Real Estate Transfer Disclosures in California

Real Estate Transfer Disclosures in California

DISCLAIMER: The information here is offered to educate the public and not as legal advice. If you desire legal advice, consult a lawyer. A real estate broker is qualified to advise on real estate.

The Statute

California statutes governing the transfer of real property (including mobile homes) are contained in California Civil Code, Division 2 (Property), Part 4 (Acquisition of Property), Title 4 (Transfer), Chapter 2 (Transfer of Real Property). Included in Chapter 2 are requirements for disclosure by the seller of real property (sections 1102 - 1102.15, which comprise Article 1.5).

Only Certain Property Transfers Are Affected by the Statute

Article 1.5 applies "to any transfer by sale, exchange, installment land sale contract, as defined in Section 2985, lease with an option to purchase, any other option to purchase, or ground lease coupled with improvements, of real property, or residential stock cooperative, improved with or consisting of not less than one nor more than four dwelling units." (Section 1102; sec. 1102.1 describes property that is not affected, such as transfers between co-owners, tranfers following dissolution of marriage, etc.)

Early Disclosure of Property Conditions Is Required

The transferor of any real property subject to the statute is required to deliver (in person or by mail) to a prospective transferee a written disclosure of the condition of the property as soon as practicable before transfer of title. In the case of transfer by a sales contract, or by a lease together with an option to purchase, the disclosure must be delivered as soon as practicable before execution of the contract, i.e., before the making or acceptance of an offer. (Section 1102.2)

The written disclosure must be in the form specified in the statute (see below). The transferor must state -- on the receipt for deposit, in the real property sales contract (or lease), or in a separate document -- that she or he has complied with the statute.

What Must Be Disclosed?

The statute includes a disclosure form ("Real Estate Transfer Disclosure Statement") in section 1102.6. Disclosures made pursuant to the statute must be on a copy of this form. The form covers such information as

Some property owners are required to disclose that the property is near an airport (see below).

What Is the Nature of the Disclosure?

The disclosure is the representation of the seller, not the seller's agent. The information disclosed is based on the seller's personal knowledge, but the disclosure must be made in good faith ("honesty in fact in the conduct of the transaction"). The disclosure is not a warranty. However, the disclosure form states: "The seller discloses the following information with the knowledge that . . . prospective buyers may rely on this information in deciding whether and on what terms to buy the subject property."

The statute states that no transfer subject to the statute shall be invalidated solely because any person failed to comply with the statute. Any person who "willfully or negligently violates or fails to perform any duty prescribed by [the statute] shall be liable in the amount of actual damages suffered by the transferee." (Section 1102.13)

However, the statute also states that the specification of items for disclosure in the Real Estate Transfer Disclosure Statement "does not limit or abridge any obligation for disclosure created by any other provision of law or which may exist in order to avoid fraud, misrepresentation, or deceit in the transfer." (Section 1102.8) Thus, a seller who misrepresents a condition of the property may nevertheless be held liable for misrepresentation in the disclosure statement.

The statute expressly relieves the seller (as well as the listing or selling agent) of liability for misrepresentation (error, inaccuracy, or omission) in the disclosure statement only if an error, inaccuracy, or omission was not within the personal knowledge of the seller (or listing or selling agent), or was based on information provided by a public agency or licensed expert (engineer, contractor, etc.) and "ordinary care" was exercised in obtaining and communicating the information. (Section 1102.4)

What Are the Duties of the Real Estate Broker?

The broker who has obtained the offer to buy is required to deliver the disclosure statement to the buyer unless the seller has given other written instructions for delivery. If the broker cannot obtain the disclosure statement and does not have written assurance from the buyer that the disclosure statement has been received, the broker must advise the buyer of his or her rights to the disclosure statement. (Section 1102.12) The broker responsible for delivering a disclosure statement is required to keep a record of the action taken to comply with the statute.

AB 2776: Disclosure That Property Is in the "Vicinity of an Airport"

As of January 1, 2004, residential property owners are required, under certain circumstances, to disclose to prospective buyers that the property is in the "vicinity" of an airport (Assembly Bill 2776). This type of disclosure has long been a priority of pilot and airport lobbyists who believe that some type of formal notice to homeowners that their property is near an airport will preclude complaints or lawsuits by those residents. Proponents of the bill actually claimed that the bill would reduce lawsuits over aircraft noise. In fact, such lawsuits are rare, and there is nothing in AB 2776 that prevents a property owner from filing a successful lawsuit for compensation for the nuisance of aircraft noise. Pilot and airport lobbyists who support the type of disclosure mandated by AB 2776 simply want a law that they can wave at residents who complain about aircraft noise, in the hope that residents will feel that they have no right to complain. AB 2776 was authored by Assemblyman Joe Simitian (Dem., Palo Alto) on behalf of the San Carlos Pilots Association; the vote in the legislature on the bill was almost strictly along party lines (Democrats for, Republicans against).

AB 2776 requires disclosure that an airport is in the vicinity of residential property under three circumstances: (1) when a new subdivision is created (Business and Professions Code § 11010(a)(12); (2) when a new common-interest development such as a condominium is created (Civil Code § 1353); and (3) when a "natural hazard disclosure statement" is prepared in connection with the transfer of property (Civil Code § 1103.4). The bill does not mandate a general duty to disclose that property for sale is in the vicinity of an airport.

AB 2776 uses the term "airport influence area" interchangeably with "vicinity" and defines the "influence area" as the "airport referral area" determined by the county's airport land-use commission (ALUC). The ALUC creates a "referral area" for each airport in the county and any proposal for land development within that area is reviewed by the ALUC to determine whether it is compatible with the operation of the airport, both present and future.

The requirement in connection with the "natural hazard disclosure statement" (Civil Code § 1103.4) is a bit tricky. The hazard disclosure is required only when property is located in an area of (1) potential flooding, (2) very high fire hazard zone, (3) earthquake fault zone, (4) seismic hazard zone, or (5) wildlands with forest fire risk. If the property does not fit one of these categories, no hazards report needs to be prepared and thus no "notice of airport in vicinity" is required.

[Revised June 14, 2006]