Q: I represent the Seller of a duplex; the Seller resides in one unit and the other unit is rented to a Tenant. The Broker representing the Buyer used the CAR Residential Income Property Purchase Agreement (RIPA). The Buyer received the Seller’s fully-completed TDS, the CAR Seller Property Questionnaire, the Tenant’s Estoppel Certificate and all of the Seller’s documentation required by the RIPA. The Buyer has already removed all contingencies.
The Buyer’s Agent has now sent us a document that the Agent created entitled, “Tenant’s Disclosures,” which looks it was cut and pasted with parts of the SPQ and other questionnaires. It is not very professional looking but the Buyer’s Agent is insisting that the Seller make the Tenant complete this form. The Seller is concerned about even asking the Tenant to fill out this document since it was difficult enough to secure the Tenant’s Estoppel Certificate. Must the Seller get the Tenant to answer these questions? What advice can I give to the Seller?
A: Unless the Buyer’s Agent included a provision in the Purchase Agreement requiring the Seller to have the Tenant complete a separate questionnaire supplied by the Buyer’s Agent, there is no legal or contractual obligation for the Seller to agree to the Buyer’s Agent’s demand.
Even if the Seller had agreed to obtain the information from the Tenant, the Tenant will only be obligated to complete the Buyer’s Agent’s questionnaire if the existing rental or leasing agreement requires the Tenant to complete such a questionnaire. At best, rental and leasing agreements only obligate the Tenant to cooperate in completing an Estoppel Certificate which you have indicated has already been supplied to the Buyer.
Although it may seem logical to ask Tenants about their knowledge of material facts concerning the Property that go beyond the basic information contained in a Tenant’s Estoppel Certificate, requiring the Seller to obtain this information from the Tenant may have some negative repercussions. Some of the points that Agents and Sellers should consider are:
- If the Tenant makes any misrepresentations in response to some of the questions that the Buyer relies upon in proceeding with the transaction, the Seller may have potential liability for what the Tenant disclosed;
- If the Tenant completes the form after the Buyer’s TDS rescission period is over and the Tenant discloses “new information,” the Buyer may try to claim that the Tenant’s Questionnaire constitutes an Amendment to the TDS which would trigger a new right to rescind (3 days from personal delivery and 5 days from date of mailing or emailing the Amendment to the Buyer’s Agent);
- Since this is an Agent-created document and there is no standard of care for such a questionnaire, there could be a concern as to the thoroughness or quality of the questions that were or were not asked. The only real estate industry form to be provided to Tenants in the sale of rental property is an Estoppel Certificate; and
- If you use that Agent-created questionnaire in this transaction, you may need to use it in other transactions involving tenant-occupied property. This is the infamous “slippery slope” argument that lawyers often use.
PRACTICE TIPS:
- Sellers should not be required to complete any questionnaires unless the Seller is statutorily required to do so or has contractually agreed to complete the questionnaire.
- Sellers should not require Tenants to complete any questionnaires unless the Tenant is statutorily required to do so and/or has agreed to do so in the rental or lease documents.
- If another Broker has created their own questionnaire for the Seller or the Seller’s Tenant to complete and the other Agent is insisting that the form be completed, recommend to the Seller in writing (such as an email) that the Seller not agree to the other Agent’s request without first consulting with a qualified California real estate attorney who will need to review all of the relevant transaction documents.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2019 08/02/19