Recent Revisions to the C.A.R. Purchase Agreement

This article highlights recent changes that C.A.R. has made to its purchase agreement.

Paragraph 10(A)(4) adds a requirement that the seller shall complete and provide buyer with an Exempt Seller Disclosure (C.A.R. Form ESD) if the seller is not required to provide a Transfer Disclosure Statement (TDS). The ESD provides a form for the seller to make those statutory or contractual disclosures that are not provided for in the TDS or on a specific form such as Lead-Based Paint, Water Heater And Smoke Detector Statement of Compliance, etc. Examples include whether the death of an occupant of the property upon the property has occurred within the past three years, whether an order from a government health official identifying the property as being contaminated by methamphetamine has been issued, whether the property is in an industrial-use zone, etc.

The ESD has the same content as the C.A.R. Supplemental Statutory and Contractual Disclosures (SSD). The SSD and ESD questions are the first 10 questions in the first category of topics in the C.A.R. Seller Property Questionnaire (SPQ). The SPQ is only required where a TDS is required; hence, the ESD asks the same questions in an exempt transaction.

Two final points: first, question 4(J) requires the seller to disclose whether they are aware of "material facts or defects affecting the property not otherwise disclosed to Buyer" and provide an explanation. It is important to remember that even if a seller is exempt from providing a TDS, a seller still has a common-law duty to disclose any material facts that might affect the value or desirability of the property. Question 4(J) is where the seller can make these disclosures.

Paragraph 12, concerning the buyer's investigation of the property and matters affecting the property, has also been revised. The paragraph now clarifies that the buyer is entitled to a "general physical inspection" and "an inspection specifically for wood-destroying pests and organisms." My understanding is that these revisions were made to clarify issues that had arisen regarding the scope of the buyer's investigation rights.

Paragraph 14 (regarding timeframes, removal of contingencies, and cancellation rights) has been revised in two ways. Paragraph 14(B)(5) now states that the buyer shall have access to the property to conduct inspections and investigations for 17 (or _______ days) after acceptance and that this right exists whether or not any part of the buyer's investigation contingency has been waived or removed. The amount of time that a buyer specifies for access to the property needs to be evaluated not only in relationship to the anticipated close of escrow date and any timeframe for the buyer to conduct its inspections and investigations pursuant to Paragraph 14(B)(1) but also taking into account unforeseen events or needs of a buyer to conduct measurements and other such issues. Unless the default timeframe is overridden, the right of access will coincide with the inspection period, creating a situation in which a seller could refuse access after 17 days. This revision is an attempt to clarify the uncertainty that existed under the prior contract with regard to whether the buyer had the right to gain access to the property to inspect and investigate it where the buyer had written a zero-contingency offer or had already removed contingencies.

Paragraph 14(C) now contains a checkbox, which, if checked, clarifies that the buyer is removing contingencies specified in the attached Contingency Removal form (C.A.R. form CR).

The removal-of-contingency paragraph was added to address the confusion that existed when a buyer using the C.A.R. purchase agreement was attempting to write an offer without any contingencies and did so by writing the number zero adjacent to the default timeframe of 17 days set forth in Paragraph 14(B)(1) or by crossing out any reference to a timeframe.

In order for a buyer to now indicate that they are writing a zero-contingency offer, they need to check the box adjacent to Paragraph 14(C) and also specify what contingencies are being removed by filling out and attaching a Contingency Removal form.

One of the issues that I see with this mechanism is that there is a distinction between writing an offer without any contingencies versus having a contingency but removing it at the time that the offer is submitted. The mechanism that C.A.R. has now created may make the distinction between these two acts less apparent.

The PRDS contract addresses this issue in a much simpler and clearer way. In that contract, Paragraph 8 provides that no contingencies exist unless a specific number of days is entered in the line adjacent to the specific contingency. The PRDS contract also provides that a zero or a blank line shall mean that the contingency is not included and is not part of the contract. This procedure clarifies when a contingency is or is not in play and eliminates the need for an additional document (the Contingency Removal) to be prepared and accompany the offer.

There is also a minor change concerning the buyer initial lines on page 10. The contract was revised to clarify that buyers are to initial the 10th page of the contract after the seller accepts, rejects, or counters the offer. The contract remains the same with regard to buyer's initials on page 9 - that is, there are no initial lines for the buyer on page 9 because that is the page where buyers sign their offer. The seller who accepts or counters the buyer's offer does need to initial page 9 but does not, however, initial page 10, because that is where the seller signs to accept or counter the offer.