New “STANDARD” Forms Dealing With COVID-19
By Ronald R. Rossi, Esq.
May 01, 2020
In our last article, we discussed some of the legal issues cropping up in the wake of COVID-19. In terms of the purchase and sale of residential real estate, we’re also seeing new “standard” forms published by the California Association of Realtors (C.A.R.).
C.A.R.’s real estate forms are generally very well-received and have been used in transactions throughout the state for many years. However, you should still remain wary of the term “standard forms.” As our law firm’s articles have explained previously, these standard forms are simply forms published by a trade association, often a non-profit. C.A.R. is just that – a trade association composed of realtors who are licensed brokers or agents in the state of California. Committees are formed to create, revise, and promulgate these forms. On those committees are lawyers and real estate practitioners who are out in the field dealing with real issues, not abstract problems or theories. The form designers try and maintain a neutral approach, but the terms and conditions of some “standard” forms will often favor one party over another, and most such forms are largely designed to protect the broker, who’s a member of the association.
Faced with the statewide shelter-in-place order along with additional restrictions in the Bay Area counties affecting transactions, C.A.R. immediately published four new forms.
The first form is a listing agreement addendum published on April 20, 2020 entitled “Listing Agreement Coronavirus Addendum or Amendment” (RLA-CAA). This form is made part of the listing agreement, whether new or pre-existing. The form acknowledges that because of the shelter-in-place orders, there have been drastic changes in the way sellers and real estate licensees ordinarily navigate the sale process. The form has an indefinite termination date, remaining in effect until the earlier of the end of all governmental orders (including state and local shelter-in-place orders) or until it is terminated by mutual written consent of the seller and broker. The RLA-CAA allows for property showings, which are proving problematic, sometimes nearly impossible, in many areas due to strict local rules and different interpretations of the state’s shelter-in-place order. The form does provide that if the home is to be shown, prospective buyers will not be able to enter the property or be given permission to do so unless they sign a statement that they are not currently affected by, nor do they know someone who has been affected by, the COVID-19 virus within the last 14 days and, furthermore, that they have not experienced any of the signs of respiratory illness. The form also requires buyers to agree to abide by the state’s orders while visiting any such property. It allows agents to undertake specific activities with respect to the property, including a variety of protective measures. The form also contains a provision that, if checked, allows the property to be temporarily withdrawn from the market and not be shown while this Addendum is in effect. The seller can also elect to continue the listing period for the amount of time the property is taken off the market. The RLA-CAA adds some certainty to the listing process and promotes discussions between the seller and listing broker as to the ramifications of the shelter-in-place orders and the effect those restrictions are having on the sale of residential real property.
The second form is the C.A.R. “Coronavirus Addendum or Amendment” (CVA), which is intended to amend an existing contract for incorporation into a purchase contract. The most common situation occurs when buyers and sellers entered into a contract before the pandemic-related restrictions were put in place and who want to amend their existing contract due to various COVID-19 issues. Both buyers and sellers must sign this agreement, which provides that if either party is affected by unforeseen circumstances, they must deliver to the other party the C.A.R. form entitled “Notice of Unforeseen Coronavirus Circumstances (NUCC)” (discussed below). The form preserves the provisions of the purchase contract but allows for several possible amendments: (1) buyer and seller can agree to postpone close of escrow for a certain number of days to accommodate the unforeseen circumstances; (2) buyer and seller can agree that if buyer is unable to fund their loan due to loss of income due to COVID-19, either party may cancel the contract – even if buyer already removed their loan contingency; and (3) buyer and seller may mutually agree to cancel the purchase contract.
It is important to note that all three of these optional election provisions contains this language: “Buyer’s deposit shall be returned to Buyer, minus fees and costs incurred by Buyer.” There is, however, a fourth option, “Other,” wherein the parties may agree to different terms with respect to one or more of these amendments to the purchase contract. For instance, if there are no contingencies in the contract, it would be unwise for a seller to agree to this “standard” language.
Buyers and sellers need to understand the potential results and ramifications of the options offered in this form before deciding how to complete it. As noted, how and to whom the deposit is released become an issue in dispute between the parties, and this is one of those situations in which consultation with a qualified California real estate attorney before signing anything can be invaluable. Contracts entered into before the state’s shelter-in-place order went into effect have legal consequences than those applicable to contracts formed after this unforeseen event occurred. The latest version of the CVA, revised on April 16th, specifically states that “The Parties are advised to seek the advice and counsel of a qualified California real estate attorney” before deciding whether they should fill out and sign this form.”
The third form is the “Notice of Unforeseen Coronavirus Circumstances (NUCC),” which is signed by either buyer or seller, depending on which party has been affected. It provides that in accordance with the CVA, one party is notifying the others of certain unforeseen situations and/or conditions that are affecting or preventing the close of escrow, including loan-related issues and difficulties scheduling home inspections, appraisals, and other necessary activities due to shelter-in-place orders or other governmental orders. The form includes a “Personal “Impact” section in which a party can provide information and documentation of COVID-19 health issues affecting the party directly or an immediate family or household member, such as a positive diagnosis, hospitalization, or mandatory quarantine. If a buyer, for example, contracted COVID-19, they could fill out this form and sign it. This form provides more details with respect to the party’s request in the CVA for additional time or a cancellation. Again, this form has significant implications for buyers and sellers, and any party considering using it should review the form with a qualified California real estate attorney in order to make a fully informed decision.
C.A.R.’s fourth new “standard” form is the Coronavirus Property Entry Advisory and Declaration (PEAD). This form contains disclosures and functions as an advisory, noting the risks of exposure, the existence of various stay-at-home/shelter-in-place orders, and detailing the current restrictions on real estate sales activities. It notes the various protections that must be undertaken by any individual when visiting a property, but, again, it does not address local interpretations of the statewide shelter-in-place order.
Other groups and associations are creating their own forms dealing with the COVID-19 situation and its impact on transactions, such as the San Francisco Association of Realtors and Compass Realty, to name a couple, and every group’s forms will differ. It is imperative that sellers and buyers involved in the listing, marketing, and sale of real property consult with knowledgeable real estate agents and brokers before executing any of these forms. You need to be able to read and understand them as you would anything you’re asked to approve or sign. If your agent doesn’t or can’t fully explain the forms in terms that you understand, that’s the time you should arrange for a brief consultation with a qualified California real estate attorney who can explain the ramifications of executing any of these new forms during this unprecedented event.
We’re all living in troubled times right now, and, as one of my partners used to say, “You need to stop, look, and listen before you jump.” Make doing your due diligence in all real estate transactions a priority and, when in doubt, seek legal counsel before making what could be far-reaching and expensive decisions.