Caveat Venditor – Expanding Disclosure Obligations of Residential Real Property Vendors

Caveat Venditor – Expanding Disclosure Obligations of Residential Real Property Vendors

California has enacted several new laws and revised existing statutes that impact sellers’ disclosure requirements. These developments affect not only sellers of residences with one to four dwelling units, who must complete a Transfer Disclosure Statement (“TDS”), but also those who are exempt from completing a TDS.1

Practitioners who counsel real estate vendors should keep apprised of all disclosure obligations because a seller’s failure to satisfy statutory and/or common law disclosure obligations leads not only to liability in tort, but also contractual liability.2 The standard (C.A.R.) purchase-sale agreements provide that a seller “shall … make any and all other disclosures required by law.”3 A buyer’s contract claim against a seller is usually not covered by insurance, is associated with a longer limitations period than a tort claim, and can trigger attorneys’ fees clauses. As such, sellers and their attorneys should understand the importance of full and complete disclosure.

NEW C.A.R. FORM: Exempt Seller Disclosure

To address the evolving landscape for TDS-exempted sellers, the California Association of Realtors has created its Exempt Seller Disclosure (“ESD”). The “exempt” status created by Civil Code Section 1102 does not abrogate a seller’s common law duty to disclose all known material conditions or defects that can affect the value or desirability of the property, which are not known to or within the diligent attention and observation of the buyer. Further, contrary to urban myth, merely including an “as is” clause in a real property purchase agreement does not circumvent the seller’s disclosure duties.4

DEATH ON THE PROPERTY: Changes to Civil Code Section 1710.2 (effective 2016)

Since July 1, 1986, Section 1710.2 has provided that sellers and listing brokers have no liability for non-disclosure of a death on the property that occurred more than three years before the purchase offer.  The statute was intended to protect the privacy rights of AIDS victims and to limit the holding of the Appellate Court in Reed v. King (1983) 145 Cal.App.3d 261, which held that death in the home 10 years pre-sale was a “material fact” that the seller should have disclosed.

The revised statute clarifies there is no obligation to disclose that any occupant is or was living with HIV or died from AIDS, regardless of whether it is a recent death or a death at any time in the past.  This latest amendment to Section 1710.2 protects the buyer’s broker from non-disclosure claims concerning a death on the property that occurred more than three years before the purchase offer.

Unfortunately, the revised provisions may create an internal inconsistency. After declaring that a death on the property occurring more three years before the offer is “not a material fact” that requires disclosure, the Legislature did not repeal or otherwise change Section 1710.2(d), which still provides:

“This section shall not be construed to immunize an owner or his or her agent from making an intentional misrepresentation in response to a direct inquiry from a transferee or prospective transferee of real property concerning deaths on the real property.”
If a Buyer questions whether anyone has “ever” died on the property, the Seller may still be liable if he/she knows of an on-site death that occurred more than three years earlier but fails to respond truthfully.

There are no exemptions, exclusions, or exceptions for the disclosure obligations under the revised statute.  Sellers who are exempt from completing the TDS remain obligated to disclose actual knowledge of death on the property occurring within three years before the purchase offer. They cannot simply write “Exempt” across the ESD. They must, instead, answer all yes/no questions and explain the “yes” responses (including whether anyone died on the property less than three years ago).

WATER CONSERVING PLUMBING FIXTURES: Water Code Section 365; Civil Code Sections 1101.4, 1102.155 (effective January 1, 2017)

Sellers of residential property built before 1994 are now obligated to disclose if they are aware that their property has any plumbing fixtures that do not comply with water-conserving law.  This is a disclosure obligation; it is not a repair obligation or a warranty. The state has not mandated that non-compliant water-conserving plumbing fixtures be retrofitted or replaced at the point of sale.  Enforcement of this new law is left to local jurisdictions to require installation of water-conserving plumbing fixtures as a condition precedent to securing finalized permits for repair or remodel work.

The TDS will not be modified to add questions regarding the Seller’s awareness of any “non-compliant” plumbing fixtures.  Instead, the various Supplemental Disclosure forms used with the TDS (e.g., the CAR Seller Property Questionnaire dated December 2016) have been revised to add a new question on this topic. The CAR ESD dated December 2016 has also added a new question on this topic because even Sellers who are exempt from completing the TDS are still obligated to disclose their knowledge about the existence of any “non-compliant” plumbing fixtures.

WATER USE CONSERVATION: Water Code Section 365 (effective January 1, 2017)

Water suppliers are now required to create their own definition for what constitutes “excessive water use” by an individually metered residential customer. The new law requires imposition of fines or rate surcharges that must be detailed in the water bill and paid at the time the bill is due.  Although this law applies during “drought emergencies” it is anticipated that these “excessive water use” fees will become part of standard water bill charges. Thus, sellers should provide buyers with recent water and electric bills so that buyers can better determine their projected expenses.

In conclusion, it is extremely important that a seller complete a TDS or ESD as honestly, completely, and accurately as possible. Given the breadth of the common law and statutes, the best advice should always be “when in doubt, disclose.”


[1] Civ. C. § 1102, et seq.
[2] It is imperative to check local disclosure requirements, which are not covered by this article.
[3] See CAR forms RPA-CA, ¶ 11, PPA REVISED, ¶ 13.
[4] Shapiro v. Hu (1986) 188 Cal.App.3d 326.