PRDS And C.A.R. Forms Update
By Dave Hamerslough
January 1, 2024
Residential Exclusive Listing Agreements Act (Civil Code § 1670.2), Effective January 1, 2024
The PRDS Forms Committee will be addressing this new law in the revisions that it will be making to the PRDS listing agreement. The Committee plans on starting on those revisions this month. It is anticipated that these revisions will also include language addressing various compensation options in response to the Burnett decision regarding the payment of commissions and offers of compensation.
C.A.R. has modified its listing to add language consistent with the new Exclusive Listing Agreements Act. C.A.R. is also planning revisions to its listing agreement in conjunction with the issues raised by the Burnett decision. C.A.R. typically releases new forms in June and December, so I do not anticipate that revisions to the listing agreement will occur until then. I anticipate that PRDS will have its revisions to the listing agreement completed by this spring.
Amendment To The Natural Hazard Disclosure Law And Statement (Civil Code § 1103.2), Effective January 1, 2024
The PRDS Forms Committee has revised its Fire Hardening Defensible Space addendum (“FHDS”) to incorporate the new law requiring that the NHDS specify whether the property is located in a “high” or “very high” fire hazard severity zone and whether the property is located in a corresponding state-responsibility area or area of local responsibility. Paragraph 3 of the introduction to the FHDS contains the language referring to these issues and also points out that reports prepared prior to January 1, 2024 may not be adequate to determine these issues and provides potential sources of information on these issues in that event.
At this point, C.A.R. has not revised any of its forms relating to fire hardening and defensible space in response to the new statute.
Disclosures By “Flippers” (Civil Code § 1102.6h), Effective July 1, 2024
The PRDS Forms Committee has revised the Supplemental Seller’s Checklist (“SSC”) to address the disclosures required by this new law starting on July 1, 2024. The revisions can be found in Part III, Paragraphs A, B, C, and D. I anticipate that C.A.R. will make revisions addressing this new law when it releases forms in June of 2024.
Form Revisions Unrelated To These New Laws
Paragraph 9(D) of the PRDS Buyer Representation And Broker Compensation Agreement (“BRBC”) has been modified to provide the broker with 14 calendar days after either termination or cancellation of the Agreement to provide the buyer with written notice of any property for which the broker claims that compensation is due. The initial BRBC only addressed the issue of providing such notice after termination, not cancellation. This revision addresses the broker’s right in this regard with respect to both termination and cancellation.
C.A.R. has revised its Residential Purchase Agreement (“RPA”) to add a dropdown feature to Paragraph 3(Q)(2). This feature now allows a buyer to order a Fortress Wildfire Disclosure Report (“WDR”). A WDR is an aerial view of a property that identifies potential fire risks and estimated costs to remediate those risks. The WDR is not a substitute for the fire hardening and defensible space advisories and doesn’t provide the information required by those forms. The WDR is also not legally required unless the parties contractually agree to obtain it. My recommendation is that before any party asks for it in the contract, they should evaluate, among other things, the cost and local availability of that report.
C.A.R. has revised its Buyer Homeowners’ Insurance Advisory to include a paragraph discussing the difficulty of obtaining insurance in California. C.A.R. is considering adding a stand-alone insurance contingency to its RPA. Please remember that currently any investigation regarding the availability or cost of insurance is covered by the property investigation contingency. If the RPA does not contain a property investigation contingency, then it will be necessary to add a separate contingency to address any investigation regarding insurance. In contrast, the PRDS purchase contract has had a separate contingency for insurance issues for some time.
C.A.R. has made two revisions to the Seller Property Questionnaire (“SPQ”). Paragraph 8(D) has added questions regarding whether any structure on the property is an Accessory Dwelling Unit (“ADU”) and, if so, whether the ADU received a permit or other governmental approval and whether there are separate utilities and meters for the ADU. My understanding is that the rationale for this revision is that it is important for a buyer to know these facts in order to assess the income potential and liability risks associated with an ADU and any potential to subdivide the ADU, given the new California law on that subject.
Sellers should consider the following with respect to these revisions. The term ADU is, by statute, now used to describe separate habitable space at a property or within an existing structure on the property. While this terminology was intended to include other terminology that previously was used to describe these spaces (e.g., granny unit, in-law unit, guest house, etc.), please remember that some jurisdictions still distinguish between an ADU and a guest house depending on whether the unit can be rented to a third party.
Also, a legal ADU requires, among other things, approval by the local Planning/Zoning Department and Building Department of the jurisdiction in which the ADU is located. While the state law has attempted to simplify the process of creating legal ADUs, there are still local planning/zoning requirements that typically will need to be met. That department will need to give its approval; that approval will be in writing and may not be characterized as a “permit.” On the other hand, most local building departments issue permits that address whether a structure (including an ADU) meets building, electrical, and/or plumbing Code requirements. Sellers need to understand these distinctions and approvals before they attempt to characterize a structure as a legal ADU.
C.A.R. also revised Paragraph 18(C) of the SPQ to have the seller state if they are aware of whether the property was originally constructed as a manufactured or mobile home. My belief is that this was added because of lawsuits involving single-family residences that appeared to be of conventional construction but actually started of as a manufactured or mobile home. There can be issues related to the quality and Code compliance of the components of any such converted home, including those related to the foundation, framing, etc.
C.A.R. has revised its Request For Repair (“RR”) and Seller Response And Buyer Reply To Request For Repair (“RRRR”) forms. The seller response section of the RR now includes optional paragraphs for the seller to agree to a credit, a modification of the purchase price, or some other partial response. These responses now incorporate the partial responses that were previously in the RRRR. The buyer must still sign the RR a second time if they agree to the seller’s partial response.
Revisions were also made to the RRRR. Language has been added to Paragraph 1 of the seller’s response to clarify that the seller is agreeing to only those items for which a box has been checked. Paragraph 2 was also modified to specify that the buyer and seller need to reach an agreement regarding any of the requests. An agreement requires that all parties sign the RRRR form or some alternative writing.
Please remember that Paragraph 3 of the RRRR sets an expiration for the buyer to accept the seller’s response. The buyer must act before the seller’s offer in Paragraph 1 expires per the language of Paragraph 3.
The foregoing are not all of the forms that C.A.R. revised in December 2023. There were many revisions to their landlord-tenant forms and their business sale forms. This article focuses on revisions to forms affecting residential listing and sale transactions. As noted, both PRDS and C.A.R. will be revising their listing agreements, so be on the lookout for those revisions in the next six months.
Happy New Year.