In a sale of real property improved with one to four dwelling units, the seller is required to deliver to the buyer a real estate transfer disclosure statement (TDS) pursuant to the Transfer Disclosure Law. (Civ. Code, § 1102 et seq.)
This appeal is from a summary judgment in favor of the buyer, respondent Mark Hartley, as trustee of the Mark Hartley Family Trust (Hartley), and against the seller, appellant Randall S. Richman (Richman), who sued Hartley for breach of a real estate purchase agreement. The trial court found that Richman was required as a matter of law to deliver a TDS. Because he did not do so, he failed to demonstrate his own performance under the purchase agreement and Hartley was entitled to summary judgment. On appeal,
In April 2007, Hartley entered into a written agreement with Richman to purchase Richman's real property on Oak Street in Ventura (the Oak Street property). The property is a single parcel improved with two structures: one commercial building and a residential duplex. The terms of the parties' agreement were set forth in a form entitled "Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential)" (the Agreement).
Paragraph 9.1(a) of the Agreement provides that: "Seller shall make to Buyer, through escrow, all the applicable disclosures required by law (See AIR Commercial Real Estate Association (`AIR') standard form entitled `Seller's Mandatory Disclosure Statement') and provide Buyer with a completed Property Information Sheet (`Property Information Sheet') concerning the property ...." Paragraph 26 of the Agreement provides that "Sale will be non contingent and property shall be sold in an `AS IS CONDITION' with all [its] faults." Under a simultaneously executed lease agreement, Hartley leased the property from Richman for two years.
Escrow was scheduled to close on or before April 14, 2009. Hartley managed the property under the lease agreement from 2007 to 2009, but failed to close escrow, citing Richman's failure to deliver the disclosure documents required by paragraph 9.1(a) of the Agreement, including the TDS required by the Transfer Disclosure Law for transfers "of real property ... improved with or consisting of not less than one nor more than four dwelling units." (§ 1102, subd. (a); see § 1102.6.) It is undisputed that Richman did not provide any disclosures, including a TDS.
Richman sued Hartley for breach of the Agreement. Hartley moved for summary judgment, asserting that Richman's failure to deliver the TDS and the other disclosures required by paragraph 9.1(a) of the Agreement negated his breach of contract action against Hartley.
The trial court granted Hartley's summary judgment motion. The trial court found that the Transfer Disclosure Law applied to the transfer because of the presence of the two dwelling units on the property and, therefore, that a TDS was one of the "applicable disclosures required by law" within the meaning of paragraph 9.1(a) of the Agreement.
Summary judgment is properly granted if there is no question of fact and the issues raised by the pleadings may be decided as a matter of law. (Code Civ. Proc., § 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 [107 Cal.Rptr.2d 841, 24 P.3d 493].) "On appeal, the reviewing court exercises its independent judgment, deciding whether the moving party established undisputed facts that negate the opposing party's claim or state a complete defense. [Citations.]" (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 487 [59 Cal.Rptr.2d 20, 926 P.2d 1114].) Where interpretation of a statute forms the basis of a ruling, the reviewing court will independently review the statute to determine the validity of the ruling and review the trial court's ruling rather than its rationale. (County of Solano v. Handlery (2007) 155 Cal.App.4th 566, 572 [66 Cal.Rptr.3d 201].)
The Transfer Disclosure Law applies, with enumerated exceptions, to sales or other transfers of "real property ... improved with or consisting of not less than one nor more than four dwelling units." (§ 1102, subd. (a).) Section 1102.3 provides that "[t]he transferor of any real property subject to this article shall deliver to the prospective transferee the written statement required by this article ...." The form of the required TDS is set forth in detail in section 1102.6. It was the Legislature's purpose that the Transfer Disclosure Law "`reduce litigation and disputes pertaining to certain real property sales transactions.'" (Realmuto v. Gagnard (2003) 110 Cal.App.4th 193, 203 [1 Cal.Rptr.3d 569], quoting Sen. Com. on Judiciary, Analysis of Sen. Bill No. 1406 (1985-1986 Reg. Sess.) as amended May 6, 1985, p. 2.)
In 1985, the Legislature enacted Senate Bill No. 1406 (1985-1986 Reg. Sess.), which requires a seller to deliver to a buyer a real estate TDS in "any transfer ... of real property ... improved with or consisting of not less than one nor more than four dwelling units."
Although we need look no further than the unambiguous words of section 1102, the statutory scheme of which it is a part also supports our conclusion. Section 1102.2 lists 10 types of real property transfers to which the Transfer Disclosure Law does not apply. These include transfers pursuant to court order (§ 1102.2, subd. (b)), transfers by a fiduciary in the course of administering a decedent's estate (id., subd. (d)), transfers from one co-owner to another co-owner (id., subd. (e)) and transfers between spouses resulting from a marital dissolution (id., subd. (g)). Section 1102.2 does not exclude transfers of mixed-use property from the Transfer Disclosure Law's coverage.
Application of the Transfer Disclosure Law to mixed-use property where the residential portion is four or fewer units is also supported by other enactments of the Legislature which expressly defined "residential real property" to exclude mixed-use properties. For instance, Business and Professions Code section 11423, adopted in 1992, defines "residential real property" to mean "real property located in the State of California containing only a one-to-four family residence." (Id., subd. (a)(3), italics added.) The same language was used in section 2954.8, adopted in 1976, governing the handling of impound accounts by financial institutions. That section limits its application to loans made upon the security of real property "containing only a one- to four-family residence." (Id., subd. (a), italics added.)
Richman, nevertheless, contends that applying the Transfer Disclosure Law to mixed-use properties is inconsistent with the Legislature's intent. He argues that the parties' transaction was essentially a commercial property transaction and that the Legislature did not intend to protect buyers engaged in commercial transactions when it enacted the Transfer Disclosure Law. It is true that the Legislature did not intend the Transfer Disclosure Law to apply to commercial real estate transactions. (Smith v. Rickard (1988) 205 Cal.App.3d 1354, 1361 [254 Cal.Rptr. 633]; 2 Miller & Starr, Cal. Real Estate (3d ed. 2011) § 3:44, pp. 261-262 (rel. 3/2000).) But this does not help us resolve the question raised by this case, which is whether the Transfer Disclosure Law applies to transfers of mixed-use property.
Richman urges us to consider the "essence of the transaction" to determine whether it was residential in nature (disclosure required) or commercial in nature (disclosure not required).
In a similar vein, Richman contends that Hartley is not the "kind of buyer" the Legislature intended to protect by enacting the Transfer Disclosure Law. He argues that the law was intended to protect "unsophisticated" residential purchasers, not buyers, like Hartley, who are well versed in commercial real estate transactions. The courts have recognized the Legislature's interest in protecting unsophisticated residential home purchasers. (See, e.g., Smith v. Rickard, supra, 205 Cal.App.3d at p. 1361 ["section 2079 et seq. is one of those statutory schemes where the Legislature distinguishes between residential and commercial properties in order to protect unsophisticated buyers and owners of residential property from those with greater knowledge and bargaining power"]; Easton v. Strassburger (1984) 152 Cal.App.3d 90, 102, fn. 8 [199 Cal.Rptr. 383] [distinguishing between the "residential home buyer who is often unrepresented by a broker, or is effectively unrepresented because of the problems of dual agency ... [and] a purchaser of commercial real estate [who] is likely to be more experienced and sophisticated in his dealings in real estate" (citations omitted)].) The Legislature's purpose to protect residential, not commercial, buyers does not, however, require the conclusion that it did not intend the Transfer Disclosure Law to apply to transfers of mixed-use properties, which by definition include residential units. Nothing in the statute or its legislative history supports an exception to section 1102 based on the sophistication of the buyer.
There is no need to consider Richman's theories for determining whether a transaction is "in essence" commercial or residential because the Legislature has provided a numeric means of determining whether the Transfer Disclosure Law applies: it applies if the property is improved with one to four residential units, regardless of how it is otherwise improved. Had the Legislature wished the real estate industry to determine, through successive litigations, whether a transaction is primarily commercial or residential, it would not have provided a bright line for determining the applicability of the Transfer Disclosure Law. Richman's construction would blur that bright line.
In Smith, we analyzed section 2079, which requires a licensed real estate broker who has a written contract with the seller of "residential real property comprising one to four dwelling units" and who has listed that property for sale "to disclose to [a] prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal ...." (Id., subd. (a), italics added; see Smith v. Rickard, supra, 205 Cal.App.3d at p. 1360.) In Smith, we did not have to read the word "residential" into the statute because it was already there. Our task was to determine whether the property was in fact "residential" for purposes of section 2079. The property at issue in Smith was a 50-acre commercial avocado and lemon orchard improved with a residence. After the sale was completed the buyer discovered that the avocado trees were infected with a fungus that was killing the trees and sued the broker for negligence in failing to inspect and disclose material defects in the avocado orchard. We held that the Legislature intended section 2079 to apply only to "brokers selling residential properties of four or fewer dwellings, and not to commercial real estate transactions." (Smith v. Rickard, supra, at p. 1360.) We determined that the property was not residential: "The presence of a residence on the commercial property does not transform the property into residential property." (Id., at p. 1363.) Because section 2079 applies only to "residential" property, we concluded that the "broker has no duty to inspect..." the commercial parts of the property. (205 Cal.App.3d at pp. 1357, 1356.)
In the absence of any case law defining the scope of section 1102, Richman urges that Smith's construction of section 2079 is controlling here, particularly our statement that "[t]he presence of a residence on the commercial property does not transform the property into residential property."
Richman contends that paragraph 26 of the Agreement constituted a waiver of the disclosure requirements contained in paragraph 9.1(a). Paragraph 26 states: "Sale will be non contingent and property shall be sold in an `AS IS CONDITION' with all [its] faults." Although this provision may have created a triable issue as to whether the parties intended to waive the non-statutory disclosures of paragraph 9.1(a), it could not, as a matter of law, operate as a waiver of the Transfer Disclosure Law.
In 1994 the Legislature amended section 1102 to add the provision that: "Any waiver of the requirements of this article is void as against public policy." (§ 1102, subd. (c).) The Legislature's stated purpose in enacting this change was to clarify "that the delivery of a real estate transfer disclosure statement may not be waived in an `as is' sale, as held in Loughrin v. Superior Court (1993) 15 Cal.App.4th 1188 [19 Cal.Rptr.2d 161]." (§ 1102.1, subd. (a), italics added.) Section 1102 required Richman to provide Hartley with a TDS, and public policy prohibited waiver of that requirement.
The judgment is affirmed. Costs are awarded to respondent.
Gilbert, P. J., and Perren, J., concurred.