BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
(Note: When referring here to the CAR Seller Property Questionnaire (“SPQ”) form, the same principles apply to other TDS supplements such as the PRDS Supplemental Seller Checklist (“SSC”) or the SFAR San Francisco Seller Disclosure (“SFSD”) when required by the associated purchase agreement forms used in those areas).
Broker Risk Management (“BRM”) has received a number of inquiries regarding the legal implications of a Transfer Disclosure Statement (“TDS”) versus a Seller Property Questionnaire (“SPQ”) There appears to be a misconception that buyers have a statutory right of cancellation arising out of an SPQ. That is not accurate. The purpose of this tip is to explain the different legal implications of a TDS versus an SPQ.
A TDS is required by law, as set forth in Civil Code §1102, et seq. The TDS is a requirement of all residential property with one to four residential units assuming that an exemption does not apply. (There are exemptions for five or more residential units, sales pursuant to a court order, sales where the Department of Real Estate has approved it as a subdivision; a sale by the government or a railroad, a sale by a lender after a foreclosure, a sale between co-owners, and a sale by a fiduciary in the administration of a guardianship, conservatorship or decedent’s estate. Also, exempt is a sale by a trustee in the administration of a trust; however, this trustee exemption does not apply to a sale “if the trustee is a natural person who is a trustee of a revocable trust and is a former owner of the property or was an occupant in possession of the property within the preceding year.”)
A TDS is required to be provided to the buyer as soon as reasonably practicable. If a “completed” TDS is provided to a buyer prior to the buyer writing an offer to purchase the property, the buyer has no statutory right of cancellation based on the information in the TDS. If a “completed” TDS is provided after acceptance of the buyer’s offer, the buyer has a three-day right to cancel if the TDS is provided by hand delivery, or five days if the TDS is provided by email or mail. The California Association of Realtors has defined “completed TDS” in the Residential Purchase Agreement as TDS Sections I and II being completed by the seller, and containing a report of the visual inspection by the listing agent in Section III (e.g., the AVID). Note also that one of the three boxes in Section I, on page 1 of the TDS, must be checked to have a “completed” TDS.
The SPQ is required by CAR’s RPA, as well as by related CAR purchase agreements. It is not required by statute. Therefore, the SPQ does not have a statutory automatic right of cancellation associated with it. The SPQ is treated as any other disclosure is treated, (i.e., similar to home inspection, pest, or roof reports).
Simply stated, the TDS is required by statute, and the SPQ is required by contract. Thus, if a buyer removes all contract contingencies, that does not eliminate whatever right to cancel Buyer has pursuant to the TDS as provided by Civil Code 1102.3.
FURTHER CLARIFICATIONS:
QUESTION NO. 1: I am a listing agent. I provided a completed TDS to the buyer 10 days ago. I provided the buyer with the completed SPQ 2 days ago. The buyer removed all the buyer’s contingencies yesterday, but now wants to cancel the contract, citing an automatic cancellation right in the SPQ. Can the buyer cancel the contract and recover his deposit?
RESPONSE: No. It is unlikely that the buyer can cancel the contract and seek recovery of the buyer’s deposit based on the SPQ. The SPQ does not carry an automatic cancellation right similar to the TDS. If the buyer received the SPQ and subsequently removed the buyer’s contingencies, including the “Review of Seller Documents” contingency (RPA 3L(5)), the SPQ will not give the buyer a right to cancel the contract.
QUESTION NO. 2: I am representing a buyer. The buyer has removed all the buyer’s contingencies. While the buyer has received a TDS completed by the seller, the buyer has not received the listing agent’s Agent Visual Inspection Disclosure nor any other indications of the listing agent’s visual inspection. Does the buyer have a right of cancellation?
RESPONSE: Likely, yes. As indicated above, the buyer has a three or five-day right of cancellation from receipt of a “completed” TDS. Completed TDS is defined in the RPA as including the listing agent’s visual inspection report (e.g., the AVID). Therefore, if the listing agent has not provided to the buyer the report of their visual inspection of the property, the commencement of the time for buyer’s right of cancellation has not started.
PRACTICE TIPS:
- If you have questions about the different rights of cancellation between a TDS and SPQ, please discuss them with your manager.
- It is recommended that listing agents complete their visual inspections and provide their AVIDs to the buyer as soon as practicable. It creates liability for a listing agent if a buyer cancels after removing the buyer’s property inspection contingencies if the buyer has a right to cancel based on a listing agent’s failure to provide a completed TDS.
- It is recommended that agents review the TDS as soon as it is received. If the TDS contains blanks or the seller missed answers, arguably it could be incomplete, leaving open the possibility of a buyer having cancellation rights.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication 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 LLP. 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 practice.