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Who Sets the Standard?

By: Ronald R. Rossi, Esq. and Laurel M. Champion, Esq.

A recent Appellate Court case started out with the line that the agreement in question “consisted of a Standard Form Agreement.” Over the years, we cannot count the number of times that a real estate agent, attorney, or loan broker has told the client, “Don’t worry – it’s only a standard form” – the implication being, of course, that one does not have to read it, because why would anyone need to evaluate, or question, a standard form?

Having this standard-form mindset can actually cause a lot of practical problems. Here’s an overview of the some of the pitfalls.

There are numerous definitions of the term “standard form” or “standard form contract.” None of these definitions necessarily match what people executing such a form have in mind. One internet source describes standard form contracts as “agreements that employ standardized, non-negotiated provisions, usually in preprinted forms.” These are sometimes referred to as “boilerplate contracts, contract of adhesion, or take it or leave it contracts.” Another site defines, in part, a standard contract as “a contract between two parties where the terms and conditions of the contract are set by one of the parties and the other party has little or no ability to negotiate more favorable terms.” Others explain standard contracts as preprinted forms that reduce transaction costs by eliminating the need to negotiate the many details of a contract.

There are many so-called standard contracts out there, and many consumers have little or no idea where the form originated, whether it is fair given the nature of the transaction, or whether it benefits one party more than the another.

There are several forms commonly used in California real estate transactions. We will devote future articles to explaining the issues with each form in detail, but here we will focus on two:

(1) The California Association of Realtors Purchase Contract, consisting of 8 pages. If that form were typed in standard font and format, it would exceed 20 pages in length. That form is prepared and published by the California Association of Realtors, a trade association composed of real estate brokers and agents.

(2) The AIR Standard Industrial / Commercial Multi-tenant Lease – Net Form, published by the American Industrial Real Estate Association, which one author recently described as an organization founded by brokers for brokers.

When one considers signing a standard form, it is always important to determine who authored the form and what organization publishes the form. When those determinations are made, one can form opinions as to whom the form was designed to protect. Does the author, or the publisher, have any biases? Does the form favor one side over the other and, if so, how and why?

The most important factor to consider when executing any so-called standard form is to understand that it may not be standard in the sense that it is fair to both sides. It has been preprinted and it appears that it is nonnegotiable, but often some of the clauses in these types of contracts are negotiated by principals, as well as lawyers. Just because it is called a “standard” form does not mean one should sign it without reading and understanding the provisions, or perhaps obtaining legal advice, even though it is customary (and the best practice) for licensed real estate agents and brokers selling real property to go over the contract paragraph by paragraph with their clients.

If one of the parties executing the agreement later claims they did not read it or understand it, significant legal issues can arise. For example, you are presumed to have read and understood documents you sign, you are presumed to have had time and opportunity to obtain professional advice on a contract before you sign it, you are presumed to have freely and voluntarily given your consent in signing the agreement, and, despite any later-discovered unfairness, you will be held to the terms in the agreement.

The next time someone says “don’t worry, just sign here, it’s only a standard form,” or something of that sort, do not let that terminology lull you into a false sense of security and conclude that it isn’t necessary for you to read through all the provisions and understand them. If you do not understand the form, find someone who can explain it. We often tell parties who are contemplating a real estate transaction to obtain copies of the forms that will be utilized in the transaction from their respective agents so they can read them ahead of time, instead of having to read them under pressure with someone sitting across the table waiting for a signature. Remember the cardinal rule – just because a form has been prepared by some publisher and is widely used does not mean that form will meet all of the needs, desires, and expectations of the parties to the transaction. The question you need to be able to answer is “who set the standard?” in each “standard form.”