The COVID-19 outbreak has created a slew of issues and potential areas for debate in the real estate world. This has included issues with performing under active or potential purchase contracts, as well as determining how real estate agents may operate their businesses. In light of these issues, the California Association of Realtors (“CAR”) has released four new forms in an attempt to address some of these issues. We will discuss these for forms herein.
CVA – Coronavirus Addendum OR Amendment
The first form is the “CVA,” Coronavirus Addendum OR Amendment. This is a revision of the first form CAR released in response to the pandemic, which was understandably done in a rush to attempt to alleviate some of the immediate issues with parties’ inability to close escrow due to the sudden onset of the pandemic and subsequent issues with being able to close. The initial form was somewhat flawed and incomplete, and this form was intended to address some of those concerns.
This form is intended to be use as either an amendment to an existing contract, or an addendum to proposed agreement. The form adds language that points out that the standard form Residential Purchase Agreement (“RPA”) allocates risk by having contingencies, covenants and disclosures, but references the fact that the RPA does NOT contain a “force majeure” clause (this is an issue we address in another article, but the main point is that many contracts have language that deals with the possibility of some sort of act of god or other occurrence that makes timely performance impossible, and what is to occur in that scenario).
This Addendum thus seeks to fill the gap and provide
for some options on what the buyer and seller’s rights and responsibilities are
in light of the pandemic. Notably, the
CVA considers the potential for either extending the time for the buyer to
remove contingencies, extending the time to close escrow (or both), OR for the
parties to agree to a mutual cancellation.
All of these scenarios also include language and options as to how the
earnest money deposit will be handled based on what plays out.
The CVA is connected to a separate form, the NUCC –
Notice of Unforeseen Circumstances, which triggers the ability to extend or
cancel the agreement. Essentially,
depending on which options are selected, if an “Unforeseen Circumstance”
occurs, the parties may be given a right to extend time to back out of the
contract.
Note, if the parties agree to an extension of time, no Demand to Close Escrow or Notice to Perform is required to be issued.
This form MAY be helpful, however there are multiple
considerations that need to be weighed.
First of all, if you are already in contract, or even if you are just at
the offer stage, this form is not mandatory.
So, some sellers (or even buyers) may be reluctant to use it for fear it
could allow one side to back out. There
may also be alternative ways to negotiate how a transaction will be handled
apart from those options this form allows.
So although we appreciate the effort by CAR to provide an option on how
to deal with the potential fall out from the pandemic, we are in a very unique
situation and this form is certainly a “one size fits all” option.
There are also some potential shortcomings in this
form, notably if it is being used to cancel a contract. The language contained in this form is not as
robust as the standard Cancellation of Contract, and it may be advisable to use
that form either instead or in conjunction with this form, depending on your
circumstances.
NUCC – Notice of Unforeseen Circumstances
The second form is the NUCC – Notice of Unforeseen Circumstances. As discussed above, this is a form that is tied to the CVA. Essentially, the NUCC lays out a series of potential “Unforeseen Circumstances” that can trigger the right to extend or cancel the contract under the CVA. These include such things as issues with the loan process (lender delay, loss of income, notary issues), issues stemming from shelter in place orders (inability to get inspections or appraisals, inability to move, inability to verify condition of home) or personal impact (COVID-19 diagnosis, hospitalization, quarantine). The form also requires verification of the UCC.
RLA-CAA – Listing Agreement Coronavirus Addendum
The third form is the RLA-CAA – Listing Agreement Coronavirus Addendum. This is intended to amend or supplement the standard listing agreement. This agreement attempts to clarify what an agent can or cannot do, based on what the seller decides, in marketing the property.
For example, the form attempts to deal with how the property can be shown, ie by virtual showings only, or only allowing in-person showings after certain pre-requisites have been met (ie the buyer affirms they have already done a virtual tour and/or providing evidence of their financial capacity to purchase). The form includes a checklist of a series of action items the listing agent can or cannot do, and also allows for adjustments to the marketing plan in response to the pandemic.
The form also allows for a couple options for withdrawing the property from the market temporarily, which includes options to extend the listing term for the duration of the withdrawal or keep it as is (keep in mind, the listing agent would still need to make sure they comply with local MLS rules).
Finally, the form contains some protection for agents, notably that broker cannot verify representations of others (ie whether they do have symptoms etc.).
This form is also not without flaws. CAR is a statewide organization. However, different local jurisdictions have differing rules on what can or cannot be done right now. For example, the form does not really reflect the reality of what is happening in Santa Clara County, where only if a virtual viewing is not possible, then in-person showings can occur by appointment with no more than two visitors at a time from the same household, and only one agent showing the unit, and in-person showings or walk-throughs are not allowed at all when the occupant is still living in the residence. Thus, the form does not easily allow for this consideration, and so some custom drafting a revision of the form will likely be needed depending on your local jurisdiction’s current rules.
PEAD – Coronavirus Property Advisory and Declaration
The final form that was recently release is the PEAD – Coronavirus Property Advisory and Declaration. This form is essentially a form to advise the sellers/landlords of some of the concerns stemming from COVID-19 and also serves as a protection for the agents. Notably, the form explains the risks and potential precautions that should be taken. The form further includes and agreement and assumption of risk by the property owner related to the potential issues that can arise due to COVD-19.
It is understandable why the real estate agent/broker will want and likely require this form be used. From a homeowner’s perspective, if one were to sign this form, they homeowner may want to obtain certain commitments from the agent/broker to minimize the homeowner’s risk. So, this is a form that may result in some negotiation and potential further agreements between the parties, including potential clarifications to the listing agreement as to what the broker is allowed or directed to do or not do.
The COVID-19 pandemic is a rapidly evolving situation, for which preparing legal documents in short order may not always result in perfect forms. We suggest carefully considering what you are agreeing as a buyer, seller, or agent/broker, and likely consulting with an attorney as to the potential risks and benefits inherit in buying or selling property, and using theses forms, given the current climate.