Recently, we have seen a significant increase in claims by tenants against real estate agents handling transactions involving tenants. Agents should use extreme caution when dealing with tenants. Consider the following scenarios:
Scenario No. 1: The Residential Purchase Agreement provides that the property shall be sold vacant. Our client represented the buyer. After the close of escrow, the buyer visited the property only to find the tenants sitting in the family room watching television. He immediately called the listing agent and requested that our client deal with the situation. Our client went to the property with the buyer to confront the tenants. The confrontation between the tenants, the agent and the buyer became a shouting match. The agent subsequently left and advised the buyer to retain counsel. The tenant sued for violation of local ordinances and abusive conduct. The agent paid a significant amount to resolve the matter.
Scenario No. 2: A property was listed for sale with a tenant in it. The seller asked the listing agent, who was our client, to deliver a notice to vacate to the tenant. The tenant subsequently sued the owner/seller and our agent for interference with the tenant’s rights.
Scenario No. 3: The purchase agreement provided that the tenant-occupied property was to be sold vacant. Neither the buyer nor the selling agent undertook a final verification of condition inspection prior to the close of escrow, and the buyer’s agent had not advised the buyer to conduct that final inspection. After the close of escrow, the tenants remained in possession. It took the buyer over a year and thousands of dollars to evict the tenants and move in. The buyer subsequently sued the agent for negligence in handling the tenant situation.
Interacting with tenants is an area of high potential liability. As indicated in these scenarios, there can be variations of scenarios leading to claims.
PRACTICE TIPS: The following are risk management tips to avoid liability associated with tenants:
1. If you are listing a tenant-occupied property but the highest and best use is to sell the property without the tenant, advise the seller to consider working with their own local landlord-tenant attorney to remove the tenant prior to listing the property.
2. Contact with the tenants should be at an absolute minimum. If you have listed has a tenant-occupied property do not:
a) recommend to seller which notices should be given to tenants;
b) prepare notices for seller to be delivered to that tenant; and,
c) deliver notices to the tenant on behalf of the seller.
Do not take marketing photographs of tenants’ property and publish them.
4. If you are representing a buyer and the contract calls for the property to be sold vacant, strongly recommend in writing that buyer conduct a thorough final verification of condition before the close of escrow. If the tenants are still in the property at that time, recommend that the buyer consult with a qualified California real estate attorney before allowing the escrow to close.
5. For a sale of a tenant-occupied property pursuant to the CAR purchase agreement addendum, the Tenant Occupied Property Addendum (form TOPA on zipForms) is the required form. However, if representing a buyer, it is important that you read and understand that form.
A. If the TOPA form calls for the tenant to remain in possession after the close of escrow, the buyer is purchasing the property subject to the tenant’s rights. Not all buyers understand that both California, and many local ordinances, have laws limiting the rights of a buyer to evict the tenant.
B. If the TOPA form calls for the property to be delivered to buyer vacant, be aware that if the seller cannot remove the tenant after good faith attempts to do so, then the buyer has two choices:
- Cancel the contract and the sole remedy is recovery of out-of-pocket expenses; or,
- Close the escrow and waive the right to recover from seller any other damages or compensation arising out of the tenant remaining in possession.
Thus, by signing this form the buyer may be waiving the right to recover more significant damages. For this reason, recommend that buyer consult with their own local landlord-tenant attorney before signing that form as the TOPA form.
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