Two New Disclosure Requirements for California Real Estate Transactions

Beginning July 1, 2013, two new disclosure requirements take effect for California Real Estate Transactions:

1. California Civil Code Section 1938 requires that leases for ALL commercial properties entered into on or after July 1, 2013 state whether the subject premises has been inspected by a “Certified Access Specialist” and if so, whether the property has or has not been determined to meet all applicable construction related accessibility standards pursuant to California Civil Code Section 55.53.California Civil Code Section 55.53, et seq., addresses the role of the Certified Access Specialist, including the preparation of a written assessment of whether the assessed site meets all applicable construction-related accessibility standards or if corrective actions are required. Such assessment will hopefully curtail construction related accessibility lawsuits (including claims alleging violations of the Americans with Disabilities Act) as such written assessments would serve as evidence of compliance (or non-compliance) with applicable accessibility laws.
2. New Mandatory Energy Use Disclosure Requirements: Nonresidential Building Energy Use requirements set forth in California Public Resources Code Section 25402.10 which require all owners who are going to sell, lease, or finance “Nonresidential Buildings” which are 50,000 square feet or more located in California to disclose the property’s energy use data for the most recent 12 months. Similar disclosure requirements for smaller properties will take effect in 2014.

Compliance schedule:

• July 1, 2013: Buildings with a total floor area exceeding 50,000 square feet.
• January 1, 2014: Buildings with a total floor area measuring more than 10,000 square feet, but not more than 50,000 square feet.
• July 1, 2014: Buildings with a total floor area measuring at least 5,000 square feet, but not more than 10,000 square feet; buildings with a total floor area measuring less than 5,000.

What it means to you:

• More red tape: Additional mandatory disclosure requirements in selling, leasing, or obtaining financing.
• More potential liability: The failure to make such disclosures could be the source of potential claims by buyers, tenants, and lenders.
• Additional due diligence/value measure: New system allows buyers to compare a building’s energy consumption and efficiency should prompt prudent owners to evaluate how they may make their building more “competitive” and prudent buyers to review this as part of their due diligence and number-crunching.
• Risk of Delay: Failure to commence the disclosure process well in advance of the transaction could result in closing delays.