April 13th, 2014

Selling Mixed-Use Property? Don’t Forget the Transfer Disclosure Statement

As one seller of a mixed-use property learned the hard way, the fact that your property has a commercial structure on it does not necessarily exempt you from providing a Transfer Disclosure Statement (“TDS”) when you sell it. California’s Transfer Disclosure Law (“TDL”) (California Civil Code section 1102, et seq.) requires sellers to provide buyers with a TDS in connection with any transfer of real property “improved with or consisting of not less than one and not more than four dwelling units.” Cal. Civ. Code §1102(a). The California Court of Appeal recently held that this requirement applies even if the subject property contains commercial improvements in addition to the dwelling units. Richman v. Hartley (Cal. App., 2nd Dist., 03/20/2014)

Richman v. Hartley arose out of the sale of real property located in Ventura, California. The property was improved with a residential duplex and a commercial building. Plaintiff seller and defendant buyer entered into a purchase agreement with a two year escrow. After two years, buyer refused to close escrow because seller had not given him a TDS. Seller then sued buyer for breach of contract.

The court in Richman v. Hartley affirmed the trial court’s decision to grant summary judgment in favor of buyer. It ruled that a seller’s duty to provide a TDS applies to any transfer of real property improved with not less than one nor more than four dwelling units, even if the property also has commercial improvements. Additionally, the court held that a provision in the purchase agreement stating that the property was being sold in an “as is condition with all its faults” did not waive seller’s obligation to give the buyer a TDS. The court observed that the provision could not effect a waiver of seller’s statutory duty because the TDL states that any such purported waiver is void as against public policy. Cal. Civ. Code §1102(c).

In view of this decision, it is important for a seller of real property improved with between one and four dwelling units to make sure that a buyer of such property is provided with a TDS, regardless of whether any non-residential improvements exist on the property.

Mark T. Hansen, Senior Counsel

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