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SB-1174 Commercial real estate: disclosures.(2017-2018)

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Date Published: 04/03/2018 04:00 AM
SB1174:v98#DOCUMENT

Amended  IN  Senate  April 02, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill
No. 1174

Introduced by Senator Stone

February 14, 2018

An act to add amend Section 10131.8 to 10176 of the Business and Professions Code, and to add Article 1.6 (commencing with Section 1102.25) to Chapter 2 of Title 4 of Part 4 of Division 2 of the Civil Code, relating to real estate.


LEGISLATIVE COUNSEL'S DIGEST


SB 1174, as amended, Stone. Commercial real estate: certified underwriting on a commercial real estate transaction. Commercial real estate: disclosures.
The Real Estate Law provides for the licensure and regulation of real estate brokers by the Real Estate Commissioner and makes a willful violation of that law a crime. Existing law requires the commissioner to enforce all provisions of that law and authorizes the commissioner to adopt, amend, or repeal rules and regulations that are reasonably necessary for the enforcement of that law.
Existing law authorizes the commissioner to temporarily suspend or permanently revoke the license of a real estate licensee who has committed specified acts, including making any substantial misrepresentation.
This bill would specify that a substantial misrepresentation for purposes of that provision includes, but is not limited to, the inaccurate reporting of, or failure to report, among other things, any and all dues related to ownership of the property, taxes associated with the property, liens on the property, or all ongoing or pending litigation affecting the property.
Existing law governing disclosures upon the transfer of residential property requires the transferor of any real property to deliver to the prospective transferee a specified written statement disclosure subject to specified requirements. If any disclosure, or any material amendment of any disclosure, is delivered after the execution of an offer to purchase, existing law requires the transferee to have a specified period of time to terminate his or her offer by delivery of a written notice of termination to the transferor or the transferor’s agent. Existing law requires these disclosures to be made on a specified form.
This bill would provide for a voluntary certified commercial real property disclosure to be provided by the transferor of commercial real property, as defined, to a prospective transferee. The bill would require any transferor that elects to provide that disclosure to include within the contract for the transfer of the property a provision allowing the transferee to have a specified period of time to terminate his or her offer following receipt of the disclosure. The bill would require the disclosure to be made in good faith and to include specified information regarding the property, and would make any person who willfully or negligently violates or fails to perform any duty imposed by these provisions liable in the amount of actual damages suffered by a transferee, and for any other civil fines or penalties allowed by law. The bill would provide that a violation of these provisions is not punishable as a crime.

This bill would require a real estate broker who offers underwriting on a commercial real estate transaction to his or her client to offer either a certified underwriting of the commercial real estate transaction or an uncertified underwriting of the commercial real estate transaction. The bill would define “underwriting on a commercial real estate transaction” for these purposes as any type of analysis provided by the real estate broker to his or her client regarding the client’s potential investment in the commercial real estate at issue in the transaction, regardless of whether the commercial real estate transaction is being secured by a loan. The bill would require a real estate broker that offers a certified underwriting of a commercial real estate transaction to verify the accuracy, to the best of his or her ability, of all information and conclusions given to the real estate broker’s client regarding the commercial real estate transaction. The bill would authorize the client to file a cause of action against the real estate broker to recover his or her financial losses and would make the real estate broker liable for those losses if the real estate broker fails to verify the accuracy of the information given to the client in a certified underwriting of the commercial real estate transaction.

The bill would exempt a violation of this provision from being punished as a crime.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 10176 of the Business and Professions Code is amended to read:

10176.
 The commissioner may, upon his or her own motion, and shall, upon the verified complaint in writing of any person, investigate the actions of any person engaged in the business or acting in the capacity of a real estate licensee within this state, and he or she may temporarily suspend or permanently revoke a real estate license at any time where the licensee, while a real estate licensee, in performing or attempting to perform any of the acts within the scope of this chapter has been guilty of any of the following:
(a) Making any substantial misrepresentation. A substantial misrepresentation includes, but is not limited to, the inaccurate reporting of, or failure to report, any of the following:
(1) Any and all dues associated with the property, including, but not limited to, dues charged by a common interest development, including a commercial common interest development.
(2) Taxes imposed on the property, including, but not limited to, special taxes.
(3) Fees associated with the property.
(4) Liens on the property.
(5) Environmental issues on the property.
(6) Health concerns or issues on the property.
(7) Any obligations or agreements with associations that create a financial impact on the property.
(8) All active and current reports regarding the property that affect the value of the property.
(9) All ongoing or pending litigation affecting the property.
(b) Making any false promises of a character likely to influence, persuade, or induce.
(c) A continued and flagrant course of misrepresentation or making of false promises through real estate agents or salespersons.
(d) Acting for more than one party in a transaction without the knowledge or consent of all parties thereto.
(e) Commingling with his or her own money or property the money or other property of others which is received and held by him or her.
(f) Claiming, demanding, or receiving a fee, compensation, or commission under any exclusive agreement authorizing or employing a licensee to perform any acts set forth in Section 10131 for compensation or commission where the agreement does not contain a definite, specified date of final and complete termination.
(g) The claiming or taking by a licensee of any secret or undisclosed amount of compensation, commission, or profit or the failure of a licensee to reveal to the employer of the licensee the full amount of the licensee’s compensation, commission, or profit under any agreement authorizing or employing the licensee to do any acts for which a license is required under this chapter for compensation or commission prior to or coincident with the signing of an agreement evidencing the meeting of the minds of the contracting parties, regardless of the form of the agreement, whether evidenced by documents in an escrow or by any other or different procedure.
(h) The use by a licensee of any provision allowing the licensee an option to purchase in an agreement authorizing or employing the licensee to sell, buy, or exchange real estate or a business opportunity for compensation or commission, except when the licensee prior to or coincident with election to exercise the option to purchase reveals in writing to the employer the full amount of the licensee’s profit and obtains the written consent of the employer approving the amount of the profit.
(i) Any other conduct, whether of the same or a different character than specified in this section, which constitutes fraud or dishonest dealing.
(j) Obtaining the signature of a prospective purchaser to an agreement which provides that the prospective purchaser shall either transact the purchasing, leasing, renting, or exchanging of a business opportunity property through the broker obtaining the signature, or pay a compensation to the broker if the property is purchased, leased, rented, or exchanged without the broker first having obtained the written authorization of the owner of the property concerned to offer the property for sale, lease, exchange, or rent.
(k) Failing to disburse funds in accordance with a commitment to make a mortgage loan that is accepted by the applicant when the real estate broker represents to the applicant that the broker is either of the following:
(1) The lender.
(2) Authorized to issue the commitment on behalf of the lender or lenders in the mortgage loan transaction.
(l) Intentionally delaying the closing of a mortgage loan for the sole purpose of increasing interest, costs, fees, or charges payable by the borrower.
(m) Violating any section, division, or article of law which provides that a violation of that section, division, or article of law by a licensed person is a violation of that person’s licensing law, if it occurs within the scope of that person’s duties as a licensee.

SEC. 2.

 Article 1.6 (commencing with Section 1102.25) is added to Chapter 2 of Title 4 of Part 4 of Division 2 of the Civil Code, to read:
Article  1.6. Disclosures Upon Transfer of Commercial Real Property

1102.25.
 (a) This article applies to any transfer by sale, exchange, installment land sale contract, as defined in Section 2985, lease with an option to purchase, any other option to purchase, or ground lease coupled with improvements, of commercial real property.
(b) For purposes of this article, the term “commercial real property” means real estate improved with other than a one-to-four family residence.

1102.26.
 (a) The transferor may elect, but is not required, to provide to a prospective transferee, either voluntarily or by request of the prospective transferee, a certified commercial real property disclosure in writing pursuant to this article.
(b) If the transferor elects to provide a certified commercial real property disclosure pursuant to subdivision (a), all of the following requirements shall apply:
(1) The transferor shall provide the disclosure without charge to the prospective transferee.
(2) The transferor shall provide the disclosure to the prospective transferee by personal delivery or by certified mail.
(3) The contract for the transfer of the property shall include an option for the prospective transferee to rescind the contract, without financial loss or punitive action, within three days if the certified commercial real property disclosure is delivered personally, or five days if the certified commercial real property disclosure is delivered by certified mail.
(4) The disclosure shall include all of the following:
(A) Any and all dues associated with the property, including, but not limited to, dues charged by a common interest development, including a commercial common interest development.
(B) Taxes imposed on the property, including, but not limited to, special taxes.
(C) Fees associated with the property.
(D) Liens on the property.
(E) Environmental issues on the property.
(F) Health concerns or issues on the property.
(G) Any obligations or agreements with associations that create a financial impact on the property.
(H) All active and current reports regarding the property that affect the value of the property.
(I) All ongoing or pending litigation affecting the property.

1102.27.
 Each certified commercial real property disclosure made pursuant to this article, and each act that may be performed in making the disclosure, shall be made in good faith. For purposes of this article, “good faith” means honesty in fact in the conduct of the transaction.

1102.28.
 The specification of items for inclusion in a certified commercial real property disclosure in this article does not limit or abridge any obligation for disclosure created by any other provision of law or that may exist in order to avoid fraud, misrepresentation, or deceit in the transfer transaction.

1102.29.
 If information included in a commercial real property disclosure in accordance with this article is subsequently rendered inaccurate as a result of any act, occurrence, or agreement subsequent to the delivery of the certified commercial real property disclosure, the inaccuracy resulting therefrom shall not constitute a violation of this article. If at the time the certified commercial real property disclosure is made, an item of information required to be disclosed is unknown or not available to the transferor, and the transferor or his or her agent has made a reasonable effort to ascertain it, the transferor may use an approximation of the information, provided the approximation is clearly identified as such, is reasonable, is based on the best information available to the transferor or his or her agent or broker, and is not used for the purpose of circumventing or evading this article.

1102.30.
 Neither the transferor nor any listing or selling agent or broker shall be liable for any error, inaccuracy, or omission of any information delivered pursuant to this article if the error, inaccuracy, or omission was not within the personal knowledge of the transferor or that listing or selling agent or broker, was based on information timely provided by public agencies or by other persons providing information that is required to be included in a certified commercial real property disclosure pursuant to this article, and ordinary care was exercised in obtaining and transmitting it.

1102.31.
 A transfer subject to this article shall not be invalidated solely because of the failure of any person to comply with any provision of this article. However, any person who willfully or negligently violates or fails to perform any duty prescribed by any provision of this article shall be liable in the amount of actual damages suffered by a transferee and shall be subject to any other civil fines or penalties allowed by law. However, a violation of this article shall not be punishable as a crime.

SECTION 1.Section 10131.8 is added to the Business and Professions Code, to read:
10131.8.

(a)A real estate broker that offers underwriting on a commercial real estate transaction to his or her client shall offer either of the following:

(1)A certified underwriting of the commercial real estate transaction.

(2)An uncertified underwriting of the commercial real estate transaction.

(b)A real estate broker that offers a client a certified underwriting of a commercial real estate transaction shall verify the accuracy, to the best of his or her ability, of all information and conclusions given to the real estate broker’s client regarding the commercial real estate transaction, including, but not limited to, taxes, maintenance costs, and any association fees or dues.

(c)If a real estate broker fails to verify the accuracy of the information given to the client pursuant to subdivision (b), the client may file a cause of action against the real estate broker to recover his or her financial losses and the real estate broker shall be liable for those losses.

(d)For purposes of this section, “underwriting on a commercial real estate transaction” means any type of analysis provided by the real estate broker to his or her client regarding the client’s potential investment in the commercial real estate at issue in the transaction, regardless of whether the commercial real estate transaction is being secured by a loan.

(e)The remedy offered under this section is in addition to any other remedy available under the law.

(f)A violation of this section shall not be punishable as a crime pursuant to Section 10185.