement
of receipt from that seller or buyer, except as specified.
Specifies the information that must appear on the front of the
form and requires that the back of the form contain specified
provisions of the Civil Code relating to an agent's duties.
2)Defines "real property," for purposes of the above only, to
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include real 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 mobile homes, when offered for
sale or sold through a real estate agent, as specified.
3)Requires, subject to certain exceptions, the transferor of any
real property that is improved with or consisting of not less than
one or more than four dwelling units to deliver to the prospective
transferee a prescribed "Real Estate Transfer Disclosure
Statement" that sets forth general safety, structural, and
material conditions of the property.
4)Provides that the Real Estate Commissioner may, upon his or her
own motion, and shall, upon the verified complaint in writing of
any person, investigate the actions of any person engaged in the
business or acting in the capacity of a real estate licensee
within this state, and he or she may temporarily suspend or
permanently revoke a real estate license at any time where, among
other things, the licensee acts for more than one party in a
transaction without the knowledge or consent of all parties
thereto.
FISCAL EFFECT : None
COMMENTS : Existing law requires a real estate agent to provide the
seller and buyer with a statutorily prescribed disclosure form that
tells both buyer and seller whether the agent is acting as the
buyer's agent exclusively, as the seller's agent exclusively, or as
a dual agent representing both the buyer and seller. The required
disclosure form must also generally explain the duties of different
agent relationships, and it must contain relevant provisions of the
Civil Code relating to these relationships on the back of the form.
The rationale for this provision is straightforward: while there may
be certain circumstances in which it is appropriate for the same
agent to represent buyer and seller, dual agency creates a potential
conflict of interest, as the agent attempts to serve the best
interest of both buyer and seller simultaneously. This bill would
extend the existing statutory disclosure requirements that now apply
in transactions involving the sale of a residential property with
four or fewer dwelling units, to transactions involving "commercial
real property," as defined. The bill is premised on the assumption
that buyers and sellers of commercial property should also be aware
of potential conflicts of interest inherent in dual agency.
It is important to note that the Civil Code section that this bill
would amend defines "seller" and "buyer" to include a "lessor" and
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"lessee," respectively, and it defines a "sale" to include a
leasehold exceeding one year's duration. In other words, this bill
would apply to real estate agents that arrange long-term commercial
leases as well as agents that arrange commercial property sales.
Indeed, the supporters of this bill are primarily associations
representing small businesses, such as single-store grocers, who are
more likely to lease commercial property than they are to purchase
it. However, the bill will specify that the disclosure requirement,
both under this bill and existing law, does not apply to residential
leases (though it will apply, as in existing law, to the sale of
residential property.)
Statutory language, legislative history, and case law all seem to
reinforce the view that the existing provisions in the Civil Code
requiring real estate agents to disclose the nature of the agency
relationship to buyers and sellers applies only to residential
property transactions, and not commercial property transactions.
For example, in Smith v. Rickard (1988) 205 Cal. App. 3d 1134, the
court held that "[Civil Code] Section 2079 et seq.is one of those
statutory schemes where the Legislature distinguishes between
residential and commercial properties in order to protect
unsophisticated buyers and owners of residential properties from
those with greater knowledge and bargaining power." (Richman v.
Hartley (2014) 224 Cal. App. 4th 1182.)
However, that Civil Code Section 2079 et seq. does not apply to
commercial property transactions does not mean that agents selling
commercial real property do not have a legal and professional duty
to disclose dual agency relationship to buyers and sellers.
Business & Professions (B&P) Code Section 10176(d) presumes this
duty, even if it does not create it. Specifically, that section
empowers the Commissioner of the Department of Real Estate (DRE) to
investigate and, if necessary, suspend or revoke a real estate
license if the licensee has acted "for more than one party in a
transaction without the knowledge or consent of all parties
thereto." However, unlike Section Civil Code Section 2079 et seq.,
B&P Section 10176(d) does not impose an affirmative duty on the real
estate agent. Rather, the agent is presumed to have a preexisting
duty; B&P Section 10176(d) only requires the DRE, upon the filing of
a complaint against the licensee, to take action. If a relatively
unsophisticated buyer of commercial real property did not already
know about the disclosure requirement, he or she would have no
reason to file a complaint with the DRE.
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Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334 FN:
0004072