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New and Revised CAR Forms for December, 2021 — Part 2 — Significantly Revised Advisories, Disclosures and Contract-Related Forms

by | Dec 10, 2021 | Advisories and Forms, Contracts and Forms

Q:    Can you provide a quick summary of the significantly revised forms that CAR will be releasing in December 2021?

A:    YES. When CAR releases its new RPA (which is anticipated to be available the second week in December), CAR will also be releasing several new and revised forms and discontinuing 6 forms. This Week’s Tip focuses on the CAR forms that have undergone substantive changes along with six new forms related to the RPA.  This is the second in a series of Tips.  See also:

Weekly Practice Tip, New & Revised CAR Forms for 12/21 – Part 1 – Revised RPA and Seven Other CAR Purchase Agreement Forms (12-03-2021) 

Weekly Practice Tip, New & Revised CAR Forms for 12/21 – Part 3 – Renamed Forms & Forms with Minor Revisions (12-24-2021)

I.  CAR FORMS WITH SUBSTANTIVE CHANGES: 

A.  Assignment of Agreement Addendum (“AOAA”): The AOAA was revised to reflect the changes that were made to the Assignment provision (¶23) of the new RPA.  The new AOAA does the following: 

  1. Enables the Buyer to specify in ¶2A whether documents previously signed by the original Buyer have already been provided to the Assignee (the new Buyer) or will be provided after the Seller agrees to the assignment;
  2. Provides that the Assignee must be prequalified or preapproved in the same manner as the Buyer (¶6B of the RPA); see ¶2B;
  3. Explains that the Assignee must now initial only the first page of documents previously provided to the original Buyer (see ¶2C) and sets a time frame for the return of that documentation;
  4. Establishes the bases for the Seller to cancel the Assignment in ¶2D;
  5. Provides a mechanism in ¶3 for the Buyer to disclose the amount of any consideration paid to the Buyer for the assignment; and
  6. Explains the new procedures that are required if the Buyer is assigning all of the Buyer’s interest to the Buyer’s own trust or wholly-owned entity (see ¶2C(3) which is triggered if that ¶1D is checked).

B.  Buyer Counter Offer (“BCO”): The BCO was revised to better explain in ¶1A that the Liquidated Damages and Arbitration of Disputes provisions in the RPA are only included in the Contract if initialed by all Parties.  It further explains that if either of those paragraphs is not initialed by all Parties, then the paragraphs which have been inconsistently initialed are excluded from the final Agreement.

NOTE:  ¶3 of the BCO specifies that if a Buyer makes a Counter Offer, any previous Offer or Counter Offer can no longer be Accepted by the Buyer.  Thus, even if the Buyer withdraws or revokes the Buyer’s Counter Offer, the Buyer cannot simply sign the Seller’s Counter Offer as Accepted (often referred to as “going back” to agree to the prior document).  This same concept is in the SCO in ¶4 and the SMCO in ¶5.

 C.  Cancellation of Contract, Release of Deposit and Cancellation of Escrow (“CC”): The CC was revised to reflect the changes in the paragraph numbers in the new RPA.  The CC form was also significantly revised from the 6/20 version to make it visually clear (by use of a long bold print line) that there are two different sections to this form.  Additionally:

  1. Section 2 of the form has been reorganized to better explain that its purpose is to provide escrow instructions to cancel the escrow and to provide instructions to the Escrow Holder regarding the further handling of the deposit;
  2. The Parties have 3 different options in ¶2C of the CC which have been rewritten to better explain who is to receive all or a portion of the deposit (which is to be fully released from escrow) and to better explain that certain fees and costs will be deducted by the Escrow Holder from the deposit;
  1. Alternatively, the Parties can agree in ¶2D that although they are mutually releasing each other from any further obligation to buy, sell or exchange the Property, the deposit shall be held by the Escrow Holder or a specified third party until such time as the Parties provide mutual disbursement instructions or a judicial decision or arbitration award; and

4.  A new ¶2E has been added to the CC directly above the signature lines on the second page to warn the Parties (and remind licensees) that Agents are not qualified to provide any opinion on who is entitled to the deposit or whether the cancellation was made in good faith. The Parties are advised to consult with a qualified California real estate attorney.

D.  California Consumer Privacy Act Advisory, Disclosure and Notice (“CCPA”): The CCPA was revised to be shorter and simpler to enable the recipient (Buyer, Seller, Landlord or Tenant) to understand their privacy rights.

 E.  Contingency Removal (“CR”): The CR form was revised to reflect the changes in the paragraph numbers in the new RPA; it was updated to separate the Buyer’s investigation contingency into the same 3 parts as specified in ¶12B of the RPA. NOTE:  Due to the complexities of this form, a separate Weekly Practice Tip will be released next week entitled Proper Use of the Contingency Removal Form (12-17-21)

 F.  Notice to Buyer to Perform (“NBP”): The NBP was revised to: (1) reflect the changes in the names and paragraph numbers of the various contingencies and contractual actions that are in the new RPA; (2) add some new requirements (such as returning the signed FHDS and assume or accept the leased or lien items); and (3) the entries were slightly reorganized.  This document is designed to be used with the RPA; if it is being used with any other CAR Purchase Agreement form, then the paragraph references may be different and that could cause some confusion unless the form is modified.

Now that the RPA specifies that the Notice to Perform must be for no less than 2 Days After Delivery; that is the minimum time frame that can be given; the NBP still has the option of giving more than 2 Days but that option is not recommended because it could create some confusion if the NBP is Delivered before the expiration of the original time frame.

G.  Notice to Seller to Perform (“NSP”): The NSP was revised to: (1) reflect the changes in the names and paragraph numbers of the various contingencies and contractual actions that are in the new RPA; (2) add some new requirements (such as Delivering of “fully completed” Statutory and Supplemental Disclosures and providing the FHDS); and (3) the entries were slightly reorganized.  This document is designed to be used with the RPA; if it is being used with any other CAR Purchase Agreement form, then the paragraph references may be different and that could cause some confusion unless the form is modified.

Now that the RPA specifies that the Notice to Perform must be for no less than 2 Days After Delivery; that is the minimum time frame that can be given; the NSP still has the option of giving more than 2 Days but that option is not recommended because it could create some confusion if it is Delivered before the expiration of the original time frame.

H.  Receipt For Reports (“RFR”): The RFR was reorganized to make it more usable (but, sadly, it still lacks a column to specify the number of pages contained in each document which is the best practice). The changes that were made are:

  1. Buyer is told in ¶1 that the form is used for the Buyer to acknowledge receipt of various documents and, unless specified in ¶6, the Buyer is acknowledging being able to access any documents delivered via a link;
  2. The disclaimer language that we have long recommended regarding Agents not verifying the information in the reports is now in a separate paragraph (¶2) with its own heading;
  3. The listed documents in ¶4 can now specify whether they have been Delivered via a link;
  4. Historical documents from previous transactions are now clearly identified in a separate paragraph (¶5); and
  5. The Buyer can now object to the Delivery of any or all documents via a link (a mechanism created by ¶ 25(k) of the RPA) and demand that the documents be delivered directly (¶6).

 I.  Residential Lease After Sale (“RLAS”): The RLAS is used if the Seller is retaining possession after Close of Escrow for 30 or more Days. It is a rental agreement whereby Seller is the “Tenant” and Buyer is the “Landlord;” thus, all Landlord-Tenant laws apply. The RLAS was revised to conform to changes that were made to CAR’s standard Residential Lease or Month-to-Month Rental Agreement (“LR”) even though some of those changes are not relevant (such as allowing the Landlord to place a “For Sale/Lease” sign in the premises per ¶21). New features to the RLAS include:

  1. Delinquent rental payments received shall be applied to the earliest amount(s) due or past due (¶4E);
  2. Landlord will provide an itemized statement regarding the receipt and disposition of the security deposit (¶5B-1);
  3. Information must now be provided to the Tenant regarding the availability of, and any restrictions on, parking (¶7);
  4. Information must now be provided to the Tenant regarding any storage space fee (¶8);
  5. More information must now be provided to the Tenant regarding the use of utilities (¶9);
  6. More information must now be provided to the Tenant regarding the condition of the premises (¶10);
  7. Information must now be provided to the Tenant regarding smoking (¶14);
  8. Tenant can now be prevented from using a portable dishwasher or portable washing machine (¶29);
  9. The Landlord’s disclosure obligations have been expanded to include death on the premises (¶36);
  10. The Servicemembers Civil Relief Act is now referenced as applying to the RLAS (¶37); and
  11. The Landlord may, if the box is checked, provide the Tenant with the new Lease/Rental Mold and Ventilation Addendum (¶42), however, this is a new legal requirement that all Landlords must comply with now.

NOTE:  Although the RLAS has now been expanded from 4 pages to 7 pages, the Parties must still use the Representative Capacity Signature Disclosure form if the person signing the RLAS is acting under the authority of a Power of Attorney or is acting on behalf of a trust, estate, LLC or other legal entity even though that information is contained in the RPA.

J.  Request for Repairs (“RR”): The RR was revised to include any FHA/VA lender-required repairs or expenses (¶3) since the CAR FVA form has been discontinued.  The RR now has an expiration period in ¶5 which includes the ability of the Buyer to withdraw the Request for Repair (at any time prior to Seller’s Acceptance of the RR) by communicating withdrawal to Seller or Seller’s Agent.  Since no method of communication of the withdrawal of the RR is specified and since the Withdrawal of Offer (WOO) form cannot be used, it is recommended that the communication of withdrawal be handled by an email (preferably from the Buyer) which can be transmitted to the Seller or the Seller’s Authorized Agent.  NOTE:  Although the RPA is clear that the Seller is not obligated to respond to the Buyer’s requests for repairs or credits (see RPA ¶14B-2), the RR does not include a warning to that effect.

K.  Seller Response and Buyer Reply to Request for Repairs (“RRRR”): The RRRR was revised to add a note to the Seller that if the Parties do not agree on any FHA/VA lender-required repairs, the lender will not fund the Buyer’s loan.

L.  Seller Counter Offer (“SCO”): The SCO was revised to better explain in ¶1A that the Liquidated Damages and Arbitration of Disputes provisions in the RPA are only included in the Agreement if initialed by all Parties. It further explains that if either of those paragraphs is not initialed by all Parties, then the paragraphs which have been inconsistently initialed are excluded from the final Agreement.  See also the Note regarding the BCO above.  NOTE:  Although the RPA allows Seller to Counter Buyer’s Offer by checking a box in ¶33A and attaching the Back-Up Offer Addendum (“BUO”), if the Seller wants to counter other terms in the Buyer’s Offer AND put that Buyer into back-up position, then Seller’s Agent should check the box in ¶33A that the Acceptance is subject to the attached SCO, specify the countered terms in ¶1C or D of the SCO and then check the box in 1D of the SCO to add the fully completed and signed BUO.

M.  Seller Multiple Counter Offer (“SMCO”): The SMCO was modified to reflect all of the changes that are in the SCO. See also the Note regarding the BCO above and the Note regarding countering a Buyer’s Offer and putting it into back-up position.

N.  Seller Property Questionnaire (“SPQ”): Significant changes were made to the SPQ, including a reorganization of the introductory sections. Many of these modifications are designed to prompt Sellers to provide any and all documents in the Seller’s possession that relate to the value and desirability of the Property including, but not limited to, those documents that the Seller received when the Seller acquired the Property (commonly referred to as “Historical Documents.”) Please note:

  1. Above the identification of the Property is a new “NOTE TO SELLER” which strongly advises the Seller to review the CAR Disclosure Information Advisory (“DIA”) before completing the SPQ (which is the recommended method when using the GLIDE platform and is the method created by PRDS).  That NOTE also warns that “timely and thorough disclosures help to reduce disputes and facilitate a smooth sales transaction” which is an excellent reminder;
  1. Added to the “Seller Awareness” explanation (¶4) is a statement that, “There is no time limitation unless otherwise specified.” What this change means is that if the Seller has ever (at any time, now or in the past) been aware of any of the issues, problems or conditions asked about in the SPQ, the Seller should respond “Yes” and then the Seller needs to provide an explanation for each “Yes” response. This is consistent with the definition of a fully completed SPQ that is now in the RPA (see ¶11A-3);
  1. The old SPQ asked about Seller documents at the end of the form in Question 17A. Now, as part of the introductory section (¶5), the Seller is asked if the Seller is aware of any Documents (defined as “Reports, inspections, disclosures, warranties, maintenance recommendations, estimates, studies, surveys or other documents”) “whether prepared in the past or present, including any previous transaction” pertaining to the condition or repair of the Property, any improvements on the Property as well as any easements, encroachments or boundary disputes affecting the Property.” The Note in ¶5 advises the Seller to provide those Documents to the Buyer;
  1. Questions 10 (Water-Related and Mold Issues), 11 (Pets, Animals and Pests), new 16B (Neighbors), and 18A (smoking/vaping of any substance) were all modified to make it clear that the Seller is to disclose not only present issues but any issues, problems or conditions that occurred in the past;
  1. New Question 17J asks about whether the Seller is aware of any differences between the name of the city in the postal/mailing address and the city which has jurisdiction of the Property.
  1. New Question 18B asks about any use of the Property for cannabis cultivation or growth – specifically whether there have been any modifications to the Property for that purpose. The smoking or vaping of cannabis is covered in Question 18A.          

NOTE:  Although the SPQ has been greatly improved, it still does not specifically ask Sellers about many issues that are often the subject of claims and lawsuits, including, but not limited to, (1) who performed any alterations, improvements, modifications, additions, corrections and/or repairs to the Property (and whether that person was licensed); (2) specific problems with the quality of heating, cooling and electrical systems; and (3) problems with communication and entertainment devices.

II.  NEW CONTRACT-RELATED FORMS (AND THEIR ADVISORIES)

A.  Stock Cooperative Purchase Addendum (“COOP-PA”) If the Property is a stock-cooperative, you can still use the new RPA; you simply add the COOP-PA. Purchasing a stock-cooperative entails different contractual rights and issues.  When the COOP-PA is used, you should use the Stock Cooperative Ownership Advisory (“COOP-OA”) to explain to Buyers the difference between a co-op and other, more traditional ownership interests such as condominiums.  Of significance is the fact that with a co-op the Buyer owns a portion of the shares of the ownership entity (usually a corporation) rather than an undivided interest in the overall real property and the air space in an individual unit which is what happens with a condominium.

B.  Tenancy-In-Common Purchase Addendum (“TIC-PA”): If the Property is a Tenancy-in-Common, you can still use the new RPA; you simply add the TIC-PA.  When the TIC-PA is used, you should use the Tenancy-In-Common Ownership Advisory (“TIC-OA”) to explain to Buyers the nature of a Tenancy-in-Common and how it differs from a condominium.  The TIC-OA also explains that all of the owners of the TIC need to enter into a written TIC Agreement (preferably one written by a qualified California real estate attorney who specializes in TICs) to deal with all of the ownership issues involved in a TIC, including who is responsible for maintenance of the Property as a whole, the payment of loan and tax obligations, and parking rights.

The financing of a TIC project usually takes the form of a group loan in which all of the TIC members are obligated to pay the loan or the Buyer might be able to obtain a fractional TIC loan.  To enable the Buyer to better evaluate the risks of agreeing to acquire a fractionalized interest in a TIC, the other members of the TIC or an authorized Representative of all owners of TIC interests in the Property should disclose several material facts about the TIC such as the status of loans, the existence of any financial records and whether there are any anticipated assessments.  If the TIC-PA form is used, then you should also use the TIC Financial Disclosure Statement (“TIC-FD”) asks the relevant questions about the TIC.

C.  Tenant Occupied Property Addendum (“TOPA”): The TOPA was created to address contractual rights, obligations and issues that may exist if the Buyer is acquiring Property which is tenant-occupied whether or not the tenant is to remain in the Property after escrow closes.  Use of the TOPA is mandated by the RPA in ¶3M-3 of the Grid unless another Addendum dealing with that topic is attached.  There are significant legal issues involved in using the TOPA form that may not be beneficial for Buyers.  

First, the term “Tenant” in the TOPA is defined above the rest of the terms as meaning “an adult person, other than Seller, who is occupying the Property, whether or not paying rent.”  If the Tenant is not paying rent (e.g., the Tenant is a relative who has lived in the Property for years) and the Buyer agrees to take the Property subject to the rights of that Tenant (as specified in the default choice of ¶1A), the Buyer may have to allow the Tenant to stay rent-free;

Second, if the Buyer wants the Property to be vacant at COE, then the Buyer chooses ¶1B. Under that option, the Seller must use good faith to remove the Tenant(s) at an agreed-upon time frame before COE (the default choice is 5 Days before COE).  If the Seller is unable to remove the existing Tenants, then the Buyer is given only two options:

(1) Buyer may cancel but Buyer’s sole remedy shall be the return of Buyer’s deposit(s) and Buyer’s reasonable out-of-pocket expenses; OR

(2) Buyer may proceed with the transaction but must waive any claim for damages or compensation arising out of the Tenant(s) staying in the Property.

 NOTE:  Neither of the Buyer’s options specified in the TOPA when Tenant(s) cannot be removed are beneficial for Buyer; having a Buyer waive rights to collect damages when a Seller is unable to perform is a serious legal matter that should only be undertaken by a Buyer who thoroughly understands the financial risks.  Therefore, before a Buyer considers acquiring Tenant-Occupied Property, the Buyer should be advised in an email to review the TOPA form with a qualified California real estate attorney (“QCREA”) who specializes in Landlord-Tenant laws in the area where the Property is located. Most QCREAs who have reviewed the TOPA have indicated that they would not let their Buyer clients sign it; they would create their own Addendum to address the issue of what is to happen with Tenant(s) who cannot be removed.

PRACTICE TIPS: 

  1. Whether you represent the Seller or the Buyer, before using any of the new or revised CAR forms, make sure that you read the entire document before presenting it to your client.
  1. When preparing documents for Buyers after the new RPA has been released, do not pull up a prior transaction file and try to use the documents in that prior deal. If that prior transaction file includes older versions of CAR documents, you will not be using the correct forms. This could be used to argue that you are operating below the standard of care and, if there is a problem with those older forms, CAR will not be standing behind the use of outdated forms.  .
  1. Before the Buyer signs the TOPA, the Buyer’s Agent should advise the Buyer in an email to consult with a local qualified California real estate attorney to discuss the legal pitfalls of taking the Property subject to the rights of non-paying “Tenants” and limitations on the Buyer’s rights to pursue damages if the Seller cannot remove Tenant(s). If Buyer insists upon signing the TOPA, then follow the advice in Weekly Practice Tip: How to Handle Clients Who Will Not Follow Advice (11/16/18).

  ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: 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.

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