In the immediate aftermath of natural disasters such as the Camp, Hill and Woolsey fires, the C.A.R. Legal Hotline has been getting a wide range of fire-related inquiries from our members regarding issues that affect them personally or professionally. Here are several frequently asked questions and answers.
During the disasters, there was a mandatory evacuation order in my neighborhood and I had to evacuate from my primary residence. Can I obtain reimbursement for the money I spent on lodging and other related incidentals? Homeowners and renters may seek reimbursement from their homeowner’s or renter’s insurance policy, respectively, under the Loss of Use or Additional Living Expenses coverage. In addition, you may be eligible for assistance from non-profit charitable organizations. C.A.R. and NAR have disaster relief programs available for members of the REALTOR® community or any residents directly affected by this recent disaster. Click here for additional information and to apply online. For presidentially-declared disasters such as the Camp, Hill and Woolsey fires, you may also qualify for FEMA assistance for any loss not covered by insurance. Click here for additional information and to apply online.
It is prudent to keep all receipts for costs incurred to provide to your insurer, charitable organization, or FEMA.
I lost my real estate business or primary residence to the fires. Is there any assistance available?
REALTORS® who lost their business or primary residence may refer to all available financial resources mentioned above. For additional information on legal, financial, medical, and private and government emergency assistance, please click here. For information on dealing with insurance claims and insurance companies, please click here. C.A.R. will soon publish a new Legal Q & A titled “Fire Insurance – What to do if your home was destroyed?”
Can a landlord or tenant terminate a lease agreement if all or parts of the premises are destroyed by fire?
Yes. Under California Civil Code Section 1933(4), a lease agreement is terminated automatically if the entire premises are destroyed, unless the parties have agreed to something different. In the event the premises are only partially destroyed, the tenant can terminate the lease by giving notice to the landlord if the landlord had reason to believe at commencement of the lease agreement that the portion destroyed was a “material inducement” to the tenant to enter the lease (Cal. Civ. Code §1932(2)).
The C.A.R. Residential Lease or Month-to-Month Rental Agreement (“LR”) in paragraph 28 states that if the premises are damaged due to fire or other casualty and become partially or totally uninhabitable, the agreement may be terminated by either landlord or tenant with written notice.
What if the premises are only partially damaged and the lease is not terminated? What are the obligations of the landlord and tenant?
LR paragraph 28 states that if the lease agreement is not terminated, the landlord “shall promptly repair the damage, and Rent shall be reduced based on the extent to which the damage interferes with Tenant’s reasonable use of Premises.” This may apply in situations where the premises are generally habitable, but a portion is not usable due to damage. Rent reduction during the repair period is fact specific and no exact method of calculation exists. One method is to base the percentage of rent reduction on the percentage of unusable space. For example, if you have a unit with a garage and the garage becomes unusable due to fire damage, you may calculate the reduction based on the percentage of the total square footage constituted by the non-usable area. A second method is to base the reduction on a Fair Market Value (FMV) comparison to similar units without that damaged feature. Using the garage example, conduct an FMV comparison for similar units without a garage to calculate the reduction amount. The best practice for both landlord and tenant is to discuss and come to an agreement on the reasonable reduction of rent for the duration of the period of repair and non-usability.
Slightly different rules apply if the entire premises are uninhabitable during the repair period. This may apply in situations where the repair time is relatively short, and neither the landlord nor tenant exercised the right to terminate the lease agreement. Under LR paragraph 27, if the repair work to the premises requires temporary relocation of the tenant, “Tenant shall only be entitled to a credit of Rent equal to the per diem Rent for the period of time Tenant is required to vacate the Premises.” Daily per diem rent may be calculated by dividing the monthly rent by 30 days. Although some landlords generously offer to cover the cost of lodging during this period, the LR does not require them to do so.
What is California’s anti-price gouging law and how does it affect real estate practices?
Essentially, the anti-price gouging law protects consumers during times of a declared (by the Governor or local officials) state of emergency from increased prices for certain essential goods and services. In the real estate business, that means landlords cannot raise rents by more than 10% of existing rates for new lease terms of one year or less. Violators of this law may be subject to civil and criminal prosecution. States of emergency in Butte and Los Angeles counties expire 180 days from November 8, 2018 (May 8, 2019) and November 9, 2018 (May 9, 2019), respectively, unless otherwise extended. All other currently declared states of emergency in Lake, Mendocino, Napa, Santa Barbara, Shasta, Siskiyou, Sonoma, and Ventura counties are to remain in effect until May 31, 2019. Please refer to this link for additional information about California’s anti-price gouging law.
The property was in escrow. The subject property was partially damaged or destroyed by fire before the close of escrow. What are the respective rights of the sellers and buyers?
If the purchase contract between the parties does not specify who is to bear the risk of damage or loss to the premises during the time between the execution of the contract and the transfer of title, the liability of the parties is governed by the California Uniform Vendor and Purchaser Risk Act (Cal. Civ. Code § 1662). Note: C.A.R.’s Residential Purchase Agreement and Joint Escrow Instructions (“RPA”), does not dictate how risk of loss is allocated between a buyer and a seller so the Uniform Vendor and Purchase Risk Act applies.
If all or a material part of the premises is damaged before title or possession is given to the buyer, the buyer can cancel the contract and recover any portion of the purchase price paid. Likewise, where a material part of the subject property is destroyed without the fault of either party and neither title nor possession has passed to the buyer, the seller’s performance is excused, and the buyer is entitled to the return of any consideration paid.
The property was in escrow. The subject property was either damaged but not “materially” or the property escaped direct damage but the surrounding community was destroyed by the fire before the close of escrow. What are the respective rights of the sellers and buyers?
If the damage occurs before the buyer has removed an inspection contingency in his or her purchase contract, the buyer can, of course, exercise any inspection, disapproval, and cancellation rights provided by the contract.
If the damage occurs after the buyer has removed his or her inspection contingency, the buyer generally does not have an automatic right to re-inspect the property and approve or disapprove of its condition under most purchase contracts, including the RPA. Under RPA paragraph 11, the seller has a contractual obligation to repair, by close of escrow, any damage to the property that occurred during escrow in order to deliver it in the same condition it was in at time of contract acceptance.
In addition, the purchase agreement may require a seller to disclose fire-related information, which in turn may give a buyer a right to cancel the transaction, even if he or she has already removed contingencies. For example, RPA paragraphs 10A (6) and (7) provide that if, prior to the close of escrow, the seller becomes aware of adverse conditions materially affecting the property including neighborhood conditions, the seller must provide a subsequent or amended disclosure or notice, which then gives the buyer a right to cancel the agreement.
For a complete list of fire-related resources, please click here.
This FAQ contains general questions and answers and is meant for informational purposes only; please call the C.A.R. Legal Hotline to discuss your specific case and receive legal advice.