Q: We wrote a non-contingent offer using the new CAR RPA. The Listing Agent had provided us with an upfront disclosure package containing what we thought were all of the Seller’s documents and disclosures (including the TDS, SPQ, NHDS, Lead and the FHDS). We are set to close next week. The Seller has now provided us with a bundle of old reports and information that was not included as part of the original disclosures. I thought my client had five (5) days to review these documents and could cancel but the Listing Agent has told me that my client cannot cancel.
My client wants out of this transaction. Doesn’t the late delivery of Seller documents create a new contingency? Can we argue that the late-delivered material constitutes an amendment to the TDS? Is the Listing Agent correct that my client cannot cancel? What is my client’s recourse in this situation?
A: Unfortunately, the new RPA dated 12/21 is rather explicit that the late Delivery of documents after applicable contingencies have been removed does not give the Buyer a new contractual cancellation right. Even though the Buyer does not have a contractual cancellation right in this situation, that does not mean that the Buyer has no recourse when Sellers deliver additional or new information after contingencies have been removed or waived. This week’s Tip will focus on the limited contractual options contained in the new RPA for dealing with late-Delivered documents and the proper course of action for Buyer’s Agents to help their clients.
I. THE NEW RPA – CONTINGENCY TIME FRAMES FOR REVIEW OF DOCUMENTS:
In the new CAR RPA Grid, paragraphs 3L(4) through 3L(7) set the time frame for the removal of the Buyer’s four (4) contingencies for the review of various documents (i.e., “Seller Documents”, Preliminary (“Title”) Report, Common Interest Disclosures and Leased or Liened Items). The time frame is “17 (or __) Days after Acceptance or 5 Days after receipt whichever is later.”
Paragraph 14B(3) explains the meaning of the “or 5 Days after receipt” component of the review of documents contingency time frames as follows:
“If Delivery of any Report occurs after a contractual contingency pertaining to that Report has already been waived or removed, the Delivery of the Report does not revive the contingency”
In other words, once the specific review contingency for any type of document has been removed, then the fact that the documents are Delivered “late” by the Seller has no impact on the status of the contingency; if the contingency was waived/removed, the Buyer cannot cancel due to “late Delivery” based upon that contingency right.
Paragraph 14B(3) offers some consolation, however, by stating that “there may be a right to terminate for a subsequent or amended disclosure under paragraph 11G.”
II. RPA PARAGRAPH 11G ONLY APPLIES TO STATUTORILY REQUIRED DISCLOSURE FORMS:
Paragraph 11G specifies Buyer has a right to rescind or cancel that lasts for 3 Days after personal Delivery or 5 Days after Delivery by mail or email; however, that cancellation right only applies to statutorily required or amended forms: TDS, NHDS, LEAD or Fire Hardening & Defensible Space forms. The statutory right to rescind or cancel does not apply to reports or documents that are not specifically listed here. If a Seller is exempt from completing the TDS, the Seller only completes the Exempt Seller Disclosure (“ESD”) and the Buyer does not have a right to rescind or cancel.
If statutorily required disclosure documents or amended disclosure documents are Delivered after contingencies have been removed, the statutory cancellation right will still exist and the Buyer may, in good faith, cancel for information contained in those disclosures or amended disclosures.
The statute that created the TDS (Civil Code Section 1102, et seq.) allows the Seller and Listing Agent to amend the TDS but only in their sole discretion. If the Seller or Listing Agent does amend the TDS with “new information,” then the Buyer gets a new 3- or 5-Day right to cancel (depending upon the Delivery method) but the Seller is not required by statute to amend the TDS for any reason.
III. RPA PARAGRAPH 11A (4) – “NEW MATERIAL FACTS”
CAR created a contractual basis to require Sellers and Listing Agents to amend the TDS when they become “aware of adverse conditions materially affecting the Property, or any material inaccuracy in disclosures, information or representations previously provided to Buyer.” Although the late Delivery of Documents may seem like it falls within this provision, Paragraph 11A(4) expressly states in bold print:
“However, a subsequent or amended disclosure shall not be required for conditions and material inaccuracies of which Buyer is otherwise aware, or which are discovered by Buyer or disclosed in reports or documents provided to or ordered and paid for by Buyer.”
Note that this exclusion does not state “reports or documents [previously] provided to … Buyer.” Since any reports provided to Buyers do not trigger the Seller’s contractual obligation to amend the TDS, the possibility of a contractual cancellation right for late Delivered documents is exceedingly slim and it will require a careful legal analysis by a qualified California real estate attorney (“QCREA”) to help the Buyer determine their legal rights.
IV. THE BUYER’S RECOURSE WHEN THERE ARE LATE-DELIVERED DOCUMENTS.
When Buyers receive documents (that are not statutorily required disclosures) after their applicable contingencies have been removed, their options may be limited. The Buyer’s QCREA will need to determine the appropriate remedy based upon either: (a) multiple common law theories, including, but not limited to, fraud, misrepresentation, breach of contract, and/or breach of the covenant of good faith; or (b) the late delivered documents actually does constitute an amended statutory disclosure but note the need to act quickly since the 3/5 day statutory right to cancel starts running from the date of Delivery to Buyer/Buyer’s Agent. Only a QCREA can make these legal arguments; Agents would be illegally practicing law without a license if they attempted to assert any of these legal theories.
PRACTICE TIPS:
- If Sellers are Delivering documents after Buyers have removed their contingencies and the Seller was required to fill out and sign a TDS, the Seller’s Agent should recommend in an email that the Seller consult with a qualified California real estate attorney to determine whether or not it is in the Seller ‘s best interests to amend the TDS.
- Buyer’s Agents should warn Buyers to not remove their contingencies for reviewing any type of documents until after the Buyers are satisfied that they have, in fact, received all of the relevant documents.
- The moment a Buyer receives any Seller’s documents after the Buyer’s applicable contingencies have been removed, the Buyer’s Agent should send the Buyer an email strongly encouraging the Buyer to promptly review those documents to determine if the latest information changes the Buyer’s mind about proceeding with the transaction on the originally agreed-upon terms.
- If a Buyer wants to cancel or significantly modify their contractual terms because of any late-Delivered documents, the Buyer’s Agent should advise their Buyer in an email to immediately consult with the Buyer’s own qualified California real estate attorney to determine what recourse the Buyer may have. Only a QCREA can aid the Buyer in asserting their legal rights and remedies.
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