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Commercial Real Estate Brokers Now Subject to Same Dual Agency and Disclosure Laws as Residential Brokers

December 22, 2014

Starting on January 1, 2015, commercial real estate brokers and salespeople in California will have to comply with the agency disclosure requirements that previously only residential brokers had to comply with. This is happening because the state legislature decided to change the legal definition of "real property."

California Legislature Changed the Definition of Real Property

In August of this year the California legislature passed a bill called SB 1171. This bill changed the legal definition of "real property." Under the new law the term "real property" as it is used in Civil Code sections 2079.13 through 2079.24 will now include "commercial property."

This may seem like a small change, but it will have major effects on commercial real estate brokers. Up until now they were not required to meet the same agency disclosure and written consent requirements that residential brokers have been required to meet. Now they will have to comply with those requirements in cases where they are representing a party in the sale of commercial property and in cases where they are representing a party to a lease lasting more than one year. These brokers did not used to have to retain written consent from the parties when providing dual representation, but now they will have to do so. The rationale for the distinction under the old law was the assertion that parties to commercial transactions are more sophisticated, so the same strict disclosure rules were not necessary.

Time Frames for Disclosures

This change in the law means that brokers will have to update their standard disclosures. The Civil Code explains exactly when disclosures must be made. These vary depending on whether a broker is the selling agent or the listing agent, and to which party they are disclosing. The code states:

(a) The listing agent, if any, shall provide the disclosure form to the seller prior to entering into the listing agreement.

(b) The selling agent shall provide the disclosure form to the seller as soon as practicable prior to presenting the seller with an offer to purchase, unless the selling agent previously provided the seller with a copy of the disclosure form pursuant to subdivision (a).

(c) Where the selling agent does not deal on a face-to-face basis with the seller, the disclosure form prepared by the selling agent may be furnished to the seller (and acknowledgment of receipt obtained for the selling agent from the seller) by the listing agent, or the selling agent may deliver the disclosure form by certified mail addressed to the seller at his or her last known address, in which case no signed acknowledgment of receipt is required.

(d) The selling agent shall provide the disclosure form to the buyer as soon as practicable prior to execution of the buyer's offer to purchase, except that if the offer to purchase is not prepared by the selling agent, the selling agent shall present the disclosure form to the buyer not later than the next business day after the selling agent receives the offer to purchase from the buyer.

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