COVID-19 Attorney Resources

By Rinat B. Klier Erlich

The California Association of Realtors Residential Purchase Agreement does not have a force majeure provision in the contract, so a buyer or seller wishing to cancel or delay should review their signed escrow instructions for further guidance. They should not rely on their brokers in giving them any legal advice, because the finding of whether a contract could be breached will depend on the facts and law of each individual case and on the judge who hears it.

A force majeure provision assumes that there is an event outside the control of both parties to the contract that either makes contract performance impracticable or frustrates the purpose of such performance. Typically, those provisions excuse nonperformance of a contract for certain events. They also require some sort of notice that should be done as prescribed by the contract.

However, even if there is a force majeure provision in the parties’ signed escrow instructions, there is no guaranty how a court will read it. First, a court can read the provision narrowly and only consider the events described in the agreement provision itself. Typical language might say something like, “natural disasters such as floods, tornadoes, earthquakes and hurricanes and acts of people such as acts of terrorism, riots, strikes, wars and medical epidemics.” Second, in order to invoke a force majeure clause, there must be causation between the force majeure event and the affected party’s failure to perform. A buyer being concerned about its job if he/she was not fired and if the buyer’s loan was approved, may defeat a causation argument. Finally, a party may be required to show that it made a reasonable effort to mitigate the effects of the force majeure event. Namely, the event does not have to make performance impossible, but at the very least, performance must be impracticable, unreasonable, or fundamentally at odds with the business purpose of the breaching party. In fact, a force majeure may not be ground for termination, but only for postponement.

For contracts that contain a force majeure clause with wording about an epidemic or pandemic, COVID-19 will likely qualify as a force majeure event. Other general force majeure clauses that reference broader categories may also apply, such as, “acts of God,” “acts of government,” or “other circumstances beyond the parties’ reasonable control.” Still further, a government directive (e.g., mandatory quarantines) would also likely trigger a force majeure provision.       

If there is no force majeure provision in the escrow instructions, nonperformance may still be excused. For example, if the performing party’s principal purpose of the contract has been frustrated (a seller planning to move for a job that just got cancelled), the party may seek to suspend its performance under the frustration of purpose doctrine. Alternatively, a party may seek excuse from performance under the doctrine of impracticability or impossibility. Impracticability may provide relief (for a listing broker for example) where superseding events occur (e.g., quarantine), the nonoccurrence of the event which was a basic assumption on which the contract was made (broker being able to conduct open houses) and it would be unreasonable or commercially senseless to require performance in light of such events. The more difficult doctrine to establish, is impossibility, which requires a party to establish that performance was rendered objectively impossible for any similarly situated party.

The California Association of Realtors created a new Coronavirus Addendum that should be provided for new contracts. This Addendum changes the Residential Purchase Agreement terms. A party to an existing signed contract cannot be forced to change its existing terms. Yet, the reason this Addendum is important for new contracts, is that it explains to the parties in a new contract that there is an issue they need to address. Because the new contract would be entered into at a time when the potential risks of COVID-19 are already well known, even if the parties add a force majeure provision into their new contract they may not be able to rely on a force majeure clause as an excuse for nonperformance. They may not be able to later claim that COVID-19 surprised them and caused them damages.

By Rinat B. Klier Erlich

The recent California Governor executive order and the continued practice of brokers, requires a refresher on the brokers’ duties of inspection, so that brokers understand what they may or may not do. One of those duties is the broker’s duty of physical inspection, which is required before completing the Transfer Disclosure Statement (TDS) and the Agent Visual Inspection Disclosure (AVID). The AVID was created by the California Association of Realtors to assist agents in their disclosure duties, and it is therefore the ‘standard of care’ for brokers practicing in California. If California brokers stop using the AVID form, it will no longer be the gold standard. The TDS however, is a statutory form and it cannot be waived. Civil Code Section 1102(c) explains that “any waiver of the requirements of this article [providing statutory disclosures including, TDS] is void as against public policy.” The Section also states: “It is also the intent of the Legislature that the delivery of a [TDS]. . . may not be waived in an “as is” sale.”  This article explains why a broker’s physical inspection cannot be waived, but also why it may no longer hold brokers back from completing sales transactions.

Civil Code Section 1102 (TDS) is the brokers’ vehicle for providing their required disclosures. As we all know, disclosure regarding the property’s physical condition is set forth on the TDS form itself. The form in fact, is taken verbatim from Civil Code section 1102.6. In Section III of the TDS form brokers are supposed to record their findings. The form states:

“THE UNDERSIGNED, BASED ON THE ABOVE INQUIRY OF THE SELLER(S) AS TO THE CONDITION OF THE PROPERTY AND BASED ON A REASONABLY COMPETENT AND DILIGENT VISUAL INSPECTION OF THE ACCESSIBLE AREAS OF THE PROPERTY IN CONJUNCTION WITH THAT INQUIRY, STATES THE FOLLOWING:”

The TDS is a statutory requirement that compels compliance by sellers and brokers alike. Section 1102(a) states: “The Legislature intended the statement [TDS] to be used by transferors making disclosures required under this article and by agents making disclosures required by Section 2079 on the agent’s portion of the real estate disclosure statement, in transfers subject to this article.”

The “standard of care” of how/what a broker should inspect, is promulgated in a different Code section, Civil Code section 2079(a) which states: “It is the duty of a real estate broker or salesperson, licensed under Division 4 . . . to a prospective buyer of single-family residential real property . . . to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to that prospective buyer all facts materially affecting the value or desirability of the property that an investigation would reveal.”

There is a synergic connection between Civil Code Section 1102 (TDS) and Section 2079 (the broker’s inspection duty). Such relationship is mentioned in e.g., Section 2079.10a(c), 2079.10.5(c), 2079.8(b) and 2079.6(b) which state: “Nothing in this section shall alter any existing duty of the lessor, seller, or broker under any other statute or decisional law including . . . the duties of a seller or broker under Article 1.5 (commencing with Section 1102). . .” as well as Civil Code Section 2079.25: “The provisions of subdivision (d) of Section 1102.1 shall apply to this article.”

So now that we are reminded that a TDS is absolutely required and that it must be completed by a physical visual inspection, we can look at what the inspection is not supposed to include. As pointed above in the language on the TDS form, the disclosure is based on a “diligent visual inspection of assessible areas.” Section 2079.3 explains: “The inspection to be performed pursuant to this article does not include or involve an inspection of areas that are reasonably and normally inaccessible to this type of an inspection.” It is possible therefore, that courts will find that in light of the Governor’s executive order, it is impossible for brokers to conduct their diligent visual inspections under the Code, as it will cause them to violate the order; an offense punishable by misdemeanor.  Also, while brokers can advise their clients to wait until the brokers are able to physically inspect the property, brokers cannot and do not control what clients decide to do, and clients do not need brokers’ consent to close escrow.

Hence, does the executive order make a property inaccessible to inspect, or merely unadvisable to inspect? Logic holds that the order suspends duties, but which? Clearly, we still need to comply with driving rules when we drive our vehicles. As it relates to inspection duties, unfortunately, case law that interpreted Civil Code Section 2079 duty of inspection does not give us an answer, because the cases relied on other measures for example, Assilzadeh v. California Fed’l Bank, FSB (2000) 82 Cal.App.4th 399, 413) and Padgett v. Phariss (1997) 54 Cal.App.4th 1270 in limiting the brokers’ duties of inspection, relied heavily on the buyers’ own duty to conduct an investigation and due diligence.

Will exculpatory clauses help explain to the parties what brokers can and cannot do? Under common law, exculpatory provisions were not always dispositive [e.g., Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486 holding that in cases of misrepresentation, exculpatory clauses as to zoning and other laws restricting development did not preclude, as a matter of law, the buyers’ showing of justifiable reliance, and thus, did not bar the buyers’ claim for misrepresentation against the brokers].

So what is the solution? As discussed, a duty to inspect may not be waived, but compliance with the duty may be impossible given the executive order. Also, disclaimers may not be enough to bar all claims. One way to resolve this predicament is to modify the parties’ contract. Duties of brokers are defined by contract (in addition to statute) and the brokers’ contracts can be limited. [Carleton v. Tortosa (1993) 14 Cal.App.4th 745, 755 limiting broker’s duty to discover tax issues]. Therefore, at the very least, brokers should amend their contracts. They should have buyers and sellers sign disclaimers that explain the more limited duties that the brokers can undertake to perform, in light of the executive order including, brokers inability to violate the Governor’s executive order and physically inspect the property. If brokers feel compelled to work despite the order, they can at least try to best protect themselves and their clients.

By Stephanie Foster and Anna Liu

The global Coronavirus (COVID-19) pandemic is forcing the world to change its daily practices and the impact was felt almost immediately in the California landlord-tenant arena. As governments scramble to protect citizens, the state issued a moratorium on certain evictions in an effort to help residential tenants remain in their homes and small commercial businesses stay afloat.

On March 4, 2020, Governor Gavin Newsom proclaimed a state of emergency in California due to the threat posed by COVID-19, which currently remains in effect through May 31, 2020. Following the state of emergency declaration, Governor Newsom issued an executive order allowing local governments broad discretion to enact substantive limitations on residential and commercial evictions for a tenant’s failure to pay rent when:

1. the non-payment of rent arises out of a substantial decrease in household or business income or substantial out-of-pocket medical expenses, and
2. the decrease in income was caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19, and
3. the decrease in income is documented.

As a result, a number of local jurisdictions, including Los Angeles and San Francisco have already adopted their own COVID-19 specific eviction restrictions.

For example, San Francisco Mayor London Breed announced a moratorium on residential evictions related to financial impacts caused by COVID-19. It requires tenants to (1) give notice of their inability to pay rent due to COVID-19 related financial hardship within 30 days of missing a rent payment, and (2) to provide documentation within seven days of giving notice.  The San Francisco policy allows a tenant up to six months to pay back the missed rent. 

The City of Los Angeles also barred landlords from evicting residential tenants during the emergency period if the tenant is able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic, including loss of income due to a COVID-19 related workplace closure, child care expenditures due to school closures, health care expenses related to being ill with COVID-19 or caring for a member of the tenant’s household who is ill with COVID-19, or reasonable expenditures that stem from government-ordered emergency measures. Tenants will have up to six months following the expiration of the local emergency period to repay any back due rent.

The Sacramento City Council has adopted an emergency ordinance to establish a temporary moratorium on evicting tenants unable to pay rent due to a loss of income caused by COVID-19, that will end once the Governor’s Executive Order terminates on May 31, 2020, unless it is extended. Sacramento’s ordinance does not prevent a landlord from evicting a tenant who failed to pay rent when due before the ordinance was adopted or for any other lease violation.

San Diego has requested that the San Diego Superior Court halt all pending eviction cases and new eviction filings and that the San Diego County Sheriff’s Department cease enforcing eviction orders during the state of emergency.

On March 16, 2020, the Governor signed Executive Order N-28-20, which in part finds that it is necessary to promote stability among commercial tenancies to mitigate the economic pressures of the emergency. California’s order also presses lenders to hold off on foreclosures, which could relieve landlords who unable to pay mortgages as a result of missed rent.

The City and County of San Francisco then quickly followed its residential eviction moratorium with a temporary moratorium preventing small to medium-sized business from being evicted due to a loss of income related to lost revenue or other economic impacts caused by the COVID-19 pandemic. This order applies to commercial tenants registered to do business in San Francisco making less than $25 million a year, based on the 2019 tax year.

If a covered commercial tenant fails to pay rent that was due on or after March 17, 2020, the landlord may not recover possession of the unit due to the missed payment until the landlord first provides written notice to the tenant of the violation and provides an opportunity of at least one month to cure.

At both the state and local level, the moratoriums do not relieve tenants of their obligation to pay rent.  Rather, they suspend a landlord’s right to move forward with evicting a tenant who has accurately documented their COVID-19 caused financial hardship while the Order is in place.

As much as COVID-19 is a novel disease, it is a novel experience for landlords, tenants, attorneys, and governments as the laws are rapidly changing and evolving daily.