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Sellers Required to Provide Transfer Disclosure Statements to Buyers of Mixed-Use Properties – Jonathan Finke
In Richman v. Hartley, Hartley entered into a written agreement with Richman to purchase a single parcel of real property (the “Property”) owned by Richman containing two structures, a residential duplex and a commercial building. Under a simultaneously executed lease agreement, Hartley leased the Property from Richman pending the close of escrow.
Two years passed without a close of escrow, as Hartley cited Richman’s failure to provide the Transfer Disclosure Statement (“TDS”) required by the Transfer Disclosure Law, codified in California Civil Code §1102. The Transfer Disclosure Law requires a transferor to provide to a prospective transferee a TDS for sales or other transfers of “real property…improved with or consisting of not less than one nor more than four dwelling units.” (Cal.Civ.Code §1102.5.) For failure to close on the sale, Richman sued Hartley for breach of contract, against which Hartley moved for summary judgment, arguing that Richman’s failure to deliver the TDS as required negated his breach of contract. The trial court agreed with Hartley, granting summary judgment on the basis that a TDS was required under Civil Code §1102.5, even though the Property was mixed use commercial and residential.
On appeal, Richman argued that the requirements of Civil Code §1102 applied only to strictly residential property, and therefore did not apply in this situation, as the property was used for both commercial and residential purposes. The Court of Appeal disagreed and upheld the ruling of the trial court.
The court examined the legislative intent of §1102, holding that the words of the statute were clear and unambiguous in that neither the original Transfer Disclosure Law nor subsequent amendments have ever limited its application to properties that only contain residential units. Therefore, simply examining its language, §1102 applies to any transfer of real property on which are located one to four residential units, regardless of whether the property also has a commercial use. The court opined that “if the legislature had intended the Transfer Disclosure Law not to apply to a transfer of mixed use properties, it could have done so by adding the word “residential” before “real property” in §1102. It did not.”
Richman also argued that a TDS should not be required because the “essence of the transaction” was for commercial purposes, and because Hartley was a “sophisticated buyer.” The court rejected both arguments, reasoniing that neither should be considered a factor when determining the requirement of the seller to provide a TDS.
Richman v. Hartley sets a clear standard for the requirements of a seller to include a TDS: if the property in question contains one to four residential units, a TDS is required, regardless of the property being mixed use commercial and residential.
Richman v. Hartley (2014) 224 Cal.App.4th 1182