Background: This is Week 4 and the final week of our series of Legal Tips involving the “5-Day Rule” in C.A.R.’s Residential Purchase Agreement (RPA). Please take a look at the Legal Tip discussions from 2 weeks ago for the 5-Day Rule for late reports (under paragraph 14B(3)), and last week for new discoveries (under paragraphs 11A(4) and 11G(1)). This week, we will drill down on the 5-Day Rule under the TDS law.

Multiple Choice Question: A buyer is in a pending sales transaction using the RPA. The seller, who must comply with the TDS requirements, provides the buyer with a TDS. The buyer then removes all contingencies. After that, an inaccuracy in the TDS that materially affects the property is discovered. Does the buyer have a right to cancel within 3-to-5 days and keep the deposit? Pick the best answer:

A. Yes.
B. Yes, if the seller provides the buyer with an amended TDS.
C. Yes, as long as the inaccuracy was not discovered by the buyer or disclosed in reports or documents provided to or ordered and paid for by the buyer.
D. No. 

Answer: Answer A is most likely the correct answer. Under the TDS law, a buyer has a 3-to-5 day right to cancel upon delivery of a material amendment of a TDS (under Cal. Civil Code section 1102.3(c)). The timeframe to cancel is 3 days if the amended TDS is delivered in person, and 5 days if delivered by email or mail.

Answer B is likely to be wrong. It’s true that the TDS law says that the 3-to-5 day right to cancel arises upon the delivery of an amended TDS. Sure enough, sellers will occasionally try to withhold the delivery of such amended TDS in an effort to deprive the buyer of such cancellation right. But the TDS law requires a seller to deliver any material amendment of the TDS. A court is unlikely to allow a seller to take advantage of the seller’s own failure to comply with the law.

Answer C is likely to be wrong, at least in my opinion. The RPA does say that an “amended disclosure shall not be required for conditions and material inaccuracies of which Buyer is otherwise aware, or which are discovered by Buyer or disclosed in reports or documents provided to or ordered and paid for by Buyer” (see paragraph 11A(4) as discussed in last week’s Legal Tip). However, paragraph 11A(4) of the RPA is just a matter of contract, whereas the TDS requirements are a matter of law. The TDS law itself specifically states that “Any waiver of the requirements of this article is void as against public policy” (Cal. Civil Code section 1102(c); see also paragraph 11E of the RPA). A court may elect not to give paragraph 11A(4) any legal effect if it is construed as an invalid attempt to waive the amended TDS requirement.

Copyright© 2023 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of August 21, 2023. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.