QUESTION: Has CAR changed its COVID-19 forms and when will they be available? It is so difficult to keep up with these constant changes. Can you explain why we have new forms, how long we need to use them and what are the differences between the prior versions and the newest versions of these forms?
ANSWER: Yes, CAR has changed all of its COVID-19 forms, for both listings/sales and rental property; all seven (7) of these forms, including three (3) rental forms, will be available on ZipForms starting Friday, April 17, 2020.
Four of the newly-revised CAR forms that relate to the listing and sale of residential properties are:
CORONAVIRUS PROPERTY ENTRY ADVISORY AND DECLARATION (PEAD)
LISTING AGREEMENT CORONAVIRUS ADDENDUM OR AMENDMENT (RLA-CAA)
CORONAVIRUS ADDENDUM OR AMENDMENT (CVA)
NOTICE OF UNFORESEEN CORONAVIRUS CIRCUMSTANCES (NUCC)
Change is often difficult for many people under the best of circumstances and these days we are living in a sea of constant change. CAR is simply trying to create the best forms possible during these trying times. As we have noted in prior Alerts and Weekly Practice Tips, the original versions of CAR’s COVID-19 forms had flaws that could create misunderstandings by consumers and REALTORS®. Notwithstanding statements made by others when the forms were initially rolled out, the forms did not provide adequate protection for the management of the risks that were facing Brokers and Agents in the face of ever-changing local Stay at Home Orders. Many of the problems we have noted have been remedied.
The need for REALTORS® to continue to use CAR’s COVID-19 forms will probably exist even after the state and local Shelter in Place Orders are phased out because of the uncertain short-term and long-term effects of COVID-19 on the health and safety of our people and our economy. As soon as the need for these forms ends, we will make sure that you are notified.
BEST PRACTICES:
- Carefully review the FAQ below which explains the differences between the revised forms and the prior versions. It is 7-pages long but it answers the bulk of the questions that we receive daily.
- Follow the recommendations for how to use the revised forms that are contained in the attached FAQ.
This Weekly Practice Tip an attorney-client privileged document 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 2020 04/17/2020
FAQ RE NEWLY-REVISED COVID-19 FORMS
THIS FAQ IS DESIGNED TO ANSWER THE ANTICIPATED QUESTIONS REGARDING THE REVISED FORMS CREATED BY THE CALIFORNIA ASSOCIATION OF REALTORS® (CAR) FOR USE IN LISTINGS AND SALES OF RESIDENTIAL PROPERTY.
ALL OF 4 OF THESE FORMS ARE DATED 4-16-2020 AND ARE FORMALLY AVAILABLE ON 4-17-2020
CORONAVIRUS PROPERTY ENTRY ADVISORY AND DECLARATION (PEAD)
Q1. What is DIFFERENT in the third version of CAR’s PEAD form?
A1. The PEAD form is now two-pages and it has two bold print warning at the very top of the form below the title. The first parenthetical warning states: A new declaration [PEAD] should be obtained from each visitor, each time they enter a property. The second warning states: May be used for more than one property provided a copy is left for each. These warnings reflect the advice that Broker Risk Management provided in our original FAQ dated April 9, 2020.
Additional bold print warnings are now included in paragraph 3 of the PEAD entitled “Real Estate Activities as Essential.” The form highlights a previously hidden statement that more restrictive County and City Orders take precedence over Federal and State guidelines. Added to this form are two new bold print sentences that are an excellent disclaimer regarding real estate licensees which enables attorneys to better defend the idea that Buyers and Sellers who violate a Stay at Home or Shelter in Place Order (“SiP”) are doing so against the advice of the Broker. The form then notes that Brokers and Agents will not violate the relevant SiP and they will obey all Fair Housing laws.
New paragraph 4 of the PEAD is entitled “Purpose of Entry;” it is now clear that the form is intended to be used any time anyone is entering the Property for “viewing or inspecting a Property or performing an activity or providing services … to facilitate a real estate transaction or service.” In other words, any time anyone is entering the Property for any reason for any purpose that is related to or arising from the purchase and sale of the Property, a PEAD form should be signed.
Each Entrant who signs the PEAD form (“Signer”) is affirmatively representing that they are voluntarily entering the Property and that they are responsible for taking all “reasonable and necessary precautions to protect Signer and others” (see paragraph 7A of the PEAD form).
The paragraphs have been better organized to more readily find the representations that are being made by the Seller/Occupant (see paragraph 5) as compared to the representations made by “Property Entrants” (see paragraph 6). Paragraph 5 clearly states that the Seller has been advised to take specific precautions but the Seller is not guaranteeing that any precautions will actually be taken.
New Paragraph 8 allows for “Exceptions” to the representations and Additional Terms – see Q&A 3 below.
The signature block now includes check boxes to indicate the status of the Signer (as the Seller/Buyer/ Broker/Other Entrant/Occupant) so that it is more obvious who is signing the form. The brokerage information that was on the PEAD form has been removed.
There is now a place to acknowledge receipt of the signed PEAD form – only initials are needed.
Q2. Should we still require that the PEAD form be used on all of our Listings?
A2: Yes. The PEAD form should be given to and signed by all of your Sellers, whether or not they are allowing Buyers and/or third parties (such as appraisers, photographers, inspectors, contractors, stagers, etc.) to access their Property. To the extent that access is allowed by the Seller and that access is consistent with any local SiP Order, the form needs to be signed EVERY DAY any of these individuals enter or re-enter the residence since their representations as to their health (in paragraphs 7A and 7B) could change day to day.
Q3. Should we use the PEAD form on our Listings if the Property is vacant (i.e., no one is residing in the Property)?
A3: Yes. The PEAD form should definitely be signed by the Seller of vacant property so that you have proper file documentation that the Seller is allowing people to enter that Property. However, when the Property is vacant, it is extremely unlikely that anyone will be following any of the safety and social distancing guidelines that are recommended in paragraphs 5 (for Sellers) and 6 (for Entrants) of the PEAD form. Therefore, the best practice is to include in paragraph 8, “Exceptions”, the following note:
NOTE: All Property Entrants are advised that the Property is vacant and thus neither Seller nor Seller’s Agent will be able to follow the recommendations contained in paragraph 5 and other Entrants may not be following the paragraph 6 guidelines. Property Entrants are thus accessing the Property at their own risk.
Q4. Should Sellers’ Agents provide the PEAD form signed by Sellers to everyone who requests access?
A4. Yes. That way the Seller and Seller’s Agent are assured that the correct, current information is provided to anyone who gains access. A copy of the Seller’s PEAD should be included in the Broker file.
Q5. What is the impact on the use of the PEAD form if the County SiP only allows “in person property visits” and no one is residing in the Property (meaning that the property is vacant)? What is the impact if the Purchase Agreement was signed before the SiP went into effect?
A5: No impact as to both questions. The PEAD form should be used regardless of whether there is a more restrictive County SiP Order that affects the Property, regardless of whether the Property is occupied or vacant and regardless of the date on the Purchase Agreement. It does not matter what language is used in the County SiP – use the PEAD form on every residential property listing and sale.
Many Counties and Cities in California have a Stay at Home or Shelter in Place Order that only allows “in-person showings” or visits if the Property is “vacant” or “has no occupants” or “no one is residing in the Property.” These Orders were created by local Health Officials and the Orders do not contain any definitions for the terms that the Health Officers chose to use. The language in these various local Orders was not created by qualified California real estate attorneys, legislators, judges or CAR. Worse, these Orders do not detail all of the various activities or reasons why Buyers, Agents and Others need to access to property that is being sold
Thus, the best practice is to treat these variations in the terminology contained in various SiP Orders as meaning essentially the same thing and the Orders should be interpreted based upon common, everyday usage of the words in the Order. “In-person showings” should not be interpreted as meaning only the pre-contract marketing viewings – it should be interpreted as meaning any access for any purpose since the word “showing” (when used as a verb means “presenting”, “exposing” and/or “disclosing”). That language would thus apply to property inspections, Agent visual inspections and Buyer’s Final Verification or walk-through.
Q6. If we use the PEAD form, does that form override a County SiP Order that limits us to in-person visits of Property unless the Property is vacant?
A6. No. The PEAD form cannot and legally does not override any federal, state or local order. Using that form cannot protect a Broker or an Agent or a Client from a claim by a local official that they are violating the law. If a County or City SiP Order restricts showings or visits, the Order must be complied with at all times and the PEAD form reminds everyone of that fact in the bold print sentences at the end of paragraph 3.
Q7. Should we require that the PEAD form be used if we are helping Buyers to visit properties?
A7. Yes. The PEAD form should be given to your own Buyers if you are visiting properties. The PEAD should be re-signed every day that you are showing the Buyers any properties. The form needs to be used EVERY TIME the Buyers enter or re-enter any residence since their representations as to their health (which is now in paragraph 7B) could change day to day.
The best practice is to meet the Buyers at each property you are showing and that you not drive together in the same car. Carry multiple copies of the PEAD form so that you can leave a signed PEAD form at every property you show your Buyers. Make sure that you keep a copy of each PEAD form the Buyers sign and that those documents are included in the Broker file.
Q8. In addition to having our Buyers sign the PEAD, should we ask that the Seller sign the form even if the Seller is represented by another Broker or if the Seller is not represented by anyone?
A8. Yes. If you are showing a property listed by another Broker, ask if the Seller has signed a PEAD form and have the Agent confirm that the Seller has signed that form either in an email or by getting a copy of it. If that Seller has not signed the PEAD, ask, “why not?” If the Seller’s Agent does not give a satisfactory answer, discuss with the Buyer whether they should reconsider entering the house. By not signing the PEAD, the Seller is not stating whether or not they have symptoms, as is now required by paragraph 7B. The safest approach would be to advise your Buyer not to enter. If your Buyer chooses to enter, tell them that they are doing so against your advice; document the file with an email to the Buyer to that effect as soon as practical.
NOTE: If you are visiting vacant property, be sure to warn the Buyer that (a) it is unlikely that anyone will be following the recommended Seller or Occupant Guidelines in paragraph 5 of the PEAD form and (b) that the degree of risk in entering vacant properties is directly related to how many people have already seen it. These two issues are not detailed in the PEAD form unless the Seller or Seller’s Agent added a note (Q&A3 above).
If you are showing your Buyers a FSBO property, we recommend that you have the Buyer instruct you to give the Seller the PEAD form and then ask that the Seller read and sign the PEAD. If the FSBO Seller refuses to sign it, the safest approach would be to advise your Buyer not to enter. If your Buyer chooses to enter, tell them that they are doing so against your advice; document the file with an email to that effect to the Buyer as soon as practical.
Q9. As the Seller’s Agent, should we collect the PEAD forms from each Entrant each and every time they enter the Property?
A9. Yes, that is the best practice to keep track of everyone who has accessed the Property and that is the methodology required if the Seller has signed the RLA-CAA. Collecting the copies of signed PEAD forms from all Entrants enables the Seller and Seller’s Agent to keep track of who visited the Property.
Q10. Should we keep a copy of the PEAD forms that we receive? If so, how should these be stored?
A10. Yes. Any time a form is signed by a Client (including, but not limited to, Buyers who are being shown properties) or is provided to a Client (Seller has asked that all visitors sign the PEAD), a copy of that document needs to be in the Broker File. For listings and pending sales, a copy of all of the signed PEAD forms are to be put into the Broker file. If working with Buyers who have yet to make an offer, the signed copy of these forms should be stored in the same manner as unaccepted offers.
LISTING AGREEMENT CORONAVIRUS ADDENDUM OR AMENDMENT (RLA-CAA)
Q11. What is DIFFERENT in this latest version of the form?
A11. In part, because of the criticisms that we noted in the original FAQ we distributed on April 9, 2020, the RLA-CAA form has been significantly re-formatted. First, the RLA-CAA now contains the same bold print warning about Brokers/Agents not violating the law that is in the PEAD form. The new form has put into bold print the original warning language that: “Nothing contained in this Addendum or Amendment shall be construed to allow an activity that is otherwise prohibited by any law.”
Thus, it should be recognized that if a local SiP Order prohibits any in-person visits into occupied property and the listed Property is occupied by a Tenant or Owner (or anyone else), then the Property cannot be shown. This form cannot and does not protect Sellers or Brokers who choose to violate the SiP.
The second change is that although the Seller can pick and choose which of the listed marketing activities the Seller will authorize (in paragraph 2), once there is a sale, there are no options. If the Seller authorizes access for marketing purposes, then the Seller authorizes all visitors to have access to conduct the necessary sales activities including, but not limited to, inspections, the Agent’s AVID and the final verification of condition as long as the rules for accessing the property during the marketing period are followed during the escrow.
Third, if the Seller is limiting or restricting access to the Property, the Seller is warned that prospective buyers will not be able to perform the typical activities and that this fact “may limit the value or desirability of the Property.” (See paragraph 4A.)
The final and most important change to the RLA-CAA is the new Paragraph 4C which states: “If Seller is prohibiting or limiting access, Seller is advised to seek the advice of a qualified California real estate attorney prior to modifying any contract or addendum to any real estate agreement entered into between Seller and a buyer. Such modification may be required in order to contractually prohibit or limit access by a buyer or other brokers.”
Q12. Why did CAR remove the indemnity language in the RLA-CAA? Wasn’t it needed to protect Brokers and Agents from claims and/or wasn’t it necessary for E&O coverage?
A12. CAR was advised that the vast majority of qualified California real estate attorneys had determined that the original indemnification language that was at the end of old paragraph 5 was legally unenforceable.
E&O coverage is unlikely to be positively impacted by any language in the RLA-CAA. E&O policies do not cover personal injury claims (such as allegations that allowing visitors into the Property caused someone to contract COVID-19) and there is no E&O coverage for problems arising from or related to violating any relevant law including City and County Orders. If there are claims against Sellers and their Agents for violating a local SiP Order, the E&O policy will not provide any protection for the Seller’s Agent whether or not a form was used.
What has been included instead of a weak indemnity provision is that the Seller is assuming the risk of their own decisions regarding whether or not to comply with the SiP order.
Q13. Should we use the new RLA-CAA even if the Seller signed the earlier version?
A13: Because of the revisions to this form, we recommend using the RLA-CAA on all listings, whether or not the earlier version was used. We recommend asking the Seller to re-sign this document to make sure that the Seller is consistent on either allowing all persons to access the Property or is consistent in not allowing any access; but, under no circumstances, can the RLA-CAA form be used in an attempt to circumvent a local SiP Order or to treat different people differently in violation of the Fair Housing regulations. If the Seller refuses to sign the new RLA-CAA, note that refusal in the Broker file (e.g., Seller can write “rejected” on an RLA-CAA).
CORONAVIRUS ADDENDUM OR AMENDMENT (CVA)
Q14. What is DIFFERENT in the third version of this form?
A14. There is now an explanation in the heading that the form can be used when making an offer or counter (as an Addendum) or after the Purchase Agreement has been fully Accepted (as an Amendment). The CVA now also includes a warning that Buyers and Sellers should consult with a qualified California real estate attorney about the issues in the CVA.
It is now easier in paragraph 4A for the Parties to agree to extend the time frames for performance of all Buyer Contingencies; or to designate just the loan; and/or the investigation; and/or the appraisal contingencies.
The earlier CVA forms automatically eliminated the need for a Notice to Buyer to Perform and/or the Demand to Close Escrow in the Extension of Time paragraphs; that is now the default choice and the Parties can agree to continue to use those devices in paragraphs 4A and 4B.
The earlier CVA forms automatically specified that the Buyer’s deposit had to be released to the Buyer if the Parties were not able to close within the time frame specified in paragraph 4B. Now that issue is negotiable in paragraph 4B.
Although the Parties have more options when deciding what is to happen at the conclusion of the extension of time periods, paragraphs 4A and 4B are a bit awkward and require careful reading by all Agents and Parties before the document is fully signed.
What has not changed: The purpose of the form remains what it always has been: a mechanism to get the Parties to agree as to what is to happen to the transaction if the deal and/or the Parties are negatively impacted by COVID-19. The following two aspects of the CVA that have not changed should be noted:
- That with the Mutual Cancellation Option (which should only be used if there is an existing Purchase Agreement), the Buyer’s deposit shall be returned to Buyer, minus fees and costs incurred by Buyer.
- The CVA does not contain a mechanism for the Buyer and the Seller to agree on what level of access the Seller will allow the Buyer and the Buyer’s Agent to have to the Property. CAR was made aware of this problem and chose not to include it in this latest version of the CVA (in part so that the form did not become a 2-page document). CAR is considering creating clauses that may be of assistance. See Q&A 15 below.
Q15. If the Seller will not allow any access to the Buyer and the Buyer’s Agent to facilitate necessary sales activities such as the Final Verification of Condition and/or the Agent’s AVID, what are the Buyer’s options?
A15. The Buyer should be advised, in writing, that it is not in the Buyer’s best interests to proceed with the transaction with those limitations in place. The Advisory we distributed on March 27, 2020 regarding Buying Property “Sight-Unseen” is one way to document that the Buyer has been appropriately warned about the problems.
If the Buyer is upset about the lack of access and/or wants to try to force the Seller to allow access as specified in the Purchase Agreement, then the Buyer needs to be advised that neither of the Agents has any means to force the Seller to provide access; thus, the Buyer should consult with their own qualified California real estate attorney to assess their rights, obligations and risks. This recommendation should be detailed in an email.
However, if the Buyer is willing to proceed with the transaction knowing that the Seller’s refusal to allow access will make it extremely risky for the Buyer (they are essentially buying the Property without having the knowledge necessary to make an informed decision about their purchase), then the Parties can enter into an agreement clarifying the access limitations in this transaction. The recommended contract language for that situation can be added to either an Addendum or an Amendment to the Purchase Agreement:
Seller Denying Access to the Property: As a result of COVID-19 and the relevant Shelter in Place Order(s), Seller is denying access to the Property for purposes of marketing, viewing, conducting inspections and all other purposes. Therefore, the Parties understand, acknowledge and agree that:
- Final Verification of Condition. Buyer may not be able to conduct the Final Verification of Condition of the Property. By signing this Addendum/Amendment, Buyer is agreeing to close Escrow and purchase the Property without the benefit of this Final Verification against the advice and recommendation of the Brokers/Agents.
- AVID. Brokers/Agents may not be able to fully perform their duties to personally inspect the accessible areas of the Property. The disclosures provided by the Brokers/Agents in their AVID will be based, instead, on any prior visits to the Property and/or their review of photographs/videos/virtual tours. The Brokers/Agents will still be legally required to disclose what they actually know.
Q16. Is the CVA a required form?
A16. No; it is strictly an optional form as specified in the second sentence of paragraph 2 in the CVA.
When negotiating a Purchase Agreement, the Parties do not need to agree to any extensions of any contingencies or Close of Escrow; they simply need to create longer periods of time for the Parties to complete the contingencies and contractual obligations. Contracts should be written to reflect the current market; contingencies should be included and should be for longer periods of time during the SiP as compared to how contracts were prepared before the SiP.
If the Parties wish to extend the time periods for contingencies or COE, the Parties can use the same blank Amendment form that is typically used when there are no Stay at Home Orders, at which point there is no
need to pre-agree to eliminate the need for the standard Notices to Perform/Demand to Close Escrow and no automatic release of the deposit to the Buyer. Negotiating extensions of time for performance of contingencies and contractual obligations the way that they are usually negotiated may make it more likely that the Sellers will be amenable to signing the Amendment.
NOTICE OF UNFORESEEN CORONAVIRUS CIRCUMSTANCES (NUCC)
Q17. What is DIFFERENT in the revised NUCC?
A17. The introduction clarifies that the NUCC can be used even when the CVA form was not agreed to by the Parties. Some additional choices have been added as to the reasons why the extension is needed or a cancellation is appropriate. The most important change to this form is a new bold print warning that the Brokers and Agents will not violate any Stay Home Orders. The form also specifies that:
“Brokers and Agents cannot and will not determine the legal sufficiency or the good faith use of the stated reasons for purposes of requesting an extension or a cancellation and/or or who is entitled to the funds in escrow.”
This additional language will greatly benefit the real estate licensees in claims regarding whether or not the clients were acting in good faith.
Q18. Is the NUCC a required form?
A18. It is only required to be used to the extent that the CVA form has been used and the Party requesting the extension of time or the cancellation is giving the required notice of what the unforeseen circumstances are necessitating the request. The NUCC form is optional if the CVA form has not been agreed to by all Parties but one of the Parties wants to give notice of an unforeseen circumstance.
Q19. Which boxes should be checked on the NUCC?
A19. Only the boxes that are truthful and relevant to the transaction and the Party who has requested the extension or cancellation. For example, Buyers who have no investigation/inspection contingency should not be using the unavailability of a pest control operator as a basis to claim they are entitled to a cancellation.
Q20. Don’t both Parties have to sign the form?
A20. Like any other Notice, the Party issuing the NUCC (the “Affected Party”) must sign the NUCC but it does not need to be countersigned by the other Party. It needs to be Delivered to the other Party which is best documented by using email.
THIS IS NOT INTENDED TO BE, NOR SHOULD IT BE ASSUMED TO BE, AN EXHAUSTIVE LIST OF ALL POSSIBLE QUESTIONS REGARDING THESE FORMS.