Towers, Toilets, and Other Highlights From Recent Legal Updates

By: David Hamerslough
December 14th, 2016

My colleague, Vickie Naidorf, and I recently gave two legal updates for SILVAR. The following are some of the highlight from those seminars.

There’s been a lot of news regarding the Millennium Tower in San Francisco and the fact that it is sinking and leaning. A trip to San Francisco may now be a reasonable substitute for a trip to Italy to see the Leaning Tower of Pisa.

All kidding aside, and apart from the engineering and/or construction issues, the other issue being raised is what knowledge the homeowners’ association and its Board members had regarding the problems but failed to disclose to purchasers. I am aware of two lawsuits brought by buyers over this issue, and there is also a class action lawsuit pending, along with a criminal investigation.

I’ve been advised that the lack of disclosure occurred because Board members were advised by the attorney for the HOA not to disclose the information. I’ve also been advised that Board members were asked to sign nondisclosure agreements and that this was also a justification for the lack of disclosure.

While the facts are still being developed, there are several real estate issues that we should consider. First, a seller, including a member of an HOA Board, must make a full and complete disclosure of all material facts that might impact the value or desirability of a property being sold. The fact that a Board member may have been advised by the Board attorney not to disclose a material fact does not eliminate this obligation. Whether a nondisclosure agreement alters this obligation probably will depend on the facts and circumstances. A Board member who is selling a unit will need to evaluate whether they want to be sued by a buyer for nondisclosure or by the HOA for breaching a nondisclosure agreement. Neither option is appealing, but the consequences of a nondisclosure claim by a buyer may be more significant.

The Millennium Tower situation is a good reminder why obtaining all of the HOA documentation, including the last 12 months of Board minutes, may provide information about the condition of not only the individual unit that is being sold but also that of the common area. The HOA documentation may also identify whether special assessments are being contemplated. HOAs often retain construction consultants to evaluate the condition of the project in order to complete the necessary analysis for a reserve study and proper reserve funding. References to these issues or to the potential for litigation against the developer/contractor may be contained in the Board minutes or in questionnaires that have been sent to homeowners.

My review of HOA documentation for a recent case also focused my attention on the specific questions that are raised in the HOA documentation. There is a distinction between a question that asks "Has a special assessment been voted on and approved?’ versus "Is such an assessment under consideration or discussion by the Board?" There is also a distinction between a question that asks whether there is litigation actually pending against the developer versus a discussion by the Board in consideration or anticipation of bringing an action.

Another topic we discussed was a change to the existing law regarding the circumstances under which a real estate licensee shall disclose his or her name, license identification number, and responsible broker’s identity. Existing law requires this information to be included on "solicitation materials intended to be the first point of contact with consumers and on real property purchase agreements when acting as an agent in those transactions." For-sale signs were expressly excluded from this requirement. Starting in 2018, the term "solicitation materials" will be defined as "business cards, stationery, advertising flyers, advertisements on television, in print, or electronic media, ‘for-sale,’ rent, lease, ‘open house,’ and directional signs …."

Signs that do not identify a sales associate’s or broker associate’s name on them do not require the CalBRE license number for that individual, nor do they need to identify the CalBRE license number for their responsible broker. On the other hand, any sign that does identify a sales associate’s or broker associate’s name on it (including with an attachment or name rider) must identify the CalBRE license number for that individual and the name of that individual’s responsible broker. The CalBRE license number cannot be in smaller print than other printing on the sign.

If you are ordering any new signs or any other advertising materials "designed to solicit the creation of a professional relationship between [you] and a consumer," please make sure that those meet these new requirements. It remains to be seen if and/or how this new law will be applied to electronic media, including websites.

Another new law that we discussed goes into effect on January 1, 2017. A seller will be required to disclose if there are any known non-compliant plumbing fixtures. A non-compliant fixture is either a toilet manufactured to use more than 1.6 gallons per flush, a showerhead manufactured to use more than 2.5 gallons per minute, or interior faucets that use more than 2.2 gallons per minute.

There is a brief explanation of this law on page 2 of the TDS. The law requires all single-family residences built on or before January 1, 1994 to be equipped with water-conserving plumbing fixtures after January 1, 2017. Additionally, on and after January 1, 2017, single-family residences built on or before January 1, 1994 that are altered or improved are required to be equipped with water-conserving plumbing fixtures as a condition of final approval.

What is important to understand is that this is a disclosure requirement on the part of the seller and is not a point-of-sale requirement. If, however, the buyer intends on altering or improving the property after close of escrow, then the law will require, as a condition of final approval, that the plumbing fixtures comply with the new law if the residence was built before January 1, 1994.

C.A.R has added a question on this subject to its seller property questionnaire, the PRDS Supplemental Seller Checklist will also have a question on this issue, and the exempt seller disclosure forms published by both organizations will also have a question on this topic. If the questions in these revised forms ask if the property has water-conserving plumbing fixtures that are not in compliance with Civil Code § 1101.4, the question will not provide any assistance to a seller who does not understand what that Code section is or what the requirements are for compliant versus non-compliant fixtures.

The TDS currently has a question in Section 2(A) that asks the seller to indicate whether the property has "water-conserving plumbing fixtures." Sellers should be aware that if they check this box because the property has a water-conserving plumbing fixture but not all fixtures in the residence meet the criteria, they need to be careful to qualify their remarks to specify which plumbing fixture(s) they believe are compliant.

The foregoing are some of the highlights that were discussed. Anyone who has any questions about any of the other issues we discussed can give me a call.

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