What is a natural hazard?

 Natural hazards come with the location of a parcel of real estate, not with the man-made aspects of the property. Locations where a property might be subject to natural hazards include:

  • special flood hazard areas, a federal designation;
  • potential flooding and inundation areas;
  • very high fire hazard severity zones;
  • wildland fire areas;
  • earthquake fault zones; and
  • seismic hazard zones. [Calif. Civil Code §1103(c)]

The existence of a hazard due to the geographic location of a property affects its desirability, and thus its value to prospective buyers. Hazards, by their nature, limit a buyer’s ability to develop the property, obtain insurance or receive disaster relief.

Whether a seller lists the property with a broker or markets the property themselves, the seller is to disclose to prospective buyers any natural hazards known to the seller, including those contained in public records.

To unify and streamline the disclosure by a seller and the seller’s agent for a uniform presentation to buyers concerning natural hazards which affect a property, the California legislature created a statutory form entitled the Natural Hazard Disclosure (NHD) Statement. [See RPI Form 314]

The NHD form for uniformity

The NHD form is used by a seller and the seller’s agent for their preparation (or acknowledgement of the form prepared by an NHD expert of their review) and disclosure of natural hazard information. The form is to include information known to the seller and the seller’s agent (and the NHD expert) and readily available to them as shown on maps in the public records of the local planning department. [CC §1103.2, See RPI Form 314]

Actual use of the NHD Statement by sellers and their agents is mandated on the sale of all types of properties, with some sellers (but not agents) being excluded. While some sellers need not use the statutory form when making the NHD disclosures, agents are never excluded. Thus, the form, filled out and signed by the seller (unless excluded) and the seller’s agent (never excluded), is included in marketing packages handed to prospective buyers seeking additional information on every type of property.

Editor’s note — Any attempt by a seller or seller’s agent to use an “as-is” provision or otherwise provide for the buyer to agree to waive their right to receive the seller’s NHD statement is void as against public policy. [CC §1103(d)]

However, sellers who are excluded from using the form still need to make the disclosures referenced in the NHD. Use of the NHD form to make property disclosures is not required on:

  • court-ordered transfers or sales;
  • deed-in-lieu of foreclosures;
  • trustee’s sales;
  • lender resales after foreclosure or a deed-in-lieu;
  • estates on death;
  • transfers between co-owners;
  • transfers to relatives/spouses; or
  • transfers to or by governmental entities. [CC §1103.1(a)]

However, delivery of the hazard information, whether disclosed by the use of one form or another, is not optional. Disclosure of a natural hazard is mandated on all types of property. [CC §1103.1(b)]

Investigating the existence of a hazard

Natural hazard information is obtained from the public records. If not retrieved by someone, the seller and seller’s agent cannot make their required disclosures to prospective buyers.

To obtain the natural hazard information, the seller and the seller’s agent are required to exercise ordinary care in gathering information. They may gather the information themselves or the seller may employ an NHD expert to gather the information. When an expert is employed, the expert prepares the NHD form for the seller and the seller’s agent to review, add any comments, sign and have ready for delivery to prospective buyers. [CC §1103.4(a)]

Thus, the seller and the seller’s agent may obtain natural hazard information:

  • directly from public records themselves; or
  • by employing a natural hazard expert, such as a geologist.

The Natural Hazard Disclosure scheme encourages brokers and their agent to use natural hazard experts to gather and report the information available to all from the local planning department rather than do it themselves. The use of an expert to gather information from the public record and prepare the report relieves the seller’s agent of any liability for errors not known to the agent to exist.

While an agent is not mandated to use of an expert, the practice is prudent as a risk mitigation step undertaken to manage liability on sales listings. The other NHD risk for seller’s agents is eliminated by the timely delivery of the NHD to prospective buyers before going under contract.

Delivery of the NHD to the buyer

 It is the buyer’s agent who has the duty to hand the buyer the NHD Statement the buyer’s agent receives from the seller or the seller’s agent, called delivery. [CC §1103.12(a)]

The buyer’s agent, on receiving the NHD form from the seller’s agent, owes the buyer a special agency duty to care for and protect the buyer’s best interest. This is accomplished by reviewing the NHD Statement themselves for any disclosure which might affect the property’s value or its desirability for the buyer. The buyer’s agent then delivers the NHD to the buyer and makes any recommendations or explanations they may have regarding the adverse consequences of its content. [CC §1103.2, 1103.12]

If the buyer does not have a broker, the seller’s agent is responsible for delivering the NHD Statement to the prospective buyer.

The task of explaining the consequence of living with a natural hazard is the duty of the buyer’s agent. If the buyer is not represented by an agent, the buyer undertakes the duty to protect themselves and investigate the consequences of the NHD information handed to them.

A seller’s NHD Statement is not a warranty or guarantee by the seller or the seller’s agent of the natural hazards affecting the property. The NHD Statement is a report of the seller’s and seller’s agents (or the NHD expert’s) knowledge (actual and constructive) of any natural hazards affecting the property.

As a matter of proper practice, the purchase agreement offer includes a copy of the seller’s NHD Statement as an addendum (along with all other disclosures), noting the transaction was entered into in compliance with NHD (and TDS) law.