Are You Liable for Injuries Sustained on Your Property?
Your commercial tenant calls you from the hospital, sounding rather upset. He has been injured on your property, and feels that you are responsible for his medical bills. He alleges that you knew some aspect of the property posed a threat, and that you neglected to warn him of the danger. The tenant asks you to pay his hospital bills and threatens to sue if you refuse.
If you find yourself in this situation as the commercial property owner, you may wonder if you are responsible for any injuries sustained on your property. Before you reach back out to your tenant, you should immediately check with our real estate attorneys. According to California law, you may be liable for the injuries sustained to your tenant if the following is established:
1. Your tenant can prove that you owed the tenant a duty of care
2. That you breached that duty of care
3. That the breach caused the tenant’s injuries
4. That the tenant suffered damages as a result of your breach of duty of care
It’s usually not difficult to prove injuries or the expenses associated with them, but duty of care is another matter. If you are aware of a dangerous situation on your property, then you are obligated to fix the problem or at least warn your tenants of the risk. But in order for your tenant to win the case, the situation must be subject to duty of care laws in the first place. The California Supreme Court uses the following tests to establish whether a particular situation is subject to duty of care:
1. The harm is foreseeable
2. The party suffered an injury
3. The party’s injury is connected to the property owner’s conduct/lack of conduct
4. The owner’s conduct
5. The availability, cost, and prevalence of insurance to protect against the risk
Many cases get hung up on the first point because you as the Landlord are required to maintain your property in a safe manner. If you fail to do so or warn tenants of the potential danger, you could be liable for any resulting injuries. On the other hand, if the dangerous situation occurred spontaneously, and you had no knowledge that there was a problem on the property, then duty of care might not apply.
It’s more complicated than that, of course, as most legal matters tend to be. The terms of the lease can significantly shift liability, so those must be considered. Also, as with all liability issues, adequate and good liability insurance should be your first line of defense against this sort of claim. So you should check regularly with your insurance broker to ensure that your coverage is adequate. Since liability lawsuits can become tricky situations very quickly, we recommend that you immediately consult with our real estate attorneys, rather than trying to negotiate the issue on your own.
No Relationship, No Failure to Disclose!
Many factors are weighed before most buyers decide to proceed with a purchase of real estate. Many buyers, both commercial and residential, will seek information about the property from a variety of sources. Aside from consulting with their realtors, they may ask questions of insurance agents, home inspectors, or even neighboring owners.
Sometimes, buyers experience what we call “buyer’s remorse.” This usually happens when aspects of the property do not match their expectations. When those expectations are based on advice they sought before completing the purchase, the buyer can feel understandably tricked or even manipulated into the decision to go forward with purchasing the property.
Occasionally the grievance is so serious that the buyer decides to pursue a “nondisclosure” lawsuit. What this means is that someone involved in the transaction, usually one who had a legal duty to disclose material information, either failed to do so or even outright lied.
If the person who failed to disclose information was the seller or the seller’s or buyer’s real estate agent/broker, there are statutory and case law standards that govern what must be disclosed during a residential real estate purchase. Generally, the seller and real estate agents have a duty to disclose everything that they know or, under limited circumstances, should know that materially affects the value and desirability of the real property. For example, if the buyer obtained inaccurate information from a neighbor about easements across the property and then relied on the information obtained in making the decision to purchase the property, liability is very questionable because the buyer had actual information in hand from the title report before closing escrow. But if some information materially affecting the property is known to the seller and the seller fails to disclose this information to the potential buyer, the potential for liability is much stronger.
Courts will generally find that a defendant cannot be held liable for nondisclosure when there is no relationship between the defendant and the plaintiff. The bottom line is that a buyer must first establish whether the potential defendant even had a legal duty to disclose in the first place. If there is no duty then there is no obligation to disclose. Additionally, the litigation process to seek redress for an alleged failure to disclose is both expensive and complicated! This is an issue buyers should discuss with an experienced real estate attorney before jumping to any conclusions.
What Happens During the Due Diligence Period on a Residential Purchase?
Whether you’re buying or selling real estate, it is exciting to finally have a signed sales contract in your hand. But of course, something can still go wrong in the “due diligence period.” This is the period between signing the contract and the removal of the buyers’ contingencies, before actually closing the deal, during which buyers and sellers perform actions needed to complete the sale.
There are various contingencies which may be included in the sales contract. The contingencies discussed below are pre-written into the California Association of Realtors standard residential purchase agreement (used in the overwhelming majority of home resales in California), unless negotiated out by the parties. During the due diligence period, difficulties in any of these areas can complicate the transaction. Remember that these are contingencies, not conditions, and have no effect unless they are exercised; the escrow can close without any contingency being exercised.
Financing. Most buyers need to use some form of financing in order to purchase real estate. Sales contracts generally acknowledge this fact and include a contingency stating that the sale will not proceed if the buyer cannot obtain appropriate financing. The buyer is given a certain amount of time to secure financing. While it can be frustrating for sellers to lose a sale due to buyers’ inability to secure financing, there is generally no way to force a buyer to pay without financing. From the buyers’ perspective, obtaining a commitment for financing during the financing contingency period and then having the funding actually materialize are both potential issues.
Inspections. When a buyer makes an offer on a property, the offer generally includes a contingency relating to physical inspections of the property. Since many problems are not readily apparent, during the due diligence period the property is typically inspected by the buyer’s retained home inspector for issues such as foundation problems, issues with plumbing and electrical wiring, to name just a few. Buyers may also conduct additional inspections such as pool inspections or Wood Destroying Pest inspections. The agents also have an obligation to view the property and point out any visible issues with the property but they are not professional inspectors and should not be used as a substitute for a professional inspection. If defects or repairs are noted during the physical inspections, the buyer can request that the seller fix these defects or give the buyer a credit. While the seller is not obligated to make any repairs or provide any credits, they can do so in order for the sale to be completed. Typically the inspection contingency will allow a buyer to cancel the transaction if the property is not acceptable to the buyer, as long as the cancellation is in “good faith,” i.e. related to an actual condition found at the property.
If the buyer cannot complete necessary inspections within the due diligence period, the buyer can request an extension on that contingency. The seller does not have to agree to extend the contingency and can provide the buyer with a notice requiring the buyer to remove the contingency. If the buyer does not remove the contingency after being provided notice by the seller, the seller can cancel the transaction. These are just a few of the issues that can arise during the due diligence period.
Disputes over contingency removal typically lead to fights over the right of the seller to keep the buyers’ deposit. Principals to a residential transaction should only consider litigation (usually preceded by mandatory mediation) after consulting with a skilled real estate attorney who can advise the parties on their rights and an appropriate course of action.
Can Sellers Ever Back Out of a Real Estate Contract?
Once a real estate contract is signed, it’s uncommon for either party to back out. After all, quite a lot of time and effort have been expended by both parties. But occasionally, unforeseen events can happen. Most typically it is the buyer who backs out, pursuant to one of the buyer’s contingencies in the contract. As you approach closing day, however, you might wonder if a seller can ever back out of a real estate contract. Or, if you’re the seller, you might be having second thoughts.
Backing out raises a lot of questions. The primary concern when a seller attempts to back out of a contract usually involves the purchase price. Did another buyer come along and offer to pay more for the property? This is often the first assumption. If true, it can cause trouble for the sellers. Yes, it is illegal to back out of a real estate contract simply because a better offer came along. However, there are a few situations in which a seller can cancel their agreement:
For this article, we are assuming that the parties are using the standard California Association of Realtors® contract forms, which are the standard in the overwhelming majority of California home resales.
The contract isn’t actually signed yet. You might have reached a verbal agreement, but until a contract is signed it will be difficult to hold the sellers to it.
The buyers fail to uphold part of the agreement. The buyers might be required to secure a mortgage within a particular time period. If they fail to do so, the seller can cancel the contract. The seller, however, must have followed the appropriate procedure laid out in the contract for notifying the buyer of buyer’s failure to perform under the contract and the notice period must have passed before seller can cancel.
The seller is unwilling to perform certain repairs. If the buyer obtains a home inspection, they might then request that certain repairs be performed by the seller before proceeding with the sale. The seller can refuse, forcing the buyer to choose between purchasing the home as-is, or canceling the transaction.
A certain contingency within the contract is not met. Sellers can protect their own interests by planting contingencies within the contract. For example, the agreement might state that they are able to obtain suitable housing before proceeding with the sale. If this contingency can’t be met, the seller can back out of the contract without negative consequences, as long as their actions are done with the “good faith” required under the purchase agreement.
In the event that a seller breaks a real estate contract, the would-be buyer has the right to enforce certain legal reparations. This might depend upon their monetary ability and patience, as forcing the sale to continue can require quite a bit of time. Often the remedy revolves around compensating their losses, including attorney fees and costs, as well as forcing the sale.
It is wise to consult with a real estate attorney if issues arise during a real estate transaction, in order to protect your interests, and imperative if you are a seller intending to break a purchase agreement. We can help you identify weaknesses in a contract, or proceed with the appropriate legal action in the event either buyer or seller backs out of the deal.
Do I Need a Real Estate Agent to Purchase or Sell a Property?
The do-it-yourself lifestyle has grown in popularity thanks to the easy availability of information on the Internet. Those who are budget conscious or enjoy a challenge have adopted a pioneering attitude toward home repairs, vehicle modifications, and other areas of life. It’s understandable then, if you’re in the market to buy or sell a home, to wonder: “Do I really need a real estate agent for this?”
To answer that question, let’s discuss what real estate agents do for their clients.
If you’re selling a home… Sure, there are plenty of sites online where you can advertise your home for sale. If there are not a lot of homes for sale in your neighborhood you might generate a lot of interest and spend time showing your home to prospective buyers.
But locating buyers and scheduling showings is a fraction of the services that real estate agents provide. The real work starts when it’s time to negotiate a price and contract terms, collect earnest money deposits, schedule home inspections, make property disclosures, and close the deal. Each of these steps can be complicated and if you are not familiar with handling a real estate transaction you could end up facing legal issues. Would-be buyers can be easily spooked if things don’t proceed as planned and having a real estate agent at your side can often keep the buyer in the transaction.
Then there’s one of the biggest potential problems of all: It’s possible that after closing the sale, the new owners could discover something that leaves them less than thrilled with the purchase. If all steps of the sales process were not followed precisely according to the law, you could be named in a lawsuit. Especially in California there are significant disclosure requirements and the sellers must comply to protect themselves from post-transaction claims. An agent will assist in that process by providing all of the necessary forms and helping you understand the critical importance of full disclosure.
Real estate agents are intimately familiar with those steps; therefore part of their job is to try to prevent after-closing issues which can cause significant stress and financial loss for both buyers and sellers.
If you’re buying a home… Many of the same rules apply, but in reverse since the agent is now representing you as a buyer. A real estate agent will help you negotiate the best price and terms, and walk you through each step until closing day. An experienced real estate agent will look for signs of potential issues, and can direct you to the right people to solve the issues before they become legal problems. Simply put, there is a ton of WORK involved on both sides of a home sale, work you will be hard pressed to complete properly and in a timely fashion on your own without any guidance.
Even if you enjoy the DIY way of life, applying that approach to potentially the largest financial investment of your lifetime deserves a second thought. We would suggest that you contact our real estate attorneys if you have questions about the home buying or selling process. We can address any concerns you might have regarding real estate agents. In the vast majority of cases, utilizing the services of a knowledgeable agent can save you both money and heartache down the road.
Statewide Rent Cap and Just Cause Eviction Law Takes Effect in January
As widely predicted, California’s rent control law (Assembly Bill 1482, or, the Tenant Protection Act of 2019), was signed into law in September of 2019. Landlords should note these changes and take the appropriate steps to comply with the law, which takes effect January 1, 2020.
The following changes apply to most multi-family residential properties in California, excluding those constructed within the past fifteen years. Single family homes are exempted from rent control limitations, except when the home is owned by a corporation.
Rent increases capped annually. Each year, rent increases will be capped at 5 percent plus the rate of inflation (as determined by the Consumer Price Index).
The law might apply retroactively to some rents raised in 2019. Any rents raised between March and December of 2019 will be rolled back, in the event that the increase exceeded the maximum amount allowed under the law.
Evictions might become more complicated. With limited exceptions, the new law also states that landlords cannot evict tenants without “just cause.” While the list of acceptable “just causes” is quite long, some items are not as well defined as landlords might prefer. Subjective definitions open up the possibility for contested evictions for property owners.
Compensation for tenants. Under the new law, Landlords may have to pay tenants relocation assistance or waive the last month’s rent for tenants evicted for “no fault just cause.”
To ensure they are in compliance, landlords should seek full understanding of the new laws before raising rent or proceeding with any eviction action. Call our real estate attorney with any questions; we can help determine if, and how, the new tenant protection regulations apply to you.
2020 Could Signal a Change in Property Taxes for Californians
Lawmakers are currently considering a significant change to Prop 13. This tax law was originally created in 1978 to offer California residents property tax relief by limiting the tax rate. If the proposed initiative passes, commercial property owners will be affected by a new property tax structure.
The initiative would treat California commercial property differently than residential property using a concept known as “split roll.” Under the proposal, business would have their properties reassessed to market values every three years or less. Commercial properties would still be taxed at 1 percent of their value. Nothing would change for residential properties.
Before Prop 13. Prior to Prop 13, property taxes throughout the state amounted to about three percent of market value. Without limits on property tax increases and ad valorem charges, properties could be reassessed at any time. Owners often saw their property values, and therefore their tax bills, increase by fifty to even 100 percent in just one year.
Prop 13 reform limited tax assessments. When Prop 13 passed, property values were rolled back and frozen at 1976 values. Increases were limited to no more than two percent per year, except when a property was sold. Upon the sale of a property, it would be reassessed at one percent of the sale price with the two percent annual cap applying to future years. This allowed new owners to accurately gauge their future tax expense.
While residential properties tend to change hands every few years, allowing for continual reassessments, commercial properties often remain under the same ownership for decades. Stagnated taxes on commercial properties theoretically resulted in a loss of potential revenue for the state.
How the proposed repeal would affect California property owners. Lawmakers have proposed changes to Prop 13 in 2020, an idea that is backed by approximately 54 percent of voters (according to polls). The change would allow commercial and industrial property values, and therefore taxes, to be reassessed every three years instead of only when the property changes ownership.
The intent is to generate billions of dollars of tax revenue, which would then be funnelled into the state’s schools and local governments.
Potential downside of Prop 13 repeal. Detractors of the repeal say that local governments, lacking the appropriate staff to perform property value reassessments, would likely become backlogged for many years. Additionally, displeased commercial property owners will be motivated to contest reassessments in court, leading to legal entanglements.
For more information on the potential ramifications of Prop 13, contact our real estate attorneys for additional assistance. We can help you understand how the repeal could affect you, and inform you of your legal options.
Sellers: Why Full Disclosure is Critical
Once sellers have completed a transaction, the last thing they want is to revisit the sale some time later through a claim for damages by the buyers. The single most important action homeowner sellers can take to reduce the risk of being the subject of a claim or lawsuit is to properly disclose any issues with the home. The overwhelming majority of transaction-related lawsuits are filed by buyers against sellers alleging that the sellers failed to disclose: i.e. “You did not tell us about the prior leak in the upstairs bathroom” or something similar. The best way to avoid this situation is to use the multiple disclosure forms provided by your real estate agent to fully and properly disclose anything that “might reasonably affect the value or desirability of your property” (which is the legal standard to which you must adhere). You can never over disclose, and if you are ever unsure as to whether to disclose, then you absolutely should disclose that fact!
Why Sellers Do Not Like To Disclose
Typically a failure to disclose dispute occurs because the sellers have not told the buyers of some facts that show up later as expensive repair items for the buyers. Why do sellers not tell buyers of the defects in their property? Usually it is because they believe that if they tell, the buyers will not purchase their property. That belief is simply wrong most of the time. Experience shows that most buyers will come to terms with a “defect” issue disclosed during escrow, especially if the matter is disclosed up front when they are most excited about their purchase. In those cases where the buyers do elect to cancel, the sellers should be thankful, not upset, because the buyers absolutely would have found out eventually, when money that they would have invested in new carpet, for example, instead goes to fix the defect. At that point the buyers’ disappointment turns to resentment against the sellers and they have no other recourse but to make a claim against the sellers. Given the costs that are typically necessary to defend a claim, the sellers’ proceeds from the sale are quickly swallowed up by mediation, arbitration and/or litigation costs.
Disclosure: The Best Insurance Against Future Claims
Full disclosure is, in reality, the cheapest form of lawsuit insurance for a seller – it costs nothing. Remember: sellers are required to disclose anything that the seller is aware of that might reasonably affect the value or desirability of the home. Sellers may not make the decision to disclose or not based upon what would be “important” for them. The more sellers disclose, the safer they are. The smaller or more esoteric the disclosure, the less likely it is to have an effect on the buyers’ decision to buy and thus the less the sellers have to worry about. Sellers should think of each individual bit of disclosed information like a lawsuit inoculation against stressful and expensive litigation related to that disclosed fact – it is one less thing for buyers to later complain about. “Fixed” or not, sellers should be especially careful to disclose a condition even though they might believe it has been “fixed.” It is amazing how many problems that have been “fixed” end up breaking again a month or so after the close of escrow. Disclosure of an old “fixed” problem typically has absolutely no effect on the sale – it is usually viewed by the buyers as one less problem of concern. If an undisclosed “fixed” problem is discovered after the fact, however, when the “fix” breaks, the buyers often believe that the sellers were intentionally hiding things which makes a small issue even larger.
A Simple Rule
Sellers, ask yourselves the question, “Do I need to disclose this?” If you are even asking that question, the answer is already yes. Not disclosing something because you believe it will hurt the chance of a sale will probably lead to problems after the sale. Follow this simple rule – disclose, disclose, disclose – and you will have done your very best to help lessen the risk of being involved in future litigation over the sale of your property.
The Benefits of Mediation
When it comes to real estate and business dealings, most of us hope to avoid conflicts and expect that everything will proceed smoothly. Unfortunately though, sometimes disagreements do happen, and they can activate a sort of legal “fight or flight” response. You may feel determined to hire a real estate attorney and take the conflict to court (at great expense), or you could be tempted to give up (and regret it later).
Luckily, there’s a third option which can bring about a resolution to the problem. Mediation is a process in which a mutually selected neutral third party, experienced in your issues, helps the parties involved in a dispute to find an agreeable compromise.
Real estate attorneys in Southern California report that mediation can be preferable to litigation for several reasons:
- Mediation is almost always much cheaper than litigation or arbitration
- Mediation saves time; conflicts are often resolved in days rather than weeks or months
- Participants maintain control of the outcome, whereas in litigation or arbitration the outcome is left up to the courts or arbitrator to decide
- More creative solutions can be discussed and agreed upon
- The mediation environment is more friendly and less threatening than the courtroom
- The mediation process is confidential and anything discussed during the mediation cannot be used later if the parties don’t resolve the dispute.
- Relationships between the two parties may be preserved, whereas a lengthy court proceeding or arbitration can feel like a battle
- Mediation can often times be scheduled within months of the dispute arising
Litigation or arbitration have risks as the final decision is up to the court or arbitrator. However, mediation provides both parties with a chance to craft their own resolution to the conflict. Real estate lawyers often recommend trying this type of resolution over the nerve-wracking “winners and losers” atmosphere usually felt in court or arbitration. In the vast majority of mediation cases, both sides walk away feeling that they have been heard, and leave with an outcome that resolves the dispute for both sides. Mediation is believed to be so fundamental to resolving real estate issues in particular that it is a mandatory part of the California Association of Realtors® Residential Purchase Agreement, the home resale purchase agreement that is used in almost every home sale in California. It even carries a significant punishment if a party fails to mediate – that party loses its right to recover attorney’s fees in any subsequent litigation or arbitration.
While mediation is designed to reach a mutually acceptable resolution of the dispute, each party does have the right to walk away from mediation if they feel it is becoming unproductive. Even in cases where settlement of the dispute was not successful, the prior mediation often proves to have been useful in narrowing the issues and helping to bring about a more focused examination in court or arbitration. Not only is it mandatory in almost every home sale dispute, but it is also simply a smart idea.
Sellers and Buyers: Know the Purchase Agreement
Whether you are a seller or a buyer of an existing home, it is very likely that your real estate agent will use the form entitled “California Residential Purchase Agreement and Joint Escrow Instructions” to document the transaction. This 10-page form, usually called the RPA-CA for its form designation, was created by the California Association of Realtors® and is designed to be neutral, i.e. it does not favor either sellers or buyers, though individual provisions may affect the parties differently.
The Most Important of Many Transaction Forms
The RPA-CA is a daunting form for most first-time users because of its length, legal language and sheer number of provisions. Nonetheless it is critical to understand this document because it defines your rights and obligations when selling or purchasing a residential property, from the buyers’ inspection and financing rights to the parties’ rights in the event of a dispute and everything in between. The RPA-CA also constitutes escrow instructions, that is, it tells the neutral, third party escrow how to manage and facilitate your transaction. You will likely receive additional, supplemental instructions from the escrow officer handling the transaction, but the RPA-CA is the governing document. There will be many other documents you will review during the transaction as well, a surprisingly large number if you have not been through the process before, including disclosures, advisories and reports. Each is very important in its own right and it is critical that you understand each one.
It Is Not Simply “Boilerplate”
The RPA-CA contains provisions that control everything from inspection rights to contingency removal to what items stay with the property. Whether you are a seller or a buyer, insist that your real estate agent sit down with you and take the time necessary to go over each provision thoroughly before you sign the document. The provisions are there because they are important – none of it is mere “boilerplate” to be skimmed and ignored. In addition, a buyer or seller can modify the printed provisions in the document to accurately reflect the intentions of the parties. Understand completely why your real estate agent is making his or her recommendations regarding the contract and the effect of the recommendation on contract performance. Your real estate agent, while familiar with the forms, is not an attorney and you should not expect the agent to give you legal advice – it is not their area of expertise. If you have concerns about your legal rights or obligations beyond the typical obligations of the contract, your agent will properly refer you to a real estate attorney for expert opinions and advice. The ultimate responsibility for the terms of the contract is yours, so you must understand what is in the document before you sign.
Use a Knowledgeable Real Estate Agent
Fortunately, good real estate agents know that it is important that their client understand the RPA-CA so that the transaction is smooth and leads to a successful close of escrow. They will do their best to make the process as clear as possible for you, keep you informed of what is happening as the transaction progresses, provide you the knowledge and guidance to help you make the critical decisions that arise at each step of the transaction, or refer you to a real estate attorney to address legal issues beyond their expertise. Study the document, ask questions, and know your duties and obligations to ensure that your transaction is as stress free and satisfying as possible. If you do need legal assistance, we would be happy to assist you. We are experts in real estate transactions and the forms to get your transaction closed.