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| The following information is intended for California residents only, applies California law, and is only intended
as a general discussion of an area of law. While other states may have similar laws or provisions, a local attorney should be consulted
with any situation involving persons or businesses outside of the state of California or the United States. This website is not intended as legal advice
for any individual's or business' specific situation. A layperson should not rely on the limited information provided on this website to make decisions concerning
specific cases or issues. No attorney-client relationship is established simply by reading this general information; no relationhsip with the Law
Office of Steven R. Lovett exists until a written retainer agreement is signed by all parties. |
REAL ESTATE
WRITTEN AGREEMENT
Any agreement to buy
or sell real estate must be in writing. This rule is called the
statute of frauds. The same requirement applies to agreements to
lease real estate for a period longer than one
year.
RELATIONSHIP WITH REAL ESTATE BROKERS
A real
estate broker is a fiduciary. As a fiduciary,the broker’s obligation
of diligent and faithful service is the same as that of a trustee.
He or she must disclose all information relevant to the subject
matter of the agency.
TRANSFER DISCLOSURE
Prior to the
sale of property, if a seller uses the real estate transfer
disclosure form set forth in California Civil Code §1102.6, neither
the seller or listing or selling agent is liable for any error,
inaccuracy, or omission of any information delivered, as long as the
error, inaccuracy, or omission was not within the personal knowledge
of that person, and they used ordinary care. (Civil Code
§1102.4(a)).
If the residence is in an earthquake fault zone,
seismic hazard zone, very high fire hazard severity zone, or
wildland fire area, a separate Natural Hazard Disclosure Statement
in the form prescribed in Civil Code §1103.2
is required.
A real estate broker must conduct a
reasonably competent and diligent visual investigation of the
property offered for sale, and must disclose to the prospective
purchasee all facts materially affecting the value or
desirability of the property that an investigation would reveal.
SPECIFIC PERFORMANCE
When a party backs
out of a real estate purchase contract, the non-breaching party can
sue to make the party go forward with the purchase or sale. To
obtain this specific performance remedy, one must prove that the
consideration, usually the agreed sale price, is adequate and fair,
the agreement was just and reasonable, the terms of the contract
are sufficiently definite to be enforceable, and the performance
sought is substantially the same as that promised in the
contract.
LIQUIDATED DAMAGES
Liquidated damages are a
sum certain that the parties agree to when it would be impracticable
or extremely difficult to fix the actual value. In California, on an
agreement involving the sale of four or less residential units, if
the amount does not exceed three percent of the purchase price,
the claimed liquidated damages are valid unless the buyer
establishes that the amount is unreasonable as liquidated damages.
If the amount claimed exceeds three percent of the purchase
price, the burden is on the party seeking to uphold the liquidated
damages. In determining the reasonableness of liquidated damages,
courts take into account the circumstances existing when the
contract was made and the price and terms of any subsequent sale
made within six months of the buyer’s default. This liquidated
damages provision must be separately signed, initialed, and in
10-point bold type or 8-point red type. (California Civil Code
§1677.)
Accordingly, if a downpayment is held as liquidated
damages, notwithstanding the initialing of a liquidated damages
provision, the liquidated damages cannot necessarily
be automatically retained. The damages claimed will be evaluated
based upon the subsequent events surrounding the sale. Clearly, once
the six-month safe harbor has passed, a subsequent sale of the
property is no longer a consideration in evaluating the
reasonableness of liquidated damages.
EASEMENTS
An
easement is defined as an interest in the land of another which
entitles the easement owner to use and enjoy the host’s land.
Easements can be created voluntarily (by grant or will) or
involuntarily (by implication, prescription, or estoppel.)
Generally, courts enforce easements by injunctions, forcing a
property owner to honor an easement.
ARBITRATION
In California, whenever any
contract involving the sale or conveyance of real estate or a
contract between principals and agents, contains a clause requiring
mandatory arbitration, the provision must be clearly entitled
“ARBITRATION OF DISPUTES” and must be at least 8-point bold type. A
prescribed warning is required in at least 10-point type.
The language warns that the rights to jury trial, appeal and
discovery are being waived by adopting the arbitration process.
There must also be a separate space for the parties to sign
or initial the arbitration clause. (California Code of Civil
Procedure §1298.) Unless the right to sue for specific performance
(see the discussion in this section) is retained in the arbitration
agreement, it is probably subject to arbitration.
However,
merely filing arbitration would not permit one to record a notice of
pending action (“lis pendens”). In addition to the arbitration
demand, one would have to file suit and at the same time suit is
filed, present an application to the court that the action be stayed
pending the arbitration. (Code of Civil Procedure
§1298.5.)
There are many advantages to arbitration and many
reasons why many large organizations place binding arbitration
provisions in their form contracts. Arbitration avoids
costly discovery such as depositions, interrogatories, and
requests for production. It avoids the large awards common to jury
trials. It is generally quicker and less expensive. The speed
and inexpensive nature of the arbitration are mitigated somewhat
by the fact that:
1. The arbitration award must be converted
to judgment to be enforced. This generally entails a filing fee and
a court appearance.
2. Generally the parties will be paying
roughly $200.00 to $400.00 an hour for a single neutral arbitrator.
Conversely, a judge in a court proceeding is free.
3. On
complex cases, unless the parties waive this provision, some
organizations, such as the American Arbitration Association, require
a preliminary hearing and three arbitrators. The addition of two
additional party-chosen arbitrators makes the case proceed longer
and greatly increases the expenses.
4. Finally, an
arbitration award is final and subject to very limited appellate
rights. A case cannot continue on appeal for a matter of years as
with some civil actions.
If an arbitration clause mentions an
organization, such as JAMS or the American Arbitration Association,
then the agreement is self-effecting and an arbitration can be
commenced by merely filing a demand with that organization. If
there is no such organization mentioned, the parties must file a
submission to arbitrate the matter or a petition must be filed
with the local court to order the arbitration process.
Some
of the disadvantages of arbitration are that it could be more
expensive than a simple collection case which could be resolved by a
default judgment in a matter of months for a very nominal sum.
Little or no discovery could make certain inappropriate for
arbitration. The appeal period is extremely limited and the
arbitrator’s ruling in most cases is final. Finally, the arbitration
clause must specifically mention the organization that will conduct
the arbitration or one must hire a lawyer, pay a court filing fee,
and petition the court to order arbitration.
[ Law Office of Steven R. Lovett • • telephone: (818) 999-9397 • facsimile:(818) 999-5048 • ]
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