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January 2016: Several New Laws Affecting REALTORS® in 2016

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BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

California’s Legislature once again boasted of a busy year in 2015, preparing and passing numerous new laws. Many of these laws may have an effect on the practice of real estate. Brokers and agents would do well to keep abreast of them.

Continuing Education Requirements for Brokers – Assembly Bill 345
In mid-July, Governor Brown signed Assembly Bill 345 into law, thus enacting a new requirement for real estate brokers’ continuing education. Current law requires a real estate broker to renew his or her license every four years. Pursuant to Business & Professions Code § 10170.5, within that 4-year period, the broker must complete 45 clock hours of education, now including a 3-hour course in the management of offices and supervision of licensed activities.

The California Association of REALTORS® backed this bill, stating, “Since the California Bureau of Real Estate can hold a manager accountable for failure to supervise, C.A.R. believes it important that a real estate broker understand how to properly manage real estate offices, salespersons, and broker associates, in order to minimize risk for all parties involved.” The new requirement went into effect January 1, 2016. For more information on continuing education requirements, please see our September 2015 Courtside Newsletter, which can be found on our website: www.glawgroupapc.com.

Personal Information – Senate Bill 560
Business & Professions Code § 30 has been amended to include the language that no later than January 1, 2016, the Bureau of Real Estate (CalBRE) will require from licensees either an individual tax payer identification number (TIN) or social security number (SSN), if the licensee is an individual. Upon request from the Franchise Tax Board or Employment Development Department, CalBRE will provide the licensee’s information, including the TIN or SSN.

Additional Recording Fees – Assembly Bill 661
Pursuant to current law, a $10 fee is paid at the time of recording of every real estate instrument, paper, or notice required or permitted by law to be recorded within that county. The fee goes toward the Real Estate Fraud Prosecution Trust Fund, which supports local law enforcement activities to fight real estate fraud crimes. AB 661 was drafted to clarify some ambiguities in the language of exemption from the fee. Codified in Government Code § 27388, the fee does not apply to any real estate instrument, paper, or notice that is:

1. Accompanied by a declaration stating that the transfer is subject to a documentary transfer tax;
2. Recorded concurrently with a transfer subject to a documentary transfer tax; or,
3. Presented for recording within the same business day as, and is related to the recording of, a transfer subject to a documentary transfer tax.

This law is effective as of January 1, 2016.

Fire Prevention Fee –Assembly Bill 301
The State Board of Forestry and Fire Protection has adopted an emergency regulation under Public Resources Code § 4212 to levy an annual fire prevention fee upon each “habitable structure” within a state responsibility area. The owner of the structure as of July 1st of the year the fee is due is responsible for payment of the fee. AB 301 allows the owner of the structure the ability to negotiate payment of the fee as part of the terms of the sale of the structure. However, in addition to this language, Public Resources Code § 4213.1(a)(2) contains the caveat that the liability for payment of the fee still rests upon the owner of the structure as of July 1st. This law went into effect January 1, 2016.

Private Transfer Fees – Assembly Bill 807
Current law defines a “transfer fee” as “any fee payment requirement imposed within a covenant, restriction, or condition contained in any deed, contract, security instrument, or other document affecting the transfer or sale of, or any interest in, real property that requires a fee be paid as a result of transfer of the real property.” It is, effectively, a private tax to be paid upon the sale of a property. Assembly Bill 807, sponsored by the California Association of REALTORS®, “expands Private Transfer Fee (PFT) recordation requirements to include PTFs whose payment does not occur upon a change in ownership or that are not based on sales price.” Furthermore, the disclosure of the PFTs must be in a single document and not incorporated by reference to other documents.

Lawn Appearance – Assembly Bill 1
Many issues and concerns have arisen regarding the appearance of lawns and the limitation for watering said lawns during California’s drought crisis. In an effort at clarity, AB 1 was passed and codified into Government Code § 8627.7, stating that during a state of emergency based on drought conditions, “a city, county, or city and county shall not impose a fine under any ordinance for a failure to water a lawn or for having a brown lawn.” This law went into effect January 1, 2016.

Recycled Water – Assembly Bill 786
As a result of the ongoing state of emergency regarding the drought, the legislature has been concerned with preserving potable water and limiting its use to water outdoor landscaping. To that effect, Civil Code § 4735 includes language stating that an association cannot impose a fine or assessment against a homeowner for reducing or eliminating watering his landscaping or lawns. However, AB 786 has amended CC§4735 to allow an assessment or fine to be imposed against “an owner of a separate interest that…receives recycled water…and fails to use that recycled water for landscaping irrigation.” Due to the emergent nature of the drought, this law went into immediate effect upon being passed by the legislature (October 11, 2015).

Water-Efficient Landscaping – Assembly Bill 349
Passed in conjunction with AB 786 in response to the drought crisis, AB 349 further amends Civil Code § 4735. Governing documents or landscaping policies or guidelines are void and unenforceable if they prohibit the use of artificial turf or synthetic grass. Furthermore, owners of a separate interest who implement water-efficient landscaping measures in response to the state of emergency shall not be required to reverse or remove the water-efficient landscaping measure when the state of emergency is declared to be over. This law was also enacted immediately (September 4, 2015.)

Drought-Tolerant Landscaping – Assembly Bill 1164.
On April 1, 2015, Gov. Brown issued Executive order directing the State Water Resources Control Board to implement mandatory water reduction across the state of California. The goal is to reduce water usage by 25%, and with landscape irrigation representing 43% of urban water use, efforts have been made to replace existing landscaping with drought-tolerant landscaping, including artificial turf or synthetic grass. Whilst laws have been implemented stating a city and/or county may not prohibit the installation of drought-tolerant landscaping, synthetic grass, or artificial turf, AB 1164 has added caveats to that prohibition. Government Code § 53087.7(b) states that a city and/or county may impose reasonable restrictions on the type of drought-tolerant landscaping that may be installed on residential property, provided the restrictions do not:

1. Substantially increase the cost of installation;
2. Effectively prohibit installation; and/or,
3. Significantly impede the installation, such as with the requirement that a yard must be covered with living plant material.

As with the other water-use bills discussed herein, this law went into effect immediately (October 9, 2015).

Clotheslines or Drying Racks – Assembly Bill 1448
Codified in Civil Code §§ 1940.20 and 4750.10, landlords may no longer restrict tenants from using a clothesline or drying rack. Furthermore, any governing document, such as those issued by homeowner associations, may not prohibit or unreasonably restrict the use of clotheslines or drying racks. As defined, a “clothesline” is a cord, rope, or wire from which laundered items may be hung to dry or air. A “drying rack” is considered to be an “apparatus” from which laundered items may be hung to dry or air. A balcony, railing, awning or other part of the structure or building is not considered a drying rack or clothesline. This new law became effective January 1, 2016.

December 2015: C.A.R. to Release Revised Forms in December

PDF Version
BY: KELLY A. NEAVEL, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

The California Association of REALTORS® (C.A.R.) will release eight (8) new and twenty-one (21) revised forms during the week of December 14, 2015. It will also discontinue the use of one form. In our last Courtside Newsletter, we discussed the eight new forms being released; past Newsletters can be accessed on our website at www.glawgroupapc.com. In this month’s Newsletter, we are going to explore the revised forms that C.A.R. will be  issuing, with the exception of the Residential Purchase Agreement (RPA) and the Residential Listing Agreement (RLA). A special Courtside Newsflash will be issued on those forms in the coming weeks.

REVISED FORMS

1. Additional Agent Acknowledgement (AAA)

The AAA has been revised to act as an addendum to the Purchase Agreement, Residential Listing Agreement, Buyer Representation Agreement, or other “Agreement.” The form also now states that, “Listing Broker and Seller signatures are not necessary if this form is only used to modify a Buyer Representation Agreement. Selling Broker and Buyer signatures are not necessary if this form is only used to modify a Listing Agreement.” According to C.A.R., “Even though multiple agents are named, the form only needs to be signed by one.”

2. Addendum (ADM)

The addendum has been updated to include a line that indicates whether the form is being used to modify a Transfer Disclosure Statement (TDS). It also includes the caveat that, “An amendment to the TDS may give the buyer the right to rescind.”

3. Commission Agreement (CA)

The Commission Agreement contains a new segment on the benefits of using the MLS, the impact of opting out of the MLS, and the requirement for brokers to present all offers to the seller, unless seller gives written instruction to the contrary. The form addresses closed and private listing clubs or groups, also known as “pocket listings,” and how those may impact the sale of a property. It also contains an acknowledgement in which the seller indicates he understands that excluding the listing from the MLS could mean: “(a) real estate agents and brokers from other real estate offices, and their buyer clients, who have access to that MLS may not be aware that Seller’s Property is offered for sale; (b) Information about Seller’s Property will not be transmitted to various real estate Internet sites that are used by the public to search for property listings; (c) real estate agents, brokers and members of the public may be unaware of the terms and conditions under which Seller is marketing the Property.” Furthermore, the arbitration and mediation terms have also been updated on the CA.

4. Single Party Compensation Agreement (SP)

Like the Commission Agreement (CA) form, Single Party Compensation Agreement contains a new segment on the benefits of using the MLS, the impact of opting out of the MLS, and the requirement for brokers to present all offers to the seller. It is the same language used in the CA, and therefore also addresses “pocket listings” and the potential consequences of utilizing a closed- or private-listing club or group. The “Dispute Resolution” segment of the form has also been revised, adding an arbitration and mediation clause for seller and broker to acknowledge.

5. Commercial Lease Agreement (CL)
Paragraph 29, “Insurance,” of the Commercial Lease Agreement has been revised to include the tenant’s requirement to carry property insurance “in an amount sufficient to cover the replacement cost of the property if Tenant is responsible for [maintaining the roof, foundation, exterior walls, common areas, and other specified areas.]”
6. Contingency for Sale of Buyer’s Property (COP)

A “Notice to Remove Contingencies” segment has been added to the end of the COP form, which gives the buyer notice to remove the contingencies specified in Paragraph 7A entitled, “Back Up Offers and Seller Right to Have Buyer Remove Contingencies or Cancel.” As a result, the buyer and seller will no longer need to use the Notice to Buyer to Perform (NBP) to remove contingencies.

7-9. Commercial Property Purchase Agreement (CPA);

Residential Income Property Purchase Agreement and Joint Escrow Instructions (RIPA); Vacant Land Purchase Agreement and Joint Escrow Instructions (VLPA)

The “Changes During Escrow” section of the CPA, RIPA, and VLPA has been revised to add a segment stating, “Within 5 (or __) Days After receipt of such notice [of any Proposed Changes], Buyer, in writing, may give Seller notice of Buyer’s objections to the Proposed Changes in which case Seller shall not make the Proposed Changes.” This effectively prevents seller from making changes to any leases, service contracts, or property conditions during escrow.

10. Exempt Seller Disclosure (formerly SSD) (ESD)

The ESD was formerly the Supplemental and Contractual Disclosure (SSD) form. Paragraph 2 has been added, which makes sellers aware that although they may be exempt from filling out the TDS, there are other disclosures under California law that they are obligated to make to buyers. Sellers who are not legally required to complete a TDS can use this form to make other required disclosures. It is not okay to use previous versions of this form.

11. Residential Lease or Month-to-Month Rental Agreement (LR)

The LR has been revised to include updates to several sections of the form, including:

• “Rent” (Paragraph 3E): “Rent Payments received by Landlord shall be applied to the earliest amount(s) due or past due.”
• “Maintenance Use and Reporting” (Paragraph 11E): “Landlord and Tenant agree that State or local water use restrictions shall supersede any obligation of Landlord or Tenant to water or maintain any garden, landscaping, trees or shrubs pursuant to [previous stipulations in Paragraph 11.]”
• “Pets” (Paragraph 13): A checkbox regarding the C.A.R. Pet Addendum has been added to indicate that pets may be allowed on or about the premises.
• “Waterbeds/Portable Washers” (Paragraph 34) “Tenant shall not use, on the Premises, □ Portable Dishwasher □ Portable Washing Machine.”
• “Attorney Fees” (Paragraph 40) “In any action or proceeding arising out of this Agreement, the prevailing party between Landlord and Tenant shall be entitled to reasonable attorney fees and costs collectively not to exceed $1,000 (or $____), except as provided in paragraph 39A [Mediation].”

A space for the landlord’s signature has also been provided.

12. Application to Rent/Screening Fee (LRA)

On the Application to Rent (LRA), the Social Security Number moved from the tenant information (“Application to Rent”) section to the “Screening Fee” section (Section II).

13. Notice to Perform Covenant (Cure) or Quit (PCQ)

Paragraph 1B has been added to the PQC to allow for the form to be used to pay a monetary obligation other than that of past due rent. The section includes to whom the money is owed, and when and where it should be paid.

14. Property Management Agreement (PMA)

The term “Broker” has been replaced with the term “Property Manager” throughout the agreement. Paragraph D, “Repair; Maintenance” has been updated to include the provision that, “Owner agrees that state and local water use restriction will supersede any obligation by Property Manager or any Tenant to water/maintain gardens, landscaping trees or shrubs.”

15. Seller Response and Buyer Reply to Request for Repair (RRRR)

The RRRR has been revised to include a section where the buyer can accept the seller’s response to buyer’s requests with modifications (Paragraph 1B under “Buyer Reply to Seller Response”). Another section was added that only applies if the buyer checks the box for 1B. This section (aptly titled “Only Applies If Buyer Checks 1B”), allows the seller to indicate whether he agrees or rejects the buyer’s modifications.

16. Seller’s Advisory (SA)

The Seller’s advisory now contains revisions to Paragraph D, “Government Required Repairs, Replacements and Alterations,” which includes instructions regarding smoke alarms and brace water heaters. Paragraph 4A, “Pre-Sale Inspections and Considerations,” has been revised to include advice about how to prepare the property for sale, including “making cosmetic improvements, and staging.” It also includes language regarding pre-sale inspections, in order to be made aware of, and possibly fix, faults in the home prior to the buyer’s eventual inspection.

17. Statewide Buyer and Seller Advisory (SBSA)

Paragraph 20, “Future Repairs, Replacements and Remodels,” has been updated to include language regarding the eventual discontinuation of the use of R-22 Freon and new efficiency standards for water heaters. These changes will impact the repairs and replacements of air conditioning units and heat pumps as “… replacement water heaters will generally be larger than existing units and may not fit in the existing space” and “additional venting and other modifications may be required as well.”

Paragraph 35, “PACE Loans and Liens” has also been added to provide information regarding Property Assessed Clean Energy (PACE) program loans, (also be referred to as HERO or SCEIP programs). The programs allow property owners to finance energy and water conservation improvements through an assessment on the owner’s property. If a property owner chooses to utilize this program, a lien similar to a tax lien is placed on the property, which the owner is required to disclose. The form directs the buyer to request the C.A.R. Legal Q&A “PACE Programs and Solar Leases” from the broker for further information.

Paragraph 36, “Solar Panel Leases,” has also been added to the SBSA, which provides information regarding the standard practices behind leased and owned solar panels. Although leased panels may be considered personal property, they are included in the sale of the property and must be disclosed to the buyer, along with the any documentation concerning the lease and system. The buyer can then investigate the solar panel system and may assume the lease, which is generally secured by leasing companies by a UCC-1 form giving notice of a creditor’s security interest against the property. The form again directs the buyer to request the C.A.R. Legal Q&A “PACE Programs and Solar Panels” from his broker for more information.

Lastly, Paragraph 37, “Homeowner Associations and Covenants, Conditions and Restrictions (“CC&Rs”); Charging Stations,” has been updated to include a reference to the C.A.R. Legal Q&A entitled, “Homeowners’ Associations: A Guide for REALTORS®.” The buyer can request this from the broker for review.

18. Seller Property Questionnaire (SPQ)

Paragraph V.B., “Repairs and Alterations,” now includes a segment in which the seller can indicate whether there have been “any alterations, modifications, replacements, improvements, remodeling, or material repairs to the property done for the purpose of energy or water efficiency improvement or renewable energy.” Paragraph V.J, “Title Ownership, Liens, and Legal Claims,” has also been updated to allow the seller to reference “any PACE lien (such as HERO or SCEIP) or other lien…” against the property and “the cost of any alteration, modification, replacement, improvement, remodel or material repair of the Property being paid by an assessment on the Property tax bill.”

19. Seller Multiple Counter Offer (SMCO)

The Seller Multiple Counter Offer has undergone revisions for the sake of clarity. Specifically, Paragraph 2, “Binding Effect,” has been updated to indicate the conditions under which the Multiple Counter Offer is considered binding on buyer and seller:

• “Seller signs in paragraph 5 [“Seller Makes this Multiple Counter Offer on the Terms Above and Acknowledges Receipt of a Copy”].
• “Buyer signs in paragraph 7 [“Acceptance”].
• “Seller signs in paragraph 8 [“Acceptance of Seller Multiple Counter Offer”], and Buyer receives a copy of the Multiple Counter Offer with all of the signatures.

“…Prior to the completion of all of the foregoing, Buyer and Seller shall have no duties or obligations for the purchase or sale of the property.”

Paragraphs 3, “Expiration of Seller Multiple Counter Offer,” and 6, “Acceptance of Seller Multiple Counter Offer,” have been changed so the buyer’s response and seller’s selection do not have to occur in same time period. Paragraph 4, “Marketing to Other Buyers,” has also been added to indicate that the seller has the right to continue to market the property for sale and accept any other offers, prior to the seller selection of the SMCO.

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As always, should you have any questions or concerns regarding these forms, we encourage you seek qualified counsel—either through an attorney or your local REALTOR® Association—for answers. Look out for our Courtside Newsflash regarding the Residential Purchase Agreement (RPA) and the Residential Listing Agreement (RLA).

November 2015: California Association of REALTORS® to Release New Forms in December

PDF Version
BY: KELLY A. NEAVEL, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

The California Association of REALTORS® (C.A.R.) will release eight (8) new and twenty-one (21) revised forms during the week of December 14, 2015. It will also discontinue the use of one form. In this month’s Courtside Newsletter, we are going to explore the new forms that C.A.R. will be issuing in December.

New Forms

1) Agricultural Addendum (AGAD) This form was created with the sale of agricultural property with an improved residence in mind. The form outlines disclosures that are specific to agricultural property, including whether the property:

• is “in, or adjacent to, an area with Right to Farm rights” (Paragraph 1.A.4);
• is landlocked (Paragraph 1.A.8);
• has any soil problems, such as slippage sliding, flooding,drainage, grading or other problems (Paragraph 1.A.11); or,
• is subject to any restrictions for agricultural use pursuant to the Williamson Act (Paragraph 1.A.2).

The form goes on to outline other disclosures that may interest a buyer, as well as advises the buyer to consider:

• Size, lines, access and boundaries;
• Zoning and land use;
• Utilities and service;
• Environmental hazards;
• Geologic conditions;
• Natural hazard zoning;
• Property damage;
• Neighborhood, area and other property conditions;
• Common interest subdivisions;
• Special taxes;
• Rental property restrictions; and,
• Manufactured home placement.

Both the buyer and seller sign this form.

2) Arbitration Agreement (ARB) The Arbitration Agreement is a form that the buyer, seller, and brokers may sign, agreeing “that any dispute or claim in Law or equity arising between them out of the Purchase Agreement, Listing Agreement, Buyer Representation Agreement, Other [agreement], or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration.” The form goes on to list such exclusions as:

(i) “a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage or installment land sale contract as defined in Civil Code §2985;
(ii) “an unlawful detainer action; and
(iii) “any matter that is within the jurisdiction of a probate, small claims or bankruptcy court.”

Brokers who do not sign the Arbitration Agreement may participate in arbitration should they, “in writing, agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker.” The Agreement also explains the requirements for the arbitrator and the right to discovery pursuant to California law.

3) Condominium Conversion Subdivision Purchase Agreement and Joint Escrow Instructions (CCSPA) The CCSPA “satisfies [California Bureau of Real Estate (CalBRE)] subdivision requirements for a unit that was formerly an apartment but converted to a condominium.” According to CalBRE, “Subdivision laws enforced by the CalBRE help ensure that subdividers deliver to buyers what was agreed to at the time of sale.” Specifically, the CCSPA includes disclosures regarding Public Reports, Airport Zones, the type of subdivision to be conveyed (in this case, a condominium), and other disclosures and reports, as outlined in the CalBRE “California Homebuyers ‘Bill of Rights.’” This “Bill of Rights” can be found on CalBRE’s website: www.dre.ca.gov. The CCSPA form is for use upon firstsale following the conversion; subsequent sales will use the Residential Purchase Agreement (RPA).

4) Completed Residence Subdivision Purchase Agreement and Joint Escrow Instructions (CRSPA) The CRSPA is another form that was created to satisfy CalBRE subdivision requirements, similar to the CCSPA. This form is for the first sale of a new property with an already built home and includes disclosures regarding Public Reports, and paragraphs regarding “Builder Limited Contractual Warranties” and “Procedures for Action on Construction Defects,” amongst others that will concern purchasers of the property. Any resale of the property will use the RPA.

5) Delivery of Notices Addendum (DNA) The DNA is a new form that allows buyer(s) and seller(s) to agree upon terms of delivery of notifications, once a contract has been entered into. While it cannot be used prior to entering into a contract (“Agreement,” such as the RPA), once a contract has been signed between buyer and seller, the DNA establishes the following:

• “Deliver,” “Delivered” or “Delivery,” regardless of the method used (i.e. mail, e-mail, other), means and shall be effective upon the earliest of (i) personal receipt by the person(s) or as specified in the Agreement, or (ii) deemed receipt as specified below:
• Mail Delivery: Notice sent by email shall be deemed received three (or ___) Days After proof of mailing, if sent by first class mail or better to the address indicated below.
• [If Checked] E-mail Delivery: Notice sent by email to email address #1 below, shall be deemed received (i) One (or __) Day(s) After the email was sent PROVIDED THAT (iii) A Copy of the Notice is sent, on the same date, to e-mail #2, the text number, or fax number specified below.

The form defines “notice” as “any notice, disclosure, demand, document, information or other item that Buyer or Seller may or is required to give the other pursuant to the Agreement.” The form also contains spaces for emails, fax numbers, and numbers at which text messages can be received. This form should be attached to the Agreement that buyer and seller enter into, and serves to establish delivery dates when the other side to a transaction is non-responsive.

6 & 7)  Representative Capacity Signature Disclosure (For Buyer Representatives) (RCSD-B) & Representative Capacity Signature Disclosure (For Seller Representatives) (RCSD-S) The RCSD-B and RCSD-S will be replacing the Representative Capacity Signature Disclosure form, which will be discontinued officially in December. As their titles indicate, the forms are specific to buyers and sellers. The RCSD-B differs from the RCSD-S in that it does not include Estates, since rarely is an Estate a buyer.

8) Salesperson Owned Fictitious Business Name Agreement (SOFBN) Fictitious Business Names (FBNs) can only be owned by a real estate broker, not a salesperson. As such, the SOFBN was created to notify CalBRE that the salesperson retains ownership of the FBN. The form indicates that the broker and salesperson have entered into an Independent Contractor Agreement, and that the salesperson is authorized to apply for a FBN in the county in which he or she is doing business and deliver to CalBRE an application for use of the
SOFBN associated with the broker’s license number. The form further states:

“Salesperson, while maintaining ownership of the SOFBN, agrees to use the name only as permitted by Broker. At a minimum, Salesperson understands that California Real Estate Law requires that advertising and solicitation materials including business cards, print or electronic media, and “for sale” signs containing the SOFBN shall also include:

a. Broker’s name in a manner equally as prominent as the SOFBN, and Broker’s CalBRE license number AND
b. Salesperson’s name and CalBRE license number.”

The broker further agrees that he or she shall release any rights to the SOFBN upon termination of the Independent Contractor Agreement with the salesperson, and will remove the SOFBN from the broker’s CalBRE license number.

* * *

As noted above, C.A.R. will also be releasing numerous revised forms in mid-December. A subsequent Courtside Newsletter will touch upon those. In the meantime, should you have any questions or concerns regarding these forms, we encourage you seek qualified counsel—either through an attorney or your local REALTOR® Association—for answers.

August 2015: SCOTUS Rules on Sign Codes: What Does this Mean for REALTORS®?

BY: KELLY A. NEAVEL, ATTORNEY AT LAW CASEY MCINTOSH, PARALEGAL

In mid-June, the Supreme Court of the United States (“SCOTUS”) issued a ruling on sign codes that could affect how real estate practitioners conduct business throughout the country. In Reed v. Town of Gilbert, Ariz. the Supreme Court addressed the question of whether a Sign Code with exemptions based on the type of sign violated the First Amendment right to freedom of speech.

GILBERT, ARIZONA LAND DEVELOPMENT CODE

Like many cities and towns across the United States, the town of Gilbert, Arizona (hereinafter “Town”) adopted a comprehensive Land Development Code (“Sign Code” or “Code”) to assist with the governance of the Town. This Code identifies categories of signs, subjecting the categories to different restrictions. It also prohibits the display of outdoor signs without a permit, but exempts 23 categories of signs from that requirement. Of particular interest to the court were three different exemptions to the outdoor Sign Code, and how the Town treated them:

• Ideological Signs: includes any “sign communicating a message or idea for noncommercial purposes that is not a … Political Sign…” Ideological signs are treated the most favorably of the three categories scrutinized by the court. These signs are allowed to be up to 20 square feet and can be placed in all zoning districts, without time limits.
• Political Signs: includes any “temporary sign designed to influence the outcome of an election called by a public body.” The Sign Code allows political signs to be up to 16 square feet on residential property and 32 square feet on non-residential property, undeveloped municipal property, and rights-of-way. The signs are also subject to time limitations, and may be displayed up to 60 days prior to a primary election and 15 days following a general election.
• Temporary Directional Signs Relating to a Qualifying Event: includes any “temporary sign intended to direct pedestrians, motorists, and other passerbys to a ‘qualifying event.’” A qualifying event is defined as any “assembly, gathering, activity, or meeting sponsored, arranged or promoted by a religious, charitable, community service, educational, or other similar non-profit organization.” These signs have the least favorable treatment of the three the Court focused on. They can be no larger than 6 square feet, and no more than four signs can be placed on a single property at any time. The signs may only be displayed for no more than 12 hours prior to an event, and must be removed no more than 1 hour following the event.

BACKGROUND

In the instant action, Clyde Reed (“Reed”) is the pastor at Good News Community Church (“Church”), a small, cash-strapped entity that does not have a specific location in which to hold services. Instead, services are held in or around town, mainly on Sundays. Temporary signs, such as those temporary directional signs described above, are posted to inform the public of that week’s services time and location. The signs would be posted the Saturday prior and removed midday Sunday.

As a result of this practice, the Church was cited twice by the Town’s Sign Code compliance manager. The first citation indicated that the Church exceeded the time limits to post the signs, and the second included that same violation, as well as the fact that the date of the service was not listed on the sign. Reed attempted to reach a resolution with the Sign Code Compliance Department, but was told that there would be “no leniency under the code.”

Reed thereafter filed a suit in U.S. District Court, alleging that the Sign Code abridged freedom of speech in violation of the First and Fourteenth Amendments. Both the District Court and, later, the Court of Appeals disagreed. The courts held that the Sign Code’s provision regulating temporary directional signs did not regulate speech on the basis of content. Both courts found that the Sign Code’s categories were content neutral, and the distinctions within the Code were “based on objective factors relevant to [the Town’s exemptions from permit requirements.]” Those factors did not take into consideration the substance of the signs, and the Town’s “interests in regulat[ing] temporary signs are unrelated to the content of the sign.” In light of this content-neutral decision, the Courts applied a lower level of scrutiny and concluded that the law did not violate the First Amendment.

Following this unfavorable outcome, Reed requested that SCOTUS review the matter, and was granted certiorari.

SCOTUS REVIEW

Under the First Amendment a “municipal government vested with state authority, ‘has no power to restrict expression because of its message, its ideas, its subject matter, or its content.’” As such, content-based laws, e.g. those that target speech based on content, are “presumptively unconstitutional and may be justified only if the government proves that they are narrowly tailored to serve compelling state interests.” In the instant action, the Court was tasked to determine whether the Town’s Sign Code was content based. According to the Court, “Government regulation of speech is content based if a law applies to particular speech because of the topic discussed or the idea or message expressed.” For Gilbert, Arizona, the Court found that the Sign Code is content based on its face since the restrictions that apply to “any given sign are dependent entirely on the communicative content of the sign.” Therefore, the Court must subject the Code to strict scrutiny, regardless of the Town’s benign motive for the restrictions.

This scrutiny took place in the second half of the Court’s review. The Town was required to prove that the Code’s restrictions further a “compelling interest” and are “narrowly tailored to achieve that interest.” Essentially, the town had to prove it had a good reason for creating different sign restrictions based on the content of the signs, and that the restrictions were narrowly tailored to achieve that end. However, the Town was unable to prove it had an acceptable reason for the restrictions. According to the Court, “preserving the Town’s aesthetic appeal and traffic safety” are not good reasons, especially when other types of signs are allowed that cause that same issue/concern. Furthermore, there are ample content-neutral options available to the Town to resolve issues with aesthetics and safety, such as “size, building materials, lighting, moving parts, and portability.”
Ultimately, SCOTUS found that the “Sign Code, a paradigmatic example of content-based discrimination, singles out specific subject matter for differential treatment, even if it does not target viewpoints within that subject matter.” The Sign Code is therefore unconstitutional, and the decision of the Court of Appeals was reversed by the Supreme Court.

IMPACT ON REALTORS®

Although the Supreme Court justices unanimously concurred with the decision, it has nonetheless come under fire. Many, including the Supreme Court justices, are questioning whether it will prevent governments from enacting efficient sign laws. Content-based signs may include everything from temporary directional signs to signs advertising free coffee or places of historical importance. In a separate albeit concurring opinion, Justices Kagan, Ginsburg and Breyer state, “Given the Court’s analysis, many [content-based] sign ordinances … are now in jeopardy…” and the “Court may soon find itself a veritable Supreme Board of Sign Review.” While Justices Alito, Kennedy and Sotomayor provided examples of non-content based sign regulations in their concurring opinion, the issue remains that all signs that could be content-based will suffer strict scrutiny before the court. This could, in turn, create a much more litigious environment for local municipalities.

This could prove an issue for real estate professionals as well, considering the use of signs within the profession. “For Sale/Rent” and “Open House” signs could be subject to scrutiny if they are impacted by content-based ordinances such as those seen in Reed v. Town of Gilbert, Ariz. Many cities currently have sign laws that could affect how a REALTOR® conducts business. Real estate professionals should keep this case in mind, should any issues arise.

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