Form-of-the-Week:

Agency Law Disclosure For Leases Greater Than One Year —Form 305-1 and 550-2

Legislated order quells willfully cultured chaos

The Agency Law Disclosure is handed to all participants when listing, selling, buying or leasing for a term greater than one year:

  • property containing one-to-four residential units;
  • mobilehomes; and
  • commercial property. [Calif. Civil Code §§2079.13(j), 2079.14]

Editor’s note — Among all types of real estate, only multi-family apartment sales of five or more units remain outside the agency disclosure law, but not so for residential property leases over one year.

At its core, the Agency Law Disclosure is a restatement of conduct as voiced by codes and case law. The disclosure categorizes and defines agency relationships for licensees acting on behalf of another person in all real estate sales transactions and leases exceeding a one year term. [See RPI Form 305, 305-1 and 550-2]

To cover the distinctions in nomenclature between sales and leasing transactions, Realty Publications, Inc. (RPI) publishes two different versions of the agency disclosure form to enhance comprehension.

Each version contains language engineered to best identify the participants involved in the two sets of transactions:

Editor’s note —Two identical versions of the agency disclosure exist for leasing to place the form in both the “disclosure” and “property management” series of RPI forms. Either may be used when negotiating a listing, offer/letter of intent (LOI) or agreement for the lease of real estate for a period greater than one year. [See RPI Form 305-1 and 550-2]

The objective for the mandatory inclusion of the real estate agency disclosure law in transaction documents is for agents to actually inform the public (and licensees so they are able to answer agency questions) about the duties a licensee owes to members of the public, be they an owner, buyer or tenant.

The law was put in place to eliminate omissions about the agency duties of agents, and misconceptions or ignorance about a licensee’s duty by members of the public, also known as principals.

Further, the agency disclosure law created not just one, but two separate sets of agency-related disclosures to be made by agents in real estate sales and leasing transactions:

  • an Agency Law Disclosureform discussed above — to be attached to employment agreements (listings) and lease agreements for a term greater than one year, to set out the “rules of agency” advising on the conduct expected of real estate licensees when dealing with the public in their capacity as a licensee [See RPI Form 305, 305-1 and 550-2]; and
  • an agency confirmation provision — contained in purchase agreements, LOIs and any documents used to negotiate the lease of real estate with a term exceeding one year, to declare the agency relationships acted upon by each participant’s agent in the transaction. [See RPI Form 550]

Uniform jargon and agency law
The participants, their brokers and the duties owed to all
Failure to disclose has adverse fee consequences

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