Real Estate Legalities: California-Specific Laws And You

California's real estate laws are complex and exacting, applying to anyone planning to engage in a real estate transaction, including homeowners, landlords, tenants, and home buyers. These laws are designed to protect the rights of buyers, sellers, and lenders, with new amendments reflecting the state's commitment to enhancing transparency, fairness, and sustainability in the real estate sector.

California's real estate laws cover a range of topics, including escrow requirements, transfer taxes, disclosure obligations, title searches, smoke alarm mandates, lead paint notifications, and protections for those at risk of homelessness.

Additionally, California's laws differ from many other states in that they do not require the physical presence of the property seller during a transaction, and they permit dual agency representation. Familiarizing oneself with these laws is essential for compliance and protection in real estate dealings.

Disclosure laws: Sellers must disclose negative details about a property

Disclosure laws are a critical aspect of real estate transactions in California, and sellers must provide prospective buyers with detailed information about the property they are offering for sale. These disclosure requirements are designed to protect buyers and ensure they have the necessary knowledge to make informed decisions. Here is an in-depth look at the disclosure laws pertaining to real estate in California:

Disclosure Obligations for Sellers in California:

California law mandates that residential property sellers disclose, in writing, specific details about the property they are selling. This requirement applies to most homeowners selling their properties, including standalone homes, condos, and mobile homes. The purpose of these disclosures is to provide potential buyers with comprehensive information to evaluate the property accurately. This includes understanding the property's condition, determining an appropriate purchase price, and identifying any necessary repairs or upgrades.

Types of Disclosures:

Sellers in California must disclose a range of information, including basic details such as how long they have owned the property, as well as more specific details about its physical condition, such as:

• Structural defects or foundation problems
• Electrical issues
• History of flooding
• Presence of hazardous materials
• Working condition of appliances and features included in the sale
• Boundary issues
• Smoke and carbon monoxide detectors
• Type of sewage system
• Type and age of the roof
• Permits for any improvements or additions

Disclosure of Lead-Based Paint:

In addition to the above, sellers are required by federal law to disclose the presence of lead-based paint and provide buyers with an Environmental Protection Agency pamphlet, "Protect Your Family From Lead in Your Home." They must also disclose any known lead-based paint hazards and provide relevant reports or records.

Disclosure of Deaths and Sex Offenders:

Sellers are also required to disclose if any deaths have occurred on the property within the last three years. While they are not obligated to disclose the cause of death, they must answer truthfully if directly asked about it. Additionally, sellers or their agents must advise buyers to refer to the national registry for information on the locations of registered sex offenders.

Disclosure of Military Artillery Locations:

Another critical disclosure requirement pertains to informing buyers about any known military artillery locations near the property. This information is essential for buyers to assess potential safety risks and noise concerns associated with nearby military activities.

Disclosure of Property Tax Information:

Sellers are also obligated to provide details about property taxes. This includes information on the amount of property tax paid, any outstanding property taxes, and any special assessments or bonds that may impact future property taxes.

Disclosure Statement and Timeline:

In California, sellers typically use the Real Estate Transfer Disclosure Statement (TDS) to provide buyers with the required information. This form covers a broad range of topics and must be completed honestly and in good faith. Sellers should make these disclosures as early as possible in the purchase process to avoid potential delays or complications. If a seller fails to provide the required disclosures before the signing of the purchase agreement, the buyer has the option to terminate the deal.

Consequences of Non-Disclosure:

Sellers who do not comply with the disclosure requirements may face legal consequences. Buyers have the right to sue for fraudulent misrepresentation if they discover that the seller intentionally concealed defects or provided false information. Additionally, if a seller fails to provide an accurate disclosure statement, buyers have the right to cancel the agreement at any time.

Transfer tax: A county or city transfer tax is imposed on property sales

When a property is sold in California, a transfer tax is imposed by the county, and sometimes by the city, on the property being transferred from a seller to a buyer. This tax is calculated based on the final sale price of the property. While the specifics of who pays the transfer tax are sometimes up for negotiation, there are certain conventions that apply in different parts of the state. In Northern California, the buyer is normally the one who pays the transfer tax. In Southern California, on the other hand, the seller is usually the one who pays.

The transfer tax is implemented when the ownership transfer document, such as the Grant Deed, is recorded in the County Recorder's office where the property is located. The amount of the tax is generally determined by the location of the property and its final sale price.

The current transfer tax rate in California is $1.10 per $1,000, or 0.11% of the home sale value. This means that for a house worth $773,239, the median home price in the state, the transfer tax due will be $851. However, it is important to note that cities within California may charge additional fees on top of the standard rate, which can cause total dues to increase significantly. For example, Alameda County may charge transfer taxes of up to $12 per $1,000 of home value.

In addition to the standard county transfer tax rates, certain cities in California have implemented their own real estate transfer tax rates. For instance, beginning on April 1, 2023, the City of Los Angeles began imposing an additional 4% transfer tax on properties sold or transferred for more than $5 million, and a 5.5% tax on properties sold or transferred for over $10 million. These taxes are in addition to the county transfer tax rate, resulting in a total transfer tax rate of up to 6.06% for transactions of $10 million or more.

It is worth noting that transfer taxes are not the same as income taxes, and they cannot be deducted from your income tax return. However, when you sell a rental property, you can add the initial property transfer tax to the cost basis, thereby reducing the overall capital gain tax. Additionally, if the seller pays the transfer tax, it is considered an expense of the sale and reduces the amount of gain on the sale.

Smoke alarms: Minimum requirements for smoke detectors are mandated

In California, minimum requirements for smoke detectors are mandated by law. The California Health & Safety Code section 13113.8, effective January 1, 2013, states that every single-family dwelling sold must have an operable smoke alarm. The alarm must be approved and listed by the State Fire Marshal and installed in accordance with their regulations.

The law requires only one smoke alarm to be installed at the point of sale, but local jurisdictions can amend or create their own ordinances, as long as they meet or exceed the state requirements. For example, in 2014, a new California law, SB 745, changed the rules regarding smoke alarms and mandated that all smoke alarms installed that are solely battery-powered must contain a non-removable battery rated to last 10 years.

It is the seller's responsibility to provide written evidence of the presence of smoke detectors. This is usually in the form of a simple statement of compliance, but the California Association of Realtors has also drafted form WHSD, entitled "Water Heater and Smoke Detector Statement of Compliance."

If a seller fails to comply with the smoke alarm requirements, the buyer's exclusive remedy is an award of actual damages, not exceeding $100. The buyer may not invalidate the transfer of title.

Lead paint: Sellers must disclose the presence of lead paint

In California, sellers are legally obligated to disclose the presence of lead paint in their property. This is to ensure that buyers are informed of the potential risks associated with lead paint, which can cause serious health issues, especially in children. Lead paint exposure has been linked to developmental issues, reduced intelligence, behavior problems, and other health hazards in children, as well as harm to adults, including damage to the brain and other organs, and abnormal fetal development.

The disclosure of lead paint is required for most pre-1978 private housing, public housing, federally owned housing, and housing receiving federal assistance. This is because, despite lead-based paint being banned in the U.S. in 1978, it is still present in millions of homes built before this time. However, there are some exceptions to this rule, including zero-bedroom units such as lofts and dormitories, leases for 100 days or less (such as vacation houses or short-term rentals), housing specifically for the elderly or disabled (unless a child under six lives there), housing with lead-free paint as confirmed by a certified inspector, foreclosure sales, and housing built after 1977.

Sellers, as well as landlords, real estate agents, and property managers, have specific responsibilities under the Lead-based Paint Disclosure Rule. They must provide prospective buyers or renters with information about lead-based paint and its hazards before a contract or lease is signed. This includes giving them a copy of the "Protect Your Family From Lead In Your Home" pamphlet, which is available in multiple languages, disclosing any known information about the presence and condition of lead-based paint in the home, and providing all available records and reports on lead-based paint in the property. Additionally, sellers and landlords must provide a "Lead Warning Statement" in the contract or lease, explaining the health hazards of lead and confirming their compliance with the Lead-Based Paint Disclosure Rule.

Compliance with these laws is crucial, as failure to provide proper information about lead-based paint can result in penalties for sellers, landlords, real estate agents, and property managers. These penalties can include civil and criminal fines of up to $10,000, imprisonment of up to one year, and up to three times the amount of the buyer's or renter's damages.

Security deposits: Landlords can ask for up to two months' rent as security

In California, landlords are legally allowed to ask for up to two months' rent as a security deposit for an unfurnished unit and three months' rent for a furnished unit. However, a new law, Assembly Bill 12, was signed into law by Governor Gavin Newsom in October 2023, which will limit security deposits to the equivalent of one month's rent for both furnished and unfurnished units. This law is set to come into effect on July 1, 2024, and will make California the 12th state to implement a cap on security deposit requirements.

Assembly Bill 12 was introduced by San Francisco Democratic Assemblymember Matt Haney as part of a broader effort to improve housing affordability across the state. Prior to this bill, high security deposits were seen as a barrier to renters, often forcing them to borrow money from predatory lenders or remain in unsafe or overcrowded living conditions. The new law will help renters by reducing the upfront costs associated with moving into a new rental property.

It is important to note that there is an exception for small landlords who own no more than two residential rental properties with a total of four dwelling units. In this case, they are permitted to collect up to two months' rent as a security deposit, as long as they own the property as a natural person, a limited liability company (with all members being natural persons), or as a family trust. This exception does not apply if the prospective tenant is a military service member.

The new law will significantly reduce the financial burden on renters, especially in high-rent areas such as Los Angeles and San Francisco, where security deposits can cost upwards of $9,000 and $10,000, respectively.

Frequently asked questions