This article discusses the upfront disclosures of property conditions which are not in compliance with current safety standards.
Upfront disclosure avoids contingencies and omissions
The seller of a home fills out a Condition of Property (Transfer) Disclosure Statement when entering into a listing agreement with his broker. [See first tuesday Form 304]
The disclosure reveals the garage door is not in compliance with current safety standards requiring it to have an automatic reversing device; the spa has no locking safety cover; the water heater is not braced; and the burglar bars have no release mechanism. | The condition of property statement puts the buyer on notice of property defects. |
A buyer is located who is interested in the home. Before the buyer makes an offer to purchase, the broker hands the buyer the condition of property statement.
The buyer makes an offer to purchase, signing it and the condition of property statement. The buyer does not include a condition in the offer requiring the seller to correct the existing defects to meet current safety standards.
The seller accepts the buyer’s offer, creating a binding purchase agreement.
Before escrow closes, the buyer confirms the existence of the defects and makes a demand on the seller to replace the garage door, place a locking cover on the spa, brace the water heater and have new burglar bars installed since they do not meet current safety standards. The seller refuses and insists the buyer close escrow.
Can the seller refuse to replace the defective items and still enforce the purchase agreement against the buyer?
Yes! When the buyer made the offer, he knew items on the property did not meet current safety standards. Thus, the buyer agreed to accept the property “as disclosed” in the condition of property statement. The condition of property statement, received by the buyer on or before his signing of the purchase agreement, put the buyer on notice of the defects. [Calif. Civil Code §1102.6]
The buyer’s offer did not require the seller to correct the defect, before or after closing. Thus, the buyer cannot now condition the close of escrow on the seller bringing the property up to current safety standards.
When to disclose
The condition of property statement discloses, among other conditions, any awareness the seller or his broker may have regarding the property’s compliance with safety standards for garage doors, swimming pools and spas, water heaters and window security bars (burglar bars).
The seller who is aware conditions on the property do not meet current safety standards must note the defects on the statement without hesitation. Further, the broker must note any observations inconsistent with or in addition to the seller’s disclosures. [See Figure 1]
| Figure 1 | ||||||
SELLER’S INFORMATION: The Seller discloses the following information with the knowledge that even though this is not a warranty, prospective Buyers may rely on this information in deciding whether and on what terms to purchase the subject property. Seller hereby authorizes any agent(s) representing any principal(s) in this transaction to provide a copy of this statement to any person or entity in connection with any actual or anticipated sale of the property. | ||||||
| THE FOLLOWING ARE REPRESENTATIONS MADE BY THE SELLER(S) AND ARE NOT REPRESENTATIONS OF THE AGENT(S), IF ANY. THIS INFORMATION IS A DISCLOSURE ONLY AND IS NOT INTENDED TO BE A PART OF ANY CONTRACT BETWEEN THE BUYER AND SELLER. | ||||||
Seller is, is not, occupying the property. A. The subject property has the items checked below (read across): | ||||||
| Range | Oven | Microwave | ||||
| Dishwasher | Trash Compactor | Garbage Disposal | ||||
| Washer/Dryer Hookups | Rain Gutters | |||||
| Burglar Alarms | Smoke Detectors | Fire Alarm | ||||
| TV Antenna | Satellite Dish | Intercom | ||||
| Central Heating | Central Air Conditioning | Evaporator Cooler(s) | ||||
| Wall/Window Air Conditioning | Sprinklers | Public Sewer System | ||||
| Septic Tank | Sump Pump | Water Softener | ||||
| Patio/Decking | Built-in Barbecue | Gazebo | ||||
| Sauna | Pool Child Resistant Barrier | Spa Hot Tub Locking Safe cover | ||||
| Security Gate(s) | ||||||
| Window Screens | Window Security Bars | Quick Release Mechanism on Bedroom Windows | ||||
The condition of property statement should be completed by the seller when the listing is procured by the broker, and definitely before marketing the property. As prospective buyers are located, a copy can then be delivered to the buyer before an offer to purchase is made.
Upfront disclosure of any defects seals the buyer’s expectations under the purchase agreement as to the property’s condition.
When the condition of property statement is improperly handed to the buyer after the buyer’s purchase offer has been accepted (or the buyer accepts a counteroffer), the buyer may either:
- cancel the purchase agreement [CC §1102.3]; or
- close the transaction and collect the cost of correcting the defects which he was unaware of when entering into the purchase agreement. [Jue v. Smiser (1994) 23 CA4th 312]
Editor’s note – While Jue is a case of an intentional misrepresentation made by the broker before the offer was made, a misrepresentation also occurs by an omission – failure to provide the condition of property statement at the time of or before the offer so the buyer is put on notice of what he is receiving for the price offered.
Cancellation of the purchase agreement is not the buyer’s only remedy, but it is a remedy available by statute. Public policy supports upfront disclosures and allows the buyer to proceed to close the purchase and collect lost value or costs to correct the defects that were undisclosed at the time of purchase.
If the buyer is not handed the condition of property statement at the time of the offer, the buyer or the buyer’s broker may alternatively meet the due-diligence mandate of the Jue case by including a contingency in the purchase agreement. On receiving the condition of property statement prior to closing, the contingency could be written to allow the buyer to:
- require the seller to fix previously undisclosed defects; or
- if the seller refuses, close escrow and deduct the costs of repairs or replacement from the purchase price. [See Figure 2]
| Figure 2 | |||
Excerpt from first tuesday Form 150 | |||
| 12.2 Seller’s Condition of Property (Transfer) Disclosure Statement (TDS) | |||
| a. | is attached; or | ||
| b. | is to be handed to Buyer on acceptance for Buyer’s written response within ten days after receipt either approving the statement or giving notice to Seller of material defects in the property undisclosed and unknown to Buyer prior to acceptance. Seller to repair, replace or correct noticed defects prior to closing. | ||
| c. | On Seller’s failure to repair, replace or correct noticed defects under §12.2b or 12.3, Buyer may cancel this agreement or tender the purchase price reduced by the cost to repair, replace or correct the noticed defects. | ||
Automatic garage doors
All automatic garage doors installed after January 1, 1991, are required to have an automatic reverse safety device. [Calif. Health and Safety Code §19890(a)]
If the garage door does not reverse, a warning sticker must be placed on the door stating the door is not in compliance with safety standards. | In addition, garage door openers installed after January 1, 1993, are required to have a sensor which, when interrupted or misaligned, causes a closing door to open and prevents an open door from closing. [Health & S C §19890(b)] |
The safety standards for garage doors are designed to prevent children from being trapped under closing doors.
Further, any person repairing a residential garage door must test whether the door reverses on contact with a two-inch high obstacle placed beneath the door.
If the door does not reverse, the repairman must place a warning sticker on the garage door stating the door does not reverse and is not in compliance with current safety standards. [Health & S C §19890(e)]
Child resistant pool barriers
When a construction permit is issued for a pool in a single-family residence after January 1, 1998, the pool must comply with at least one of the following safety requirements (but need not comply with all):
- the pool is isolated from access to the house by a surrounding fence or barrier at least 60 inches in height;
- the pool has an approved safety cover;
- all doors of the residence providing direct access to the pool are equipped with exit alarms;
- all doors to the residence providing access to the pool are equipped with a self-closing, self-latching device with a release mechanism placed no lower than 54 inches above the floor; or
- there are other means of protection deemed to be adequate by the building official in the area where the permit is issued. [Health & S C §115922]
These safety requirements do not apply to hot tubs or spas with locking safety covers.
Water heaters
All existing residential water heaters must be anchored, braced or strapped to prevent displacement in the event of an earthquake. [Health & S C §19211]
The residential seller must state whether the water heater is anchored, braced or strapped. [Health & S C §19211(b)]
If the water heater meets safety requirements, the seller notes the compliance by marking the box on the condition of property statement next to anchored, braced or strapped.
If the seller’s water heater is not in compliance, the seller should include a written statement on the condition of property statement disclosing the water heater is not anchored, braced or strapped. [See Fig.1]
Residential burglar bars
On residential property, the installation of burglar bars requires the bars to have release mechanisms for fire safety reasons.
However, a release mechanism is not required if a door or window to the exterior exists in each bedroom for the purpose of escape or rescue. [Health & S C §13113.9]
Condition of property statement
The purpose of the condition of property disclosure statement is to make buyers fully aware of the status of the property they are considering for purchase.
After the seller makes upfront disclosures and both parties enter into a purchase agreement without conditions regarding garage doors, swimming pools, or other aspects of the house which do not meet safety standards, the refusal of the seller to bring such items into compliance with current safety standards does not mean the property is being purchased “as-is.” | The refusal of the seller to bring property conditions into compliance does not mean the property is being purchased “as-is.” |
Public policy prohibits the sale of one-to-four unit residential property “as-is.” [CC §1102 et seq.]
By making meaningful upfront disclosures, the seller is assured the buyer is purchasing the property “as disclosed.”
