BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Water-Conserving Plumbing Fixtures
Contract Addendum
BOTTOM LINE: Attached is an Addendum that can be used to establish which party, Seller or Buyer, shall be responsible for compliance with this law.
(Note: This Addendum should NOT be used in those jurisdictions, such as San Francisco, who have a local water conservation ordinance imposing similar requirements on a seller.)
For more information on details of this law, including dates for compliance, which water conserving plumbing fixtures comply with this law, and sellers’ disclosure obligations, see
Weekly Practice Tip – “Water Conserving Plumbing Fixtures – Update”
Also see the CAR Legal Memorandum at:
http://www.car.org/riskmanagement/qa/disclosure-folder/water-conserving-plumbing-fixtures/
As we know, California law required owners of single-family residential property built before 1994 to have installed water-conserving plumbing fixtures by the beginning of 2017. Additionally, if any such property is altered or improved, then water-conserving plumbing fixtures must be installed as a condition of final permit approval. Sellers are further required to advise the buyer regarding the existence of this law and to disclose to the buyer whether the property includes any non-compliant fixtures. (Cal. Civil Code Section 1101.4)
As we also know, most California owners of single-family homes have not complied with this law. So, even though this is not a “point of sale” requirement, which would require compliance as a condition of closing an escrow, real estate agents and their clients are faced with issues related to this law during escrow.
Because of the way the law is written, if the purchase agreement form that is used does not clearly address who is responsible for compliance, escrow could close without the property being brought into compliance with this law. In that case, it is possible that a buyer could claim after the close of escrow that the buyer should have been informed by seller or the agents of the lack of compliance by the seller with this law, and should have been given the opportunity to have at least requested a credit for the cost – which could reach into thousands of dollars in a high-end home with numerous bathrooms equipped with top-tier fixtures. And, because the disclosure documents regarding compliance with this law are based solely on seller’s “awareness” as to whether there are any non-compliant fixtures, the buyer may not be made aware of any actual noncompliance with this law.
Further, if the seller takes out a permit for work to be completed prior to the close of escrow, that act would trigger an obligation to bring all plumbing fixtures into compliance with this law as a condition to finalization of the permit. (There can be an exception to this requirement in some jurisdictions if the work is simply for minor repairs or maintenance.) This would cause a conflict regarding who is responsible for the cost of compliance if the buyer had agreed in the contract to be responsible for those costs.
So, for these reasons, the best approach would be to have a standard addendum which a buyer agent could attach to their offer, or a listing agent could attach to a counter-offer, which clearly allocates this cost to seller or buyer, and also confirms that agents are not responsible for determining that cost.
PRACTICE TIPS:
1. Because this is not a point-of –sale requirement, the law DOES NOT require that compliant water-conserving plumbing fixtures be installed at close of escrow. However, buyers may want to know if the plumbing fixtures are compliant because:
(a) If buyer applies for a permit, the city/county inspector will require the property be retrofitted with water-conserving plumbing fixtures as a condition of the permit; and
(b) When buyer sells, buyer (now seller) will have to disclose to the buyer whether the property fixtures are compliant.
2. On all properties subject to this law (single-family residences, excluding condominiums, built before 1994), buyer agents should attach this Addendum to their offer specifying who is responsible for compliance.
3. Also, on all properties subject to this law, listing agents can add this Addendum to a counter-offer if there is no designation in buyer’s offer as to which party is responsible for compliance or if seller disagrees with the buyer’s offer on this subject.
4. Do NOT use this Addendum in jurisdictions which have an ordinance requiring sellers to be responsible for compliance with a similar water conservation ordinance.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip 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 2017 04/21/17
(Insert Broker Name) _________________________________________
WATER-CONSERVING WATER PLUMBING FIXTURES ADDENDUM
For use with all single-family residential properties built before 1994. (A “single-family residential property” means any real property that is improved with, or consisting of, a building containing not more than one unit that is intended for human habitation. Condominiums are not covered within this definition.)
This is an Addendum to that Purchase Agreement dated ___________by and between __________________ as Seller and ___________________________ as Buyer for the Property at _________________________________________, California.
1. California law requires owners of single-family residential property built before 1994 to install water-conserving plumbing fixtures by 2017. Additionally, if any such property is altered or improved, then water-conserving plumbing fixtures must be installed as a condition of final permit approval. (Cal. Civil Code Section 1101.4) While California law does not make compliance with this statute a point of sale requirement, this Addendum shall establish which of the undersigned parties shall be responsible for compliance with this law.
â–¡ SELLER RESPONSIBLE: Seller either (a) has complied with retrofitting the Property with compliant water-conserving plumbing fixtures; or (b) prior to the close of escrow, shall pay for and retrofit all non-compliant water-conserving plumbing fixtures with compliant fixtures of quality comparable to existing fixtures.
â–¡ BUYER RESPONSIBLE: Buyer shall be responsible and pay for all expenses in retrofitting all non-compliant water-conserving plumbing fixtures with compliant fixtures after the close of escrow, or as specified in paragraph 2 below.
2. PERMIT WORK PRIOR TO THE CLOSE OF ESCROW: The Parties understand, acknowledge and agree that, in the event there is an agreement that the Seller will perform any repairs prior to the close of escrow that constitute alterations or improvements at the Property which requires the issuance and finalization of a permit, the governing agency will require that the Property be retrofitted with compliant water-conserving plumbing fixtures as a condition of finalizing the permit; in that event, the Party designated above shall be responsible for the expense of such retrofitting regardless of who is paying for the work necessitating the permit. NOTE: (a) the interpretation as to what constitutes an alteration or improvement may differ in different jurisdictions and (b) real estate licensees cannot predict what interpretation will be used at any point in time by any permit-issuing entity.
3. Real estate brokers shall not be responsible for determining the need and/or cost of any required retrofit obligation and do not recommend that any work be performed without securing any and all required permits.
All other terms and conditions remain unchanged.
Seller: _____________________________________ Date: __________________
Seller: _____________________________________ Date: __________________
Buyer: _____________________________________ Date: __________________
Buyer: _____________________________________ Date: _________________