Transfer disclosure statement required even in mixed use sales!
Richman v. Hartley, 2014 S.O.S. B245052
This is an important recent case dealing with Transfer Disclosure Statements (“TDS”).
California requires its residential property sellers to disclose, in writing, details about the property they wish to sell. The disclosure obligations apply to nearly all California home sellers – whether selling a single family home, condominium or mobile home. Such disclosures are so important that a body of law is dedicated to ensuring the disclosures are made, known as “the Transfer Disclosure Law.” As a general rule, all sellers of residential real property containing “one to four units” in California must complete and provide written disclosures to the buyer. There are a few exceptions, such as properties that are transferred by court order or from one co-owner to another. (See, California Civil Code section 1102.)
The reason these disclosures are so important is that potential home buyers need to know as much as possible about a property in order to evaluate whether to buy it. The “true” condition of the property affects the offer the buyer is willing to make, and the ultimate sales price. The disclosure obligations remind California home sellers that they have a legal responsibility to be open about a property’s condition, and are subject to litigation (or arbitration) if they hide defects.
In this new case, buyer Hartley argued that he was denied a TDS and that seller was obligated to provide one before closing escrow. He contended that a TDS was “required by law” in the transaction because the improvements on the property included two dwelling units. Richman, the seller, insisted that he was not required to comply with the Transfer Disclosure Law, which, he contends, was intended to apply only to transfers of residential real property, not to a mixed-use property such as the one at issue.
The Court of Appeal had no difficulty at all determining that a TDS was required for the sale of this mixed-use property. Neither the original enactment of the Transfer Disclosure Law nor any subsequent amendments has limited its application to transfers of real property that contain only residential units, and no published decision of an appellate court has so limited it. By its language, then, section 1102 applies to any transfer of real property on which are located one to four residential units, regardless of whether the property also has a commercial use.
The result was also supported by other enactments of the Legislature which expressly defined “residential real property” to exclude mixed-use properties. For instance, Business and Professions Code section 11423, adopted in 1992, defines “residential real property” to mean “real property located in the State of California containing only a one- to four- family residence.” (Id., at subd. (a)(3).) The same language was used in section 2954.8, adopted in 1979, governing the handling of impound accounts by financial institutions. That section limits its application to loans made upon the security of real property “containing only a one- to four- family residence.” (Id., at subd. (a).)
The lesson of the Hartley case, then, for all sellers and brokers transacting a sale of “mixed-use” property, is ALWAYS USE A TDS.