By Robert J. Enos, Senior Litigation Attorney

 In the coming weeks, the California State Assembly will be voting on Senate Bill 1171 (Hueso), which will extend to commercial transactions the disclosure requirements selling agents and brokers now have in residential transactions.

Under existing law listing agents are required to provide the seller and buyer a copy of an “Agent Visual Inspection Disclosure” form, and to obtain a signed acknowledgment of receipt from that seller or buyer, except as specified.

Existing law also requires an agent to provide the seller and buyer with a disclosure form that tells both buyer and seller whether the agent is acting as the buyer’s agent, as the seller’s agent, or as a dual agent representing both the buyer and seller.  The rationale for this provision is straightforward: while there may be certain circumstances in which it is appropriate for the same agent to represent buyer and seller, dual agency creates a potential conflict of interest, as the agent attempts to serve the best interest of both buyer and seller simultaneously.  This bill would extend the existing statutory disclosure requirements that now apply in transactions involving the sale of a residential property with four or fewer dwelling units, to transactions involving “commercial real property,” as defined.  The bill is premised on the assumption that buyers and sellers of commercial property should also be aware of potential conflicts of interest inherent in dual agency.

It is important to note that the Civil Code section that this bill would amend (Civil Code section 2079) defines “seller” and “buyer” to include a “lessor” and  “lessee,” respectively, and it defines a “sale” to include a leasehold exceeding one year’s duration.  In other words, this bill would apply to real estate  agents that arrange long-term commercial leases as well as agents that arrange commercial property sales.  Supporters of this bill are primarily associations representing small businesses, such as single-store grocers, who are more likely to lease commercial property than they are to purchase it.  However, the bill will specify that the disclosure requirement, both under this bill and existing law, does not apply to residential leases (though it will apply, as in existing law, to the sale of  residential property.)

Statutory language, legislative history, and case law all seem to reinforce the view that the existing provisions in the Civil Code requiring real estate agents to disclose the nature of the agency  relationship to buyers and sellers applies only to residential property transactions, and not commercial property transactions.   However, that fact Civil Code Section 2079 et seq. does not apply to commercial property transactions does not mean that agents selling commercial real property do not have a legal and professional duty  to disclose dual agency relationship to buyers and sellers.   Business & Professions (B&P) Code Section 10176(d) presumes this  duty, even if it does not create it.

If SB 1171 does become law, watch for future legislation extending the requirement of a commercial Transfer Disclosure Statement.