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Environmental hazards as material facts

Environmental hazards have an adverse effect on a property’s value and desirability. Thus, they are considered defects which, if known, are disclosed as material facts: the hazards might affect a prospective buyer’s decision to purchase the property.

The disclosure to prospective buyers of environmental hazards related to a property known to a seller’s and seller’s agent is required on the sale, exchange or lease of all types of property.

While the disclosure of an environmental hazard is the obligation of the seller, it is the seller’s agent who has the agency duty of care and protection owed to the seller to place them in compliance with the environmental hazard disclosure requirements.

Further, and more critically, the seller’s agent also has an additional, more limited duty owed to prospective buyers of the listed property.

The seller’s agent on taking a listing will personally conduct a visual inspection of the property for environmental hazards (as well as physical defects), and do so with a level of competence equal to that of their broker. In turn, the seller’s agent uses a Transfer Disclosure Statement (TDS) form to advise prospective buyers of their observations (and knowledge) about conditions which constitute environmental hazards. [Calif. Civil Code §2079; see RPI Form 304]

Further, a seller’s agent uses RPI (Realty Publications, Inc.) Form 308 to disclose the existence of unique environmental factors or conditions that were not referenced in the boilerplate language of the TDS which may adversely affect the property or its immediate vicinity, such as the close proximity of an industrial use zone. [See RPI Form 308]

To conclude the seller’s agent’s disclosure of environmental hazards and eliminate any further duty to advise the prospective buyer about the environmental hazards, the seller’s agent delivers, or confirms the buyer’s agent has delivered a copy of the environmental hazard booklet approved by the California Department of Health and Safety (DHS) to the buyer. Delivery of the booklet is confirmed in writing through a provision in the purchase agreement. [See RPI Form 150 §12.6; See RPI Form 316-1]

Included in the booklet is a discussion about the significance of hazardous materials and conditions, and tips for identifying, locating and mitigating the hazards. Also discussed are the symptoms experienced by humans that result from the hazards.

Delivery of the booklet — by hand or digitally — in conjunction with the TDS and its factual disclosures concludes the seller’s agent’s disclosure of environmental hazards and eliminates any further duty they have  to advise the prospective buyer about the existence of environmental hazards. [CC §2079.8]

Thus, when a hazardous condition disclosed in the TDS is addressed in the booklet, the disclosure of the condition in the TDS together with the booklet covers the extent to which the seller’s agent goes to provide a full disclosure about the existence and nature of that hazardous condition. For the purposes of the seller’s side of the transaction, the agent and seller need to say nothing more to the buyer beyond timely providing them the TDS and the booklet to make the disclosures, unless the buyer inquires further — which requires an honest and complete response.

While the timely disclosure of an environmental hazard is the obligation of the seller, it is the seller’s agent who has the agency duty of care and protection owed to their seller to see to it the seller is in compliance with the environmental hazard disclosure requirements.

The buyer’s agent’s review as their risk mitigation

When the seller or seller’s agent have not provided the buyer with the hazards booklet, the buyer’s agent may deliver it to the buyer themselves, the preparation and delivery of the TDS being the exclusive domain of the seller, and in turn the seller’s agent.

While the seller’s agent is required to provide the buyer with the mandatory TDS, the seller’s agent has no duty to discuss the effect of the hazards with the buyer after the documents have been delivered, unless the buyer inquires.

The buyer’s agent reviews the booklet’s explanation of the disclosed hazards with the buyer and notes the consequences of the hazards.

On delivery of the TDS by the seller’s agent, it becomes the duty of the buyer’s agent to point out the hazards disclosed. They then review the booklet’s explanation of the disclosed hazards with the buyer, noting the consequences of the hazards and counseling the buyer on the alternatives available to mitigate the hazards should they make an offer to acquire the property.

Simply handing the buyer and booklet without directing attention to the specific contents of the booklet that directly relates to the hazard located on the subject property is insufficient.

Further, the buyer’s agent’s discussion about environmental hazards with the buyer provides the buyer with information necessary for setting the price and terms of any offer the buyer will make to acquire the property.

Method of disclosure

The TDS and environmental hazard booklet is delivered by the seller’s agent at the time a prospective buyer inquires further about a listed property. Alternatively, a counter offer may be needed to make the additional disclosures covered by purchase agreement provisions.

Some environmental hazards are itemized in the TDS, such as a direct reference to hazardous construction materials and waste, window security bars and release mechanisms, and an indirect reference to environmental noise. [See RPI Form 304 §§A and C]

All other known environmental hazards are added by separate itemization in the TDS. As for environmental hazards emanating from off-site locations, they are disclosed through provisions in the purchase agreement since they are typically known to buyer’s agents who are familiar with the area. [See RPI Form 150 §12.7]

Editor’s note — The environmental hazard booklet is not a disclosure of known defects on the property. The booklet merely contains general information on a few environmental hazards, none of which might actually exist on the property. [See RPI Form 316-1]

Regardless of the method of delivery, the seller’s agent is to give the environmental hazard disclosures to the prospective buyer as soon as practicable, meaning as soon as reasonably possible. As with the disclosure of natural hazards, the legislature intended for the environmental hazard disclosures to be made prior to entry into a purchase agreement. [Attorney General Opinion 01-406 (August 24, 2001)]

Need and motivation for disclosure

For the seller’s agent to properly anticipate the need to have the disclosures available to deliver to prospective buyers, the effort to promptly gather the information from the seller begins at the moment the listing is solicited and entered into.

The seller and the seller’s agent have numerous good reasons to fully comply at the earliest moment with the environmental hazard disclosures (as well as all other property-related disclosures). The benefits of a full disclosure, up front and before the seller accepts an offer or makes a counteroffer, include:

  • the prevention of delays in closing;
  • the avoidance of cancellations on discovery under due diligence investigation contingencies;
  • the elimination of likely renegotiations over price or offsets for corrective costs due to the seller’s agent’s dilatory disclosure or the buyer’s discovery during escrow;
  • the shortening of the time needed for the buyer to complete their due diligence investigation; and
  • control by the seller of remedial costs and responsibilities by terms included in the purchase agreement, not by later offsets or demands by the buyer or a court.