What Action Must A Buyer And Seller Take To Reach Agreement On A Repair Request Using The PRDS Or C.A.R. Forms?

What is one consequence if that action is not taken?

There are differences between the PRDS® Addendum Regarding Repairs, Corrections, Or Other Actions ("RABC") and the C.A.R. Request For Repair ("RR") form. This article discusses one significant distinction between the two forms and one possible consequence if the appropriate action is not taken when using the C.A.R. form.

Both forms require signatures from the buyer and seller for an agreement to be reached between the parties regarding the requested repairs. Aside from the obvious fact that the PRDS® form is obviously an Addendum to the Purchase Contract, whereas the RR is only a request, one significant distinction between the two forms is that when using the RR form, the buyer must sign the request form a second time in order for an actual agreement to be reached on all the preprinted terms contained in that form. The buyer's second signature is required at the very bottom of the C.A.R. request and confirms that the buyer (a) is not only removing their "physical inspection" contingency but also (b) is agreeing to a release of liability ("Release") of the seller and broker that is designated as consideration for the seller's acceptance of the buyer's request. Without that second signature by the buyer, no actual agreement has been reached between the parties on the issue of the Release. This is true even if the buyer signs a separate C.A.R. contingency removal form, because the standalone C.A.R. contingency removal form does not (a) contain a Release; or (b) incorporate the Release that is part of the RR; or (c) confirm the buyer's agreement to the Release.

In contrast, the PRDS® Addendum Regarding Repairs, Corrections, Or Other Actions does not contain any release of liability as part of the seller's response to the buyer's request and therefore does not require a second signature by the buyer in order for the seller's response to be agreed to by the buyer. The PRDS® RABC thus creates an actual agreement when all parties each sign the form once.

The following example illustrates this distinction. A buyer uses the C.A.R. RR form and requests that the seller repair specifically listed property issues. The seller responds by checking the box agreeing to all of the buyer's requests. The preprinted language of the seller's response states that the seller agrees to all of those requests:

"provided in writing (see below) (i) buyer removes the physical inspection contingency ... and (iii) releases seller and broker from any loss, liability, expense, claim, or cause of action regarding the disclosed condition of the Property (Release)[.]"

C.A.R.'s language is in the conjunctive, not the disjunctive, meaning that the buyer must remove the physical inspection contingency and agree to the Release. It should also be noted that the RR form uses the term "physical inspection contingency" even though the actual contingency in the C.A.R. Residential Purchase Agreement ("RPA") is the "investigation contingency". A separate issue may then exist as to whether or not the entire contingency in Paragraph 12 of the RPA is actually being removed.

The buyer's removal of their "physical inspection contingency" occurs when a buyer signs a contingency removal form that is either prepared by their agent or is provided by the seller (or the seller's agent) in conjunction with the seller's response to the buyer's original request in the RR. The C.A.R. contingency removal form does not contain any language stating that the buyer agrees to the release of liability in favor of the seller and broker. Unless language is added to that form confirming that the buyer agrees to release the seller and broker or a separate document containing such language is drafted and signed by the buyer, the method built into the C.A.R. Request For Repair form for obtaining the buyer's acceptance to the Release is for the buyer to re-sign the Request For Repair form at the very bottom in the section below the seller's response.

In my experienceas a real estate lawyer, that third section of the RR is rarely re-signed by the buyer. Rather, the buyer signs a contingency removal form, the parties move forward because they believe that all issues regarding repairs and the contingency removal have been resolved, and there is typically no other written acceptance of the Release by the buyer.

The consequences of a buyer not re-signing the bottom of the C.A.R. Request For Repair form will vary, depending on the facts and circumstances of each transaction. For example, if escrow closes, it is unlikely that a buyer is going to be able to rely on this issue to rescind the transaction. On the other hand, the seller is unlikely to be in a position to enforce the Release to the extent that it would otherwise be enforceable because the language chosen by C.A.R. is limited in its scope.

One interesting impact of using the C.A.R. RR form, and the reason I'm writing this article, occurs when disputes arise between the buyer and seller before close of escrow that prompt the buyer to revisit their repair request/contingency removal and their obligation to continue with the transaction. If no agreement is reached between the buyer and seller because the Release has not been accepted by the buyer, then those contingencies that the buyer still has, if any, remain in place subject to the terms and conditions of the purchase contract, including Notices to Perform, cancellation rights, etc. If a buyer is within their rights to cancel the purchase contract and acts on that right appropriately, they may have the right to cancel the contract (even though the parties may have believed that no such cancellation right existed because there was a failure in securing the buyer's second signature on the RR form).

As noted above, this potential problem does not exist under the PRDS Addendum Regarding Repairs, Corrections, Or Other Actions. If the seller agrees to the buyer's requested repairs, all that is required in the PRDS® RABC is one set of signatures from the buyer and the seller and those contingencies that are to be removed with the accepted request appropriately checked off on the form. If the seller does not agree with the buyer's terms, another Addendum should be used to clarify what is and what is not acceptable to both parties.

As with any situation involving contract formation and/or performance, the facts and circumstances of each transaction need to be evaluated in order for a legal conclusion to be reached. These facts and circumstances would include but not be limited to the preprinted language on any form, any additional terms and conditions that have been added to the preprinted forms, the actions and statements of the parties and their brokers/agents, the intent and state of mind of each party, etc.