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New Disclosure Requirements for Commercial Property – By Dale S. Alberstone, Esq.

Posted on 01. May, 2013 by in all, Magazine Articles

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Hello everyone.  Nearly all members of the Apartment Owners Association own or manage one or more apartment buildings.  Many of them, as well as non-member readers of AOA magazine, own commercial property, or at least aspire to own non-residential investment property.

For those who are involved with commercial real estate, my column this month will brief you on the new disclosure requirements applicable to commercial property, though not to multi-family residential property.

Disclosure of Disability Access

Starting July 1, 2013, all owners and lessors of commercial real property will be required to state on every new lease form or rental agreement executed on or after that date, whether the property being leased or rented has undergone inspection by a Certified Access Specialist (“CASp”).  The law is set forth in Civil Code §1938.

In addition, the owner or lessor must state on the agreement whether the property has or has not been determined to meet all applicable construction-related standards.  Those standards are quite detailed and specific, but readers who want to pursue an in depth understanding of them should start with California Civil Code Sections 55.52 through 55.54.  They deal largely with accessibility for disabled persons.

As enacted, the new law will apply to everything from a rental booth in an indoor flea market to a “big box” lease by Best Buy or WalMart. 

The so-called CASp inspectors must be certified by the California Division of the State Architect.  To locate such an inspector, you can “google” the expression “California Certified Access Specialist List.”  About 500 names will appear when you then click on the State ofCalifornia’s resulting website. 

Under the new laws, landlords are not required to have the inspection performed.  They are only required to advise prospective tenants of whether the inspection has been conducted, and the results of any such inspection. 

Thus, lessors have the choice:  to inspect or not to inspect.  If they choose not to inspect, they must advise the prospective applicant that the premises may not meet the required standards.  That may cause the applicant to look elsewhere.  On the other hand, the renter may assume the risk of having to improve the premises himself after he leases them. 

 

Interestingly, the code does not impose any specific fine or other consequence for the failure of the lessor or owner to include the disclosure in the rental agreement.   Of course, if the information is withheld and the tenant is later cited for violations, no doubt the lessee will be looking to his landlord for reimbursement of the cost for compliance. 

Another reason to disclose (other than because “it’s the law” mandate), is that there is a safe haven for owners and landlords from the predatory practices of professional plaintiffs who earn their living by exposing themselves to the violations, and then suing for compensation. 

Under Civil Code Sections 55.2 through 55.54, a plaintiff who sues for a construction-related accessibility claim (such as noncompliance with disability regulations), must deliver a letter to the defendant at the time he serves a summons and complaint (i.e., the litigation papers) that the defendant’s statutory minimum damages may be reduced to $1,000 if he can produce a CASp report showing compliance. 

These laws providing for a defense are very technical and are best left to the lawyer who defends the case.  For purposes of AOA readers, suffice it to say that obtaining a CASp inspection can control otherwise vexatious “drive-by” litigants who intentionally encounter the violation just so they can thereafter file a lawsuit for monetary damages.

Energy Use Disclosures

Let me bring to AOA members’ attention one other set of laws which become effective as of July 1, 2013.   They deal with disclosure of past energy use data with the goal in mind of encouraging energy efficiency in nonresidential buildings through mandatory disclosure of the buildings’ relative ranking.

The State Legislature also had in mind that more energy efficient buildings would generate higher rents and resale values.

Beginning July 1, 2013, landlords of non-residential property consisting of more than 50,000 gross floor area square feet must obtain and disclose, prior to any sale, lease or financing of the entire building, the energy use data for the preceding 12 months. 

Fortunately for many lessors, transactions involving less than the entire building are not covered by the law.  Thus, commercial landlords that lease space to lessees in a multi-tenant building or in a shopping center are exempt from this new disclosure law.

Starting January 1, 2014, the square footage triggering the obligation of disclosure is reduced to 10,000 for the entire building, and beginning July 1, 2014, mandatory disclosures of past energy use are reduced to 5,000 square feet of gross floor area.

Concluding Remarks

These new laws do not apply to apartment buildings—fortunately.  But for any owner, lessor, or management company of commercial real property, I urge you to comply with the statutes so that you do not expose yourself to what might otherwise be a relatively easy litigation to avoid altogether, or so you at least curtail your exposure to damages if a lawsuit is filed.                                     

 

Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 36 years.  He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association.  He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.

Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell.  An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity. You may Google “Dale S. Alberstone” for further background.

The foregoing article was authored on April 1, 2013.  It is intended as a general overview of the law and may not apply to the reader’s particular case.  Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.

Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1801 Avenue of the Stars, Suite 600, Los Angeles, California 90067.  Phone:  (310) 277-7300.