2015 Legislative Highlights

• Jurisdiction: California,United States
• Citation: Vol. 34 No. 1
• Publication year: 2016
• Author: Robert M. McCormick, Michael J. Maurer, and Weston B. Rockers

2015 Legislative Highlights

Robert M. McCormick, Michael J. Maurer, and Weston B. Rockers

Robert M. McCormick

Robert M. McCormick is Of Counsel at Downey Brand LLP and a member of the Real Estate Practice Group. He is also currently one of the Co-Chairs of the Commercial Leasing Subsection (North) of the Real Property Law Section of the State Bar of California. His practice is focused on commercial real estate transactions, including office and retail leasing, acquisitions, real estate secured financing, and the formation of common interest developments.

Michael J. Maurer

Michael J. Maurer is an Associate at Best Best & Krieger LP and a member of the Municipal Law, Special District, and Litigation practice groups. He is a member of the Real Property Law Section of the State Bar of California. His practice is focused on land use, public works, and community development.

Weston B. Rockers

Weston B. Rockers is an Associate at Downey Brand LLP and a member of the Real Estate Practice Group. His practice is focused on commercial real estate transactions.

I. INTRODUCTION

The 2015 Legislative Session was marked by the early resolution of the State budget in June, which allowed plenty of time for California's legislators to enact a variety of laws on subjects as diverse as drones, medical marijuana, minimum wage, vaccinations, climate change, drought, and the right to die. In 2015, no one theme dominated the legislative agenda. The Legislature's Democrats, with a near-super majority, passed the vast majority of the bills they supported, sending 941 bills to Governor Brown. The Governor ended up signing 808 of the bills sent to him, and vetoing 133, his second highest percentage of bills vetoed since returning to office in 2010.

Some of the most notable new laws affecting real property interests in California enacted in 2015 include AB 802, passed in the last hours of the session, which constitutes an about-face regarding energy consumption reporting for commercial buildings, and AB 2, which provides a long awaited replacement for redevelopment.

The following legislative review selectively focuses on those new laws enacted in 2015 that the authors believe are of most significance for real property law practitioners. It does not, therefore, cover every real property-related law enacted in 2015, and in particular does not cover new laws that affect only a specific locality or are primarily revenue raising or funding measures. This article also provides only summary references to the text of the bills selected for comment. Copies of the actual chaptered versions that include specific references to the statutory provisions that are modified, deleted, or added should always be reviewed for details and are available from the Legislative Counsel at http://www.leginfo.ca.gov under Bill Information for "Session (2015-2016) CURRENT." Unless otherwise noted, all bills covered in this review are operative January 1, 2016, with the exception of the "urgency" laws that went into effect when enacted during 2015.¹

II. BROKERS

A. AB 345 (Frazier)—Real Estate Licensees: Continuing Education Requirements

Amends section 10170.5 of the Business and Professions Code, relating to real estate licensees.

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AB 345 seeks to address the issue of recurrent lack of supervision violations on the part of real estate brokers by requiring real estate brokers, as part of the broker's forty-five hours of continuing education requirement, to successfully complete a three-hour course in the management of offices and supervision of licensed activities.

B. AB 607 (Dodd)—Real Estate Trust Fund Accounts: Bond Requirement

Amends section 10145 of the Business and Professions Code, relating to real estate brokers.

The purpose of AB 607 is to facilitate the ability of real estate brokers to employ certain non-real estate licensed persons to manage real estate broker trust fund accounts. Under prior law, a real estate broker could employ unlicensed persons such as certified public accountants or bookkeepers if the broker arranged for fidelity bond coverage for the maximum amount of the trust fund account to which the employee had access. The problem with this arrangement was that the California Bureau of Real Estate required that the fidelity bond have a zero percent deductible. Practically, this was unattainable from insurers for amounts greater than $100,000. In order to remove this impediment, AB 607 authorizes the fidelity bond to have a deductible of up to five percent if the broker has evidence of financial responsibility that is sufficient to protect members of the public against a loss subject to the deductible amount. This new law also specifies that any such arrangement with a non-licensed employee is prohibited from relieving an individual broker or the broker-officer of a corporate broker from responsibility or liability in handling trust funds in the broker's custody. This new law was sponsored by the California Association of REALTORS, and according to the author will "allow real estate broker trust accounts to operate more efficiently and better protect the public."

C. SB 146 (Galgiani)—Real Estate Licensees: Fictitious Business Names; Team Names

Amends sections 10159.5, 10159.6, and 10159.7 of the Business and Professions Code, relating to real estate licensees.

SB 146 is a continuation of the efforts of the Legislature to facilitate the use of "team names" by real estate professionals. A "team name" as used in this legislation means a professional identity or brand name used by a salesperson and one or more other real estate licensees who work together to provide licensed real estate services or who represent themselves to the public as being part of a team, group, or association to provide those services. In 2014, the Legislature enacted AB 2018, which was intended to provide clearer regulation of "team names." Among other things, AB 2018 provided a definition of "team name" and clarified that a team name is not a fictitious business name if specified criteria are satisfied. SB 146 revisits the regulation of "team names" to address some remaining confusion regarding whether a "team name" is a fictitious business name under any other laws, and as such, subject to satisfying the various application, publication, and filing requirements associated with a fictitious business name. SB 146 makes technical changes to the applicable statutes to clarify that a "team name" is also not a fictitious business name for purposes of any other law or for purposes of filing a fictitious business name statement with an application when the specified criteria are satisfied.

SB 146 also makes technical changes to the definition of the "responsible broker's identity" to mean a name and the associated license identification number under which the responsible broker is currently licensed and conducts business in general, or is a substantial division of the real estate firm and that does not include a fictitious business name or a "team name," as specified. The "responsible broker's identity" is required to be displayed in any advertising or solicitation materials using a fictitious business name or "team name."

D. SB 647 (Morrell)—Real Estate Investments: Securities; Qualification Exemption

Amends sections 10232.3, 10232.45, and 10238 of the Business and Professions Code and amends section 25102.2 of the Corporations Code, relating to real estate investments.

SB 647 applies to a special category of real estate brokers commonly known as "threshold brokers." These are brokers who generally make, broker, and/or service mortgage loans on behalf of private individuals and small pension plans and otherwise satisfy the "threshold" criteria for required notification to the California Bureau of Real Estate prescribed in Business and Professions Code section 10232. The laws governing threshold brokers were revised in 2012 under AB 978 to provide more investor protections. SB 647, sponsored by the California Mortgage Association, makes three substantive changes to the rules governing threshold brokers. First, SB 647 clarifies how the existing statutory maximum loan to value ("LTV") ratios for notes or interests being sold apply to land that produces income from crops, timber, or minerals (specifying sixty percent as a maximum LTV ratio). Second, SB 647 also makes changes to the requirement for threshold brokers to obtain a specified investor questionnaire that specifies (i) the investor questionnaire be obtained at least two business days and not more than one year prior to completing each sale, (ii) any subsequent questionnaire from the same person need only reflect any material changes from the immediately preceding questionnaire, and (iii) delete the requirement for undated annual questionnaires.

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Finally, SB 647 removes the requirement that persons engaged in the business of purchasing, selling, and financing or brokering real estate, who rely on the securities exemption authorized by Corporations Code section 25100(p), must submit specified additional information about their offering to the Commissioner of Business Oversight—if the security involved is a promissory note secured by a lien on real property that meets specific criteria.

III. COMMON INTEREST DEVELOPMENTS

A. AB 349 (Gonzalez)—Common Interest Developments: Property Use And Maintenance

Amends section 4735 of the Civil Code, relating to common interest developments.

This act continues the Legislature's interest in enacting new laws to facilitate water conservation. Existing law—the Davis-Stirling Common Interest Development Act, which governs the management and operation of common interest developments—makes void and unenforceable any provision of the governing documents or architectural or landscaping guidelines or policies that prohibits use of low water-using plants, or prohibits or restricts compliance with water-efficient landscape ordinances or regulations on the use of water. It also prohibits an association...