Delayed Signing of Original 10-Page Offer

Fact Pattern: You are the listing agent. The seller is on a cruise ship when you receive an offer to purchase. The buyer has initialed the liquidated damages and arbitration clauses. In the interest of time and internet costs on a cruise ship, the seller signs a counter offer (SCO) to the Purchase Agreement on July 23, but not the original 10 pages of the buyer’s offer. Also on July 23, the buyer accepts the SCO and sends it to you. On July 25, the seller returns to Los Angeles. You give her all the documents and she does the following 3 things: (1) Initials the liquidated damages and arbitration clauses; (2) Signs the original 10 pages; and (3) Completes the Confirmation of Acceptance on the SCO.

Question 1: Is there a contract?

Answer 1: Yes. Although the seller did not sign the original 10 pages on July 23, they were incorporated by reference on the SCO. More specifically, paragraph 1 of the SCO states that “The terms and conditions of the above referenced document [the Purchase Agreement] are accepted” (with the exceptions set forth in the SCO).

Question 2: If there is a contract, when was acceptance? In other words, when do the time frames for contingencies begin?

Answer 2: It depends on whether you, as the listing agent, inserted your name as an authorized agent in the blank line in paragraph 2 of the SCO. If you inserted your name, acceptance occurred on July 23 when you personally received the SCO with the buyer’s signature. If you did not insert your name, acceptance occurred on July 25 when the seller personally received the SCO with the buyer’s signature. (See the definition of acceptance in paragraph 30A of the RPA.)

Question 3: Are the liquidated damages and arbitration clauses part of the agreement?

Answer 3: No. Because acceptance occurred before the seller initialed the liquidated damages and arbitration clauses, they are not included in the final agreement. According to paragraph 1A of the SCO, “Paragraphs in the Offer that require initials by all parties, but are not initialed by all parties, are excluded from the final agreement unless specifically referenced for inclusion.” Of course, in this situation, the buyer can agree to the seller’s request to include the liquidated damages and arbitration clauses in the agreement.

-Thank you to Cherie DeAndrea (Calabasas Associate Manager) for suggesting this week’s legal tip.

Copyright© 2016 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 July 25, 2016. 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.

Residential Care Facilities

Question: Can you give me a little 411 on sober living facilities and other residential care facilities? Are they allowed? Are there zoning rules? We have seen instances where landlords rent to them and the neighborhood goes up in arms.

Answer: California law strongly favors sober living and other residential care facilities, given that studies show that a home-like setting is beneficial to recovering alcoholics and addicts, as well as people who are disabled, elderly, or otherwise in need of care. Residential care facilities of 6 or fewer residents are generally exempt from local business taxes, use permit fees, and zoning restrictions, because the law deems these operations to be the residential use of property. Moreover, sellers and agents are not required to disclose the existence of such facilities to prospective buyers, according to a California Attorney General opinion.

Of course, what sounds great in theory may not be so straight-forward in practice. As you mentioned, neighbors often complain about noise, people coming and going, parking problems, a lot of smokers, and sometimes crime and other problems. Also, determining whether a particular facility is a protected residential care facility can be difficult at times because of legal complexities (see C.A.R.’s Q&A on Residential Care Facilities).

As for renting, a landlord is unlikely to be required to rent to a residential care facility (unlike certain childcare operations). The landlord should be able to successfully argue that he or she is not engaging in illegal discrimination, but making a legitimate business decision not to rent based upon liability, insurance, and other issues. However, to be prudent, a landlord should always try to reject a tenant based upon income, credit, and other objective factors, rather than because the tenant wants to run a residential care facility.

-Thank you to Nick Cacarnakis (Beverly Hills Manager) for suggesting this week’s legal tip.

Copyright© 2016 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 July 17, 2016. 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.

Interpreting Contract Language

Question: I am the buyer’s agent. Lately, listing agents have been writing in counter offers: “Buyer to pay any difference between the sales price and the appraised value.” Yet, they do not address the buyer’s appraisal contingency that was part of the buyer’s original offer. If my buyer agrees to this term and the property does not appraise, can the buyer cancel and keep the deposit?

Answer: We don’t know. The language in question is what we call “legally ambiguous,” which means it can be reasonably interpreted in more than one way. For example, it could mean that the buyer must pay the difference, in which case the buyer cannot back out under the appraisal contingency. That is likely the seller’s intent. Yet, that same language could also mean that, if the appraisal comes in low, the buyer should not ask the seller for a price reduction but the buyer can back out under the appraisal contingency. After all, the words “must pay” were not used. Also, the appraisal contingency was not countered out.

The safest way for the buyer to proceed is to eliminate the ambiguity before entering into an agreement, such as by submitting a Buyer Counter Offer clarifying that the buyer can cancel under the appraisal contingency. Of course, oftentimes buyers don’t want to cause a ruckus because they are in a multiple offer situation. If that’s the case, perhaps you can just ask the listing agent for clarification (and get that in writing), or maybe your buyer is willing to take the risk of proceeding with the possibility of not having an appraisal contingency. Ultimately, if a dispute arises that the parties cannot resolve between themselves, it will be up to a judge or arbitrator, not us, to decide what that language means exactly, depending on the circumstances and the intent of both parties.

-Thank you to Margaret Cashion (Los Feliz Office) for suggesting this week’s legal tip.

Copyright© 2016 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 July 11, 2016. 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.

Disclosing Reports and Estimates

Multiple Choice: You are the listing agent. The previous buyers have cancelled, but they gave you copies of all their inspection reports and repair estimates. Which should you provide to the new buyer?

A.? Inspection reports.
B.? Repair estimates.
C.? Both.
D.? Neither.

Answer: The correct answer is C. Legally, you are not required to give the inspection reports or repair estimates to a new buyer, unless they contain a material fact that affects the value or desirability of the property (that was not within the buyer’s diligent attention). However, it’s just safer and easier for you and the seller to simply give everything to the buyer, rather than try to figure out whether anything in the reports or estimates could be considered material facts.

Proponents of Answer A may want to point out that repair estimates are matters of opinion, not fact, and need not be disclosed. You may be right, but we nevertheless do not want to get sued or spend time and money going through the legal process to prove you are right! After all, repair estimates may contain certain material facts, e.g. dimensions, materials used, and so on. Furthermore, a buyer may try to argue that, by withholding a repair estimate, we failed to disclose the fact that a repair was needed or how much money the repair would generally cost.

-Thank you to Rebecca Alvarado (Pasadena Office) for suggesting this week’s legal tip.

Copyright© 2016 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 July 5, 2016. 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.

C.A.R.’s June 2016 Forms Release

C.A.R.’s new and newly revised forms are scheduled to be released on or about June 27, 2016. Here are some of the highlights:

• Representative Capacity Signature Disclosures (RCSD-S and RCSD-B): New revisions will make these forms much easier to use when someone signs an agreement in a representative capacity for a trust, power of attorney, or legal entity. First, the revised forms clarify that if a representative signs the RCSD for the listing agreement (or buyer broker agreement), that person need not sign another RCSD for the subsequent purchase agreement. Second, the revised forms clarify that, for a trust, the representative is the “Seller” or “Buyer”? (e.g. “John Doe, trustee”), whereas the full name of the trust is to be? inserted further below in paragraph 1A. Third, the signature lines have been simplified.
• Seller’s Purchase of Replacement Property (SPRP): This form now provides a seller with the option of having two contingencies – one for finding a replacement property within 17 days (unless another number is inserted) and another for closing escrow on the replacement property. The form also delays the commencement of the buyer’s time frames for inspections, contingencies, and depositing funds into escrow, until the seller removes in writing the “Finding Replacement Property” contingency. Alternatively, the seller can check the appropriate boxes for the buyer’s time frames to begin at contract acceptance.
• Notice to Seller to Perform (NSP) and Contingency Removal (CR): Given the 2 contingencies for a seller’s replacement property mentioned above, both the NSP and CR forms have been revised to allow the buyer to serve a Notice to Perform for the “finding replacement property” or “closing replacement property” contingency, and for the seller to remove those contingencies accordingly.
• Contingency for Sale of Buyer’s Property (COP): This form has been revised to clarify that the buyer’s time frames for inspections, contingencies, and depositing funds into escrow, begin at acceptance of the agreement (see paragraph 7). Alternatively, the buyer can check the appropriate boxes to delay the beginning of the time frames until after the buyer gives the seller a copy of the escrow instructions for the buyer’s property, removes the sale contingency, or gives the seller written notice of buyer’s election to begin the time frames. The COP form has also been revised to clarify that the seller has 4 (not 3) possible ways of cancelling if the buyer fails to perform as specified (see paragraph 5).

A full list of the new and revised forms are set forth in C.A.R.’s June 2016 Form Release Quick Summary Chart.

Copyright© 2016 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 June 27, 2016. 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.