• Sellers Beware of Newsom’s New Proposal On Water

    SFAR RESIDENTIAL WATER & ENERGY CONSERVATION QUESTIONS AND

    ANSWERS

    Introduction

    The City and County of San Francisco (“City”) enacted certain water and energy conservation laws in 1991.

    The 1991 ordinance, among other things, required residential property owners to replace toilets if they had a

    flush volume of more than 3.5 gallons per flush.

    Under these laws, there are certain inspection, compliance and notice requirements for the Seller to cause to

    be completed before the close of escrow.

    Recent amendments to these laws add water conservation measures requiring more water efficient

    showerheads, faucets and toilets. In addition, sellers must locate and repair all water leaks. And the

    amendments make the inspection, compliance and notice provisions of the laws more comprehensive.

    The amended laws can be summarized as follows:

    1. After entering into a contract to sell, the Seller must hire a City approved “qualified inspector” to inspect

    Seller’s property using a special City approved form;

    2. The Seller’s “qualified inspector” must submit a completed inspection form for the property to the City;

    3. The Seller must install the conservation measures specified by that inspector in the completed inspection

    form for the property (e.g., under the amendments, install new toilets with a rated flush volume not

    exceeding 1.5 gallons per flush and otherwise in compliance with the SF Plumbing Code’s requirements);

    4. The Seller’s “qualified inspector” must certify installation of all of the specified conservation measures at

    the property by completing and filing a special City approved compliance form;

    5. The Seller must record the completed compliance form at or before the close of escrow;

    6. Before the close of escrow, the Seller is to provide a copy of the completed inspection and compliance

    forms to the Buyer; and,

    7. Before close, the Seller is also to provide Buyer with a City prepared “information brochure” regarding

    the requirements of the amended laws (or alternatively provide Buyer with a specially prepared notice in this

    regard).

    These amendments were effective July 1, 2009. But the City failed to produce the necessary forms to

    implement these laws. Thus, there is a question as to whether compliance is currently possible as a practical

    matter, and if so, to what extent. This is discussed below in Section II.

    This “Q & A” provides general information regarding these amended laws. The information in this “Q & A”

    is effective August 4, 2009. It is not a substitute for legal advice regarding any specific transaction. Anyone

    involved in any specific transaction with any particular questions should consult with a qualified attorney.

    I. General Overview of the City Water & Energy Conservation Ordinances and Amendments

    Q 1. Who is obligated to comply with these laws?

    A: Seller.

    Q 2. What do these laws generally require?A: Three basic things: inspections, documentation and installation of conservation measures (e.g., certain

    low flow toilets).

    Q 3. Do these laws apply to all residential property?

    A: Yes.

    Q 4. Are these new laws?

    A: No. The laws were originally enacted in 1991, but the amendments are new.

    Q 5. When were the amendments effective?

    A: July 1, 2009. But see Section II below regarding “Practical Compliance Problems.”

    Q 6. What about contracts entered on June 30, 2009 or before, do the amendments apply to them?

    A: No, according to City staff. City staff is on record stating that contracts entered on or before June 30,

    2009 that close after that date are governed by the laws as they existed before the amendments. To confirm

    there is no doubt as to the City’s position, SFAR requested and the City agreed that its City Attorney will

    provide written confirmation of that legal conclusion. Until that written confirmation is received, SFAR

    strongly recommends parties to any such agreements engage qualified attorney to review and opine on their

    specific transaction.

    Q 7. What triggers the Seller’s obligation to inspect under these laws?

    A: The formation of a contract to sell Seller’s residential real property.

    Q 8. Is the Seller supposed to do the inspections?

    A: No, not personally. The Seller is supposed to hire a special City approved “qualified inspector.”

    Q 9. Where can a Seller find a “qualified inspector”?

    A: There is supposed to be a list of “qualified inspectors” at the City’s Department of Building Inspection

    (“DBI”).

    Q 10. Do the amendments require special inspection and compliance forms be used for the inspection

    process?

    A: Yes.

    Q 11. Do they presently exist?

    A: No.

    Q 12. If these necessary forms do not presently exist, how can a Seller fully comply with the amended laws?

    A: They arguably can not fully comply with them. But there are some portions of the amended laws that can

    be satisfied. And some alternatives that the Seller may wish to consider. This is discussed in greater detail at

    Section II below.

    Q 13. Assuming the City furnishes these forms at some time in the future, what must be done with the

    inspection form?

    A: The inspection form must be completed by Seller’s “qualified inspector” and submitted to DBI within 15

    days after the inspector’s inspection of the Seller’s property.

    Q 14. How does the Seller know what conservation measures to complete?

    A: They are to be specified by the “qualified inspector” in the completed inspection form.

    Q 15. When must the specified conservation measures be installed at the property (e.g., replacement of old

    toilets with the special new low flow toilets)?

    A: Prior to close of escrow.

    Q 16. How does the Seller prove compliance with the specified conservation measures?

    A: By the compliance form completed by the “qualified inspector.”

    Q 17. Assuming the City furnishes the compliance form at some time in the future, what must be done with

    it?

    A: Seller’s “qualified inspector” must file it with DBI and the Seller must cause it to be recorded with the

    City’s Recorder’s Office at or prior to the close of escrow (“prior to or concurrent with the transfer of title”).

    Q 18. Seller has to record the compliance form?

    A: Yes.

    Q 19. Must the Seller provide the Buyer with a copy of the completed inspection forms submitted to DBI by

    the Seller’s “qualified inspector,” and if so, when?

    A: Yes. It must be provided before the close of escrow. SFAR recommends it be provided as soon as

    practicable after it is submitted to DBI.

    Q 20. Must the Seller also provide the Buyer a notice of the requirements of the amended laws, and if so,

    when?

    A: Yes. The amended laws require such a notice but do not appear to expressly state when it must be

    provided to the Buyer. SFAR provides a form to use and recommends it be provided with the other

    disclosures for the property, and in any event as soon as practicable.

    Q 21. Should a broker or agent assist the Seller in complying with these laws?

    A: No. Not according to what appears to be the consensus of the risk management community. Providing the

    Seller and Buyer with the SFAR form for these laws is all that is being recommended.

    II. Practical Compliance Problems

    Q 22. When were these amendments effective?

    A: The effective date was July 1, 2009.

    Q 23. Is there currently a practical compliance problem with the amended laws?

    A: Yes.

    Q 24. How is there currently a practical compliance problem with these laws?

    A: The City has failed to provide the necessary inspection and compliance forms required by the

    amendments.

    Q 25. Can the Seller obtain proof of compliance before the close of escrow under the amended laws?

    A: No. Without these forms, there can be no specification of the necessary conservation measures to install,

    proof of compliance by installation or recordation of that compliance.

    Q 26. Why doesn’t someone else providing the necessary inspection and compliance forms?

    A: These laws provide that only the City can prepare and furnish these forms to the public. And, there can be

    no specification of the necessary conservation measures to install, proof of compliance by installation or

    recordation of that compliance without these forms.

    Q 27. Can the Seller at least install the water conservation measures believed in good faith likely to be

    required?

    A: Yes, of course. And to determine what is likely to be required, the Seller can hire a “qualified inspector”

    to inspect, provide recommendations and install any recommended conservation measures (e.g., special new

    low flow toilets). So proceeding would likely minimize the Seller’s risk in this regard. But there can be no

    assurance so proceeding would eliminate it. SFAR recommends that any Seller who is inclined to so proceed

    consult with a “qualified inspector” and qualified real property attorney.

    Q 28. Do the amended laws require the City to produce a Buyer Notice form of some sort?

    A: Yes.

    Q 29. Did the City produce it?

    A: No.

    Q 30. Without the City brochure, how can the Seller give notice to the Buyer?

    A: By the substitute notice form prepared by SFAR.

    Q: 31. What is the City doing about the problem it created with implementation of and public’s compliance

    with these amendments?

    A: The latest update from City Staff is as follows:

    “DBI Director Vivian Day determined that pursuant to Section 6 of the Residential Water Conservation

    Ordinance (a non-codified section in the ordinance), the ordinance “shall be effective no earlier than July 1,

    2009.” As the administrator of the ordinance, DBI will make the new Water Conservation Ordinance

    effective August 15, 2009. Properties for which a purchase contract has been signed between July 1, 2009

    and August 15, 2009, should comply with the old Water Conservation Ordinance.”

    Q 32. Does the above mean that the effective date of the law is extended by DBI to August 15, 2009?

    A: No. Only the Board of Supervisors can do make that change. It means instead that DBI will only enforce

    the amendments as if they were effective August 15, 2009. This would appear to have a similar practical

    effect for Sellers. But Sellers technically remain obligated to satisfy the laws if and to the extent it is

    possible, and may wish to consider the alternatives summarized above.

    III. Detail on the Water Conservation Measures

    Q 33. What new conservation measures are required by the amendments?

    A: The amendments basically require:

    • Replacement of all showerheads that have a maximum flow rate that exceeds 2.5 gallons per

    minute with showerheads in compliance with certain State energy regulations and no shower with

    more than one showerhead per valve.

    • Replacement of all faucets and faucet aerators having a maximum rated flow exceeding 2.2

    gallons per minute at a flowing water pressure of 60 pounds per square inch with plumbing

    fittings that comply with same State regulations referenced above.

    • Replacement of all “water closets” (toilets) that have a rated flush volume exceeding 1.6 gallons

    per flush with fixtures not exceeding the maximum rated water consumption established in the

    San Francisco Plumbing Code as it may be amended. (A seller of a residential building may

    request an exemption from replacing the building’s toilet(s) if the replacement would detract from

    the historical integrity of the building as determined by the Director of DBI under certain State

    law.)

    • The seller to locate and repair all water leaks using specified methods.

    IV. Miscellaneous Specific Provisions

    Seller Obligation Transfer Rules

    Q 34. Can the Seller transfer its duty of compliance with these laws to Buyers by a holdback in escrow or the

    like?

    A: Yes. The amendments permit the seller to transfer the water and energy conservation compliance

    obligations to the buyer, so long as certain conditions are met. Those conditions include without limitation,

    withholding one percent of the purchase price in escrow to pay for the required conservation measures within

    180 days after the recordation of title.

    No More Seller Affidavit Exception

    Q 35: Is it true that the City took away the Seller affidavit exception under the old Water Conservation law?

    A: Yes. Seller can no longer file an affidavit in good faith stating that the property for sale fully complies

    with all necessary water conservation measures.

    Re-Sale Rules

    Q 36. How about re-sales for contracts entered after the effective date of this law, must the new owner

    comply again when she sells?

    A: That is a 2 part answer. Part one, is “yes,” the Seller on resale must always comply with the water

    conservation inspection and installation measures, unless an exemption applies. Part two, is a “conditional

    no.” The Seller is not obligated on resale to comply again with the energy inspection and conservation

    measures on condition that Seller’s property is a (a) residential building for which proof of compliance with

    the energy conservation requirements of this ordinance was previously submitted to DBI and recorded with

    the City Recorder’s Office; or (b) as regards any portion of such a property subject to a building permit

    granted by the City after July 1, 1978. Note: The Association recommends that any Seller believing any such

    exemption apply to a specific transaction consult with a qualified attorney to confirm it does before entering

    a contract of sale.

    Spending Limit Preserved for Energy Measures

    Q 37. Is the spending limit for compliance with the energy conservations measures in tact?

    A: Yes. For the energy conservation measures, as opposed to the water conservation measures, the Seller is

    not in any event obligated to spend more than one percent of the purchase price indicated on the real estate

    sales contract, or one percent of the assessed value of the building, whichever is greater. And, in this regard

    for buildings with one or two units, the most that the Seller must ever pay to comply with the energy

    inspection measures is $1300.

    Various Exemptions and Non-Exempt Transactions

    Q 38. What if the new owner needs special showers for medical reasons?

    A: There is an exemption for existing medical necessity subject to certain procedures and verifications in the

    water conservation measures.

    Q 39. Are there exemptions for transfers between spouses and domestic partners?

    A: Yes. There are also express exemptions for certain transfers of title by operation of law or that do not

    effect a change of ownership. But for the same reasons as discussed with respect to the above

    exemption, until the City Attorney’s office confirms that the City agrees in full with this view, any party

    believing that any such exemption may apply to them or their property is urged to immediately engage a

    qualified attorney to provide advice in that regard for any specific transaction.

    Q 40.: Is there an exemption for foreclosure sales too?

    A: Yes for Trustee’s Sales under Deeds of Trust where a notice of default and sale issued or Judicial

    Foreclosure sales, and again subject to the same confirmation and recommendations referenced for the above

    exemptions.

    Q 41. Are REOs are exempt?

    A: No. Only involuntary sales in foreclosure such as a Trustee’s Sale under a Deed of Trust are exempted.

    An REO or “real estate owned” property has a Seller (a bank) that voluntarily sells. There is no exemption in

    this law for that at present.

    Q 42. What if a bank selling an REO property demands that the Buyer sign a waiver for these laws?

    A: Parties subject to such a demand should immediately see an attorney.

    Q 43. How about “short sales” are they exempted?

    A: No. “Short sales” are not exempted under the amended laws.

    Appeals, Fees, etc.

    Q 44. Are there any appeal rights for the Seller?

    A: Yes. There are certain appeal rights for the parties relative to any water and energy conservation measures

    specified by the qualified inspector. Any such appeal must be filed to the Director of the DBI within 10

    working days from the date that the qualified inspector submitted the inspection form to DBI.

    Q 45. Can the City charge for fees for this process?

    A: Yes. Reasonable fees” payables to the City are allowed so long as they do not exceed “the cost of

    implementing the ordinance.”

    Page 8 of 8

    (Rev. 8/4/09) Copyright © 2009 San Francisco Association of REALTORS®

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