Written By: Bradley Greenman, Attorney at Law & John V. Giardinelli, Attorney at Law | Of Counsel
California real estate laws and practices are constantly evolving. At the forefront of the industry is the California Association of REALTORS® (“C.A.R.”), who, among other things, provides standardized forms utilized by professionals and practitioners in most areas of real estate practice. This Newsletter notes revisions to existing forms that range from minor organizational and formatting changes to important substance and language changes, which render old versions of the forms out of date. There are also a number of forms in both spheres, released December 19, 2022, that are completely new. Note: information about the changes noted in this newsletter comes directly from C.A.R.
Residential Purchase Agreement and Joint Escrow Instructions (“RPA”)
There are a number of changes to this form. In terms of the more minor changes to the form, in paragraphs 3E(1) and (2) the language was changed so there was no default for points. A new “optional” paragraph was added as 3G(3) which allows the buyer to ask the seller to pay for the buyer’s broker. Paragraph 3M(3), which deals with units that are occupied by persons other than the seller, now contains an advisory applicable to counter offers that sellers should add TOPA to the counteroffer if a tenant or occupant did not check the box to add the form. Additionally, paragraph 7(a) includes new language in which the unit the buyer intends to occupy needs to be vacant at the time of possession and requires the buyer to identify the unit if there are more than one. Further, some clarifications were made, including under paragraph 9B(2), where the term “window coverings” was changed to now explicitly include window hardware and rods.
An entirely new section to assist sellers has been added in paragraph 11M. The section “requires seller to give buyer known information about anysolar system.” This obligation can now be accomplished through using the new SOLAR form, discussed in more detail below. Paragraph 12B(3) was altered to make reviewing seller documents its own contingency, now articulated in paragraph 8D.
Paragraph 23 was edited adding language which now requires parties to notify escrow of any assignments. Under the revision, the nominee will be treated the same as an assignee. Finally, the “Agent Signature lines” in the Real Estate Broker Section (which denotes the email, phone, and address of each brokerage) was updated allowing brokers to designate an electronic delivery as the phone or email provided in the signature line or through providing a different one by way of checking the appropriate corresponding box. In making these changes, the C.A.R. noted that prior forms can still be used.
Buyer Representation and Broker Compensation Agreement (“BRBC”)
In the most significant addition, the C.A.R. replaced the Exclusive Buyer Representation Agreement form (“BRE”), the Non-Exclusive Buyer Representation form (“BRNE”), and the Not-for-Compensation Buyer Representation Agreement (“BRNN”) in their entirety with this new BRBC form.
Under the new consolidated form, there is no “not for compensation option.” Additionally, paragraph 1 of the BRBC notes, the buyer representation period will only last for the number of days specified. Under paragraph 4B(1), the form predisposes “non-exclusive representation” entitling the broker to compensation only when there was “‘Broker Involvement’” in the purchase of the property.
Next, paragraph 4B(2) creates an optional “exclusive representation[,]” which would entitle the broker to compensation upon the buyer’s purchase of property during representation “with or without” the broker’s help. Paragraph 4C gives either the buyer or the broker the right to cancel the agreement. One holdover from the BRE, BRNE, and BRNN worth mentioning is paragraph 4D(1). This paragraph credits, against the buyer’s compensation obligation, any payments to the broker from the seller’s broker or from the seller. Additionally, paragraph 4D(3) authorizes the broker to include a term asking for the seller to pay the buyer’s broker. Finally, under paragraph 4(F), an obligation is imposed on the buyer’s broker to disclose any compensation the broker expects to receive from others on a particular property, and an obligation to disclose any compensation the broker actually ends up receiving.
Cancellation of Buyer Representation (“COBR”)
The COBR form is a new form where either the buyer or the broker can give notice of the cancellation of the representation agreement. Functionally, there are two parts. Part 1 provides notice of the cancellation, requiring a signature. Additionally, Part 1 identifies any outstanding compensation due to the buyer’s broker. Paragraph 3A relates back to the BRBC form discussed above and applies to any applicable property or to any property where broker involvement can be identified. The form notes multiple valid forms of just compensation, including: “just expenses incurred (3B), broker receiving a referral fee (3C), broker getting paid from the seller (3D), or no compensation at all (3E)[.]”
Anticipated Broker Compensation Disclosure (“ABCD”)
Facilitating some of the changes encapsulated in the new BRBC form (which replaced the old BRE, BRNE, and BRNN forms), the ABCD form puts together the broker disclosures required under paragraph 4(F) of the BRBC form. In Part 1 of the form, there is a new advisory to the buyer that any compensation to the buyer’s broker through the seller, or through the seller’s broker, “may impact the price the seller will accept[.]” Part 1 also notes the obligation of the buyer’s broker to reveal promised compensation on a property-by-property basis. Part 3 of the form provides a portion where the broker discloses the actual compensation they received.
Buyer Transactional Advisory (“BTA”)
This is a new form intended to help buyers. It may prove to be an excellent “Risk Management tool.” The BTA is bundled with the new BRBC form, and it outlines the responsibilities and limits of agents and buyers respectively. The purpose of this new form is to provide buyers with more information concerning the buyer-agent relationship.
Notice of Broker Involved Properties (“NBIP”)
Upon the termination of the representation, this form comes into play when there was a period of protection provided, “or within 5 days after either the buyer or broker cancels the BRBC.”
Seller’s Payment to Buyer’s Broker (“SPBB”)
This new form works in conjunction with the RPA form when paragraph 3G(3) (discussed in detail above) is checked. The form identifies the precise amount of compensation the buyer is asking the seller to pay the buyer’s broker and does not allow for the broker to receive double payment.
Designated Electronic Delivery Address Amendment (“DEDA”)
This new form facilitates the RPA by providing a designated electronic address for delivery of documents when the fields were left blank in the RPA or to change addresses which were provided in the RPA.
Non-Contingent Offer Advisory (“NCOA”)
Here is an entirely new advisory which notifies a buyer of the risks of making offers without contingencies. Further, to the end of fully informing buyers, the form provides a description of the contractual value of loan contingencies (paragraph 2A), appraisal contingencies (paragraph 2B), and investigation contingencies (paragraph 2C).
Solar Advisory and Questionnaire (“SOLAR”)
This important new form has two parts. In the first five paragraphs, there is an advisory discussing the most common types of solar panels and the most common agreements for owning or leasing them; how payments for solar set-ups commonly work; a discussion of principles of what gets transferred in a real estate purchase; and an advisory on the importance of reviewing all documents and inspecting the system before purchasing. In the second part of the form, there are twenty questions for the seller to answer to the full extent of their knowledge as to each. It is intended to satisfy a portion of the seller’s duties set forth in the RPA.
Cancellation of Contract, Disposition of Deposit and Cancellation of Escrow (“CC”)
The updates to this form render it incompatible with previous versions. The revisions to this form only concern paragraph 1B, “Proposed Mutual Cancellation,” where new language sets a time for the recipient to respond and, if the timeline is not met, the proposal is then expired.
Seller Counter Offer (“SCO”)
Language was added to the SCO form in paragraph 1B, which clarifies that seller credits in the offer remain unchanged even if the purchase price changes. Further, changes were made to paragraph 1C clarifying that the difference between the offered price and the appraisal contingency amount will remain the same, even in the event the purchase price changes. Older versions of this form are incompatible with these new updates.
Seller Multiple Counter Offer (“SMCO”)
Here, the changes to the SMCO mirror those changes which were made to the SCO form discussed above. Paragraph 1B was changed to clarify that the seller credits in the offer remain unchanged in the event of a purchase price change. Similarly, paragraph 1C clarifies the difference between the offered price and appraisal contingency amount remains the same in the event of a purchase price change. Much like the SCO form, the older versions of the SMCO are not compatible with these new updates.
Below is a discussion of the changes to the C.A.R. standardized forms, which are utilized in lease and rental agreements. Here, much like the changes to the C.A.R. forms utilized for purchase agreements; the changes fall on a spectrum from minor to significant to entirely new forms. Note: information about the changes to these forms comes directly from C.A.R.
Lease Listing Agreement (“LL”)
Here, the relevant changes made to LL form render the previous revisions of the form incompatible. Throughout the entire form, the term “owner” has been replaced by the term “Rental Property Owner.” Additionally, the new Rental Property Owner Disclosure Form (“RPOD”) is tied into this form by reference. The new RPOD replaces the old owner disclosure paragraph. Additionally, paragraph 3E was added to the LL form as an optional paragraph to allow for broker compensation in the event the tenant acquires the property during the term of the tenancy. Under paragraph 4A, the form specifies whether the tenant’s initial payment goes to the rental property owner or to the broker. Finally, an indemnity paragraph was added “to be consistent with the Property Management Agreement [form].” See discussion below of the relevant changes to the Property Management Agreement form.
Property Management Agreement (“PMA”)
Similar to the revised LL form, these new PMA revisions render the older versions of the form non-usable. Here, also like the new LL form updates, the term “Owner” is replaced throughout with the term “Rental Property Owner[.]” Another parallel change to those made to the LL form is that the owner disclosure paragraph has been replaced by the new RPOD form discussed below. A unique change to the PMA is that paragraph 1B(2) does not allow termination of the agreement for cause by either party at any time. Additionally, paragraph 3G expands indemnification for certain ongoing payments (i.e., property taxes mortgage payments, HOA fees, etc.) to be paid by the Rental Property Owner, absent willful misconduct or gross negligence on behalf of the property manager. Under paragraph 4F, if the Rental Property Owner does not purchase liability insurance, the Property Manager may do so and then charge the Rental Property Owner for the expense. Additional “[o]ptional compensation clauses” were added in paragraph 7, accounting for pre-litigation fees, onboarding fees, cancellation fees, and file closing fees. Paragraph 11 assigns the responsibility of paying attorney’s fees to each side respectively. Finally, paragraph 14 added an option right of the Property Manager to alter the PMA on 30-days’ notice, leaving a right to the Rental Property Owner to object and cancel the agreement without applying a cancellation fee.
Rental Property Owner Disclosure (“RPOD”)
This is a new form which functions in a similar manner to a Seller Property Questionnaire (“SPQ”) for Rental Property Owners. For example, in paragraph 4, the form asks for the Rental Property Owner’s knowledge about eight statutory based disclosures, including, but not limited to: deaths on the property; lead-based paint disclosure; and pest control disclosures. Paragraph 5 inquiries into the Rental Property Owner’s knowledge of nineteen non-statutory based disclosures, including, but not limited to: pets, parking, permits, and bed bugs. This form was drafted for the purpose of informing the lease listing agent or property manager of the condition of the property, and not for delivering to the tenant. The form is delivered to the Broker.
Residential Lease or Month to Month Rental Agreement (“RLMM”)
Here, the RLMM form replaces the LR form, and previous revisions are no longer usable in light of the changes. Notably, the terms Rental Property Owner, Authorized Broker or Agent, and Property Manager are all now referred to as “Housing Provider[.]” The C.A.R. noted that these changes were made to get away from the use of the term “landlord[,]” which it noted, “has a negative connotation.” In addition to the changes in verbiage, paragraph 5 added more language on the limits of receiving multiple rental payments in advance. Additionally, a warning for tenants was added about removing photos and other valuables that they would not want visible in photos or videos marketing the property online.
Application to Lease or Rent/ Screening Fee (“LRA”)
The LRA form now includes the word “Lease” such that it applies to both lease and rental applications. Additionally, general formatting changes were made to the form including moving information about the property address, rental amount, and the proposed move-in date for the premises being sought, from the “tenant information section I” to the “Screening fee section II[.]” Similar to the other forms in the rental and lease agreement area of practice, the terms “Owner[,]” “Authorized Broker or Agent[,]” and “Property Manager” are now collectively defined as “Housing Provider[.]” Additionally, the maximum screening fee is now $52.46. The changes made to LRA form render previous versions of the form incompatible.
California Consumer Privacy Act Advisory, Disclosure and Notice (“CCPA”)
Changes made to the CCPA form helped shorten the form. Additionally, a URL link was added to the form to allow quick access to research of any enacted regulations concerning consumer privacy. Older versions of the form are rendered incompatible with these updates.
Extension of Time Amendment (“ETA”)
Here, much like the changes to the CC form discussed above, language was added establishing a time for the recipient party to respond by. Failure to respond by the timeline means the proposal to extend time expires. The word “addendum” has been replaced by “amendment.” The new language can be found in paragraph 5 of the form. Previous versions of the form are no longer compatible with the updates.
Residential Lease After Sale (“RLAS”)
Changes made to the RLAS form are particularly relevant to any sellers staying in possession of the property without any charge. Specifically, language was added to paragraph 5A advising of the maximum charge a security deposit can impose. This change makes the form consistent with the RLMM form discussed above. Other revisions to the form include adding language to the “condition of the property” paragraph for the seller/tenant to acknowledge the condition is as is disclosed in the purchase agreement. Additionally, paragraph 14A was changed such that the seller/tenant is not responsible for smoking damage that already existed at the time the lease commenced. Similar to other forms with substantial revisions this year, older forms are no longer compatible with this updated version.