JCP Reports - Disclosure for Non-Residential and Traditionally "Exempt" Properties

Disclosure for Non-Residential and Traditionally "Exempt" Properties

By JCP Geologists

The question has been raised as to how Assembly Bill 1195 affects non-residential property transactions and residential transactions which are often considered exempt from disclosures. The law primarily accomplishes two things; it introduces a Natural Hazard Disclosure Statement and mandates three map-based disclosures. We can see how different types of transactions are affected by examining how the law applies these mandates.

To mandate the use of the Natural Hazard Disclosure Statement (NHDS), the law adds Civil Code Section 1102.6 which statutorily defines the text of the required form used when selling "any real property that is subject to this section." According to Civil Code Section 1102, properties subject to this section are "real property...improved with or consisting of not less than one nor more than four dwelling units." Thus, because use of the statutory NHDS is included in Civil Code Section 1102, using the form is only required for those transactions that are subject to Civil Code 1102.

It should be noted that there are several exemptions to Civil Code 1102. If you don't know if a transaction is subject to Civil Code 1102, there is an easy "rule-of-thumb." The Transfer Disclosure Statement (TDS) is also tied to Civil Code 1102. If a transaction requires a TDS, then the statutory Natural Hazard Disclosure Statement is also needed. If a transaction is exempt from the TDS, then the NHDS is not required.

However, even when the statutory form is not required, the disclosures are! AB 1195 addresses six map-based disclosures; NFIP Special Flood Hazard Areas, Dam Inundation Zones, Very High Fire Severity Zones, State Responsibility Fire Areas, Earthquake Fault Zones and Seismic Hazard Zones. While these six disclosure items are listed on the Natural Hazard Disclosure Statement, they are mandated by codes which are independent of Civil Code 1102. For example, Public Resources Code 2621.9 mandates the disclosure of Earthquake Fault Zones for "all real property" transactions. Similarly, Public Resources Code 4136 mandates disclosure of State Responsibility Areas and Public Resources Code 2694 mandates Seismic Hazard Zone disclosure for all "real property" transactions.

AB 1195 also adds three new sections of independent code mandating the new disclosures:

Government Code 8589.3, mandating NFIP Special Flood Zone disclosure, is added to read; "(a) A person who is acting as an agent for the seller of real property that is located within a special flood hazard area (any type Zone "A" or "V") shall disclose to any prospective purchaser..."
Government Code 8589.4, mandating Dam Inundation Zone Disclosure, is added to read; " (a) A person who is acting as an agent for the seller of real property that is located within an area of potential flooding shown on an inundation map shall disclose to any prospective purchaser..."
Finally, Government Code 51183.5, mandating Very High Fire Severity Zone disclosure, is added to read; " (a) A seller of real property that is located within a very high fire hazard severity zone shall disclose to any prospective purchaser..."

These independent codes make disclosure of the six items on the Natural Hazard Disclosure Statement mandatory for all real property transactions regardless of whether the transaction requires the actual use of the NHDS.

To summarize, there are six natural hazard disclosure items required by California state law. Each item is addressed in its own section of code. Each item applies to all real property transactions, including commercial and industrial, making the disclosures themselves required for all transactions. When making these disclosures for most residential transactions the Natural Hazard Disclosure Statement must be used.

The JCP Natural Hazard Disclosure Report fulfills these disclosure requirements!