“May I Buy This Home?” No Duty Owed to Prospective Purchasers

By Emily Long, Esq.

We are often asked by board members or management about an association’s obligation to answer questions posed by prospective purchasers, or to disclose certain documents, upon receipt of an escrow demand. Understandably, association representatives wish to promptly comply with an escrow demand within the time period required by law.[1]  However, it is important to keep a few things in mind when responding to these requests.

Current owners/prospective sellers are obligated to provide prospective purchasers with certain specified documents related to an association before they transfer title to a separate interest.  Civil Code section 4525(a)(1)-(10) lists the documents to be provided to a prospective purchaser by an owner and includes in the list: a copy of all association governing documents, along with nine other groups of documents. These specified documents are often termed “escrow disclosures.” Upon written request, the current owner of a separate interest must provide copies of the specified documents to the prospective purchaser “as soon as practicable” before the transfer of title or the execution of a real property sales contract pursuant to Civil Code section 4525(a).

Note that it is the current owner, not the association, that has the obligation to provide the specified documents under Civil Code section 4525 to the prospective purchaser.

However, common interest developments do not always get off quite so easily when it comes to an escrow demand. Associations are obligated to be part of the escrow disclosure process, by way of Civil Code section 4530. Civil Code section 4530(a)(1) provides:

“an association shall, within 10 days of receipt of a written request, provide the owner of a separate interest, or any recipient authorized by the owner, with a copy of all the documents requested as stated under Civil Code section 4525.”

As such, associations are required to provide a copy of the specified documents to the current owner or their designated recipient (who is often an escrow agent), within 10 days of receiving a written request. Again, notice that there is no obligation under law for an association to provide the requested documents to the prospective purchaser or the prospective purchaser’s representative.

It is important that association representatives are aware of these obligations and do not stray by providing more than what is required in Civil Code sections 4525 and 4530. Also, association representatives should be wary of interacting directly with prospective purchasers or prospective purchasers’ agents or representatives during the escrow disclosure process rather than the current owners/prospective sellers. For example, we are aware that sometimes prospective purchasers will ask associations to interpret existing restrictions in their CC&Rs or other governing documents (e.g., age restrictions or short-term rental restrictions). Questions like, “Is my son age-qualified to reside with me in the community?” or “May I short-term rent my home if I purchase in your community?” are not uncommon.

While an association representative’s instinct may be to answer such questions, we advise our clients to stick to the requirements of the law and only provide copies of the governing documents or other specified document, without analyzing the prospective purchaser’s situation. Remember: the association owes no duty to a prospective purchaser, only to the current owner of a separate interest within the association. Further, the disclosure duties of an association are limited to providing copies of lawfully requested documents as stated in Civil Code sections 4525 and 4530 to a current owner or owner’s designated recipient.

To do otherwise, could possibly subject an association to liability for unlawful interference with a contract to sell real property from the prospective purchaser or seller, in the unfortunate event that the sale of the separate interest goes bad. When an association representative is asked to interpret or explain any portion of an association’s governing documents by a prospective purchaser or even a current owner, the representative should provide a copy of the governing documents (or other specified document listed in Civil Code section 4525) and encourage the prospective purchaser or current owner to consult with their own qualified representatives if they have questions about the meaning of the governing documents.

[1] This article relates only to questions of prospective purchasers and not lender questionnaires.  Associations may also be required under the law to respond to lender questionnaires, in certain instances, but this topic is not covered in this article.