Untitled California Attorney General Opinion

Opinion

OFFICE OF THE ATTORNEY GENERAL

State of California

JOHN K. VAN DE KAMP

Attorney General

______________________________________

OPINION :

: No. 89-902

of :

: March 14, 1990

JOHN K. VAN DE KAMP :

Attorney General :

:

RODNEY O. LILYQUIST :

Deputy Attorney General :

:

__________________________________________________________________

THE HONORABLE MILTON MARKS, MEMBER OF THE CALIFORNIA

STATE SENATE, has requested an opinion on the following question:

Is a licensed real estate agent required or permitted to

disclose the location of a licensed care facility serving six or

fewer people to prospective buyers of residential property?

CONCLUSION

A licensed real estate agent is not required to disclose

the location of a licensed care facility serving six or fewer

people to prospective buyers of residential property. Disclosure

in response to an inquiry is permitted if it is factual, not

intended to aid discrimination against or segregation of licensed

care facilities within the community, and in fact does not have

that effect.

ANALYSIS

The Legislature has enacted the California Community Care

Facilities Act (Health & Saf. Code, §§ 1500-1567.9)1 "to establish

a coordinated and comprehensive statewide service system of quality

community care for mentally ill, developmentally and physically

disabled, and children and adults who require care or services . .

. ." (§ 1501, subd. (a); see Barrett v. Lipscomb (1987) 194

Cal.App.3d 1524, 1529; McCaffrey v. Preston (1984) 154 Cal.App.3d

All references hereafter to the Health and Safety Code are

by section number only.

1. 89-902

422, 428-429; Welsch v. Goswick (1982) 130 Cal.App.3d 398, 406-408.)

As part of this legislation, "each county and city shall

permit and encourage the development of sufficient numbers and

types of residential care facilities as are commensurate with local

need." (§ 1566.) If these residential facilities are limited to

serving six or fewer persons, they are to be considered as a

residential use of the property under local ordinances and treated

as any other single family dwelling in the same area. (§§ 1566.2­

1566.5.)2

The question presented for resolution is whether a real

estate agent is required or permitted to disclose to prospective

home buyers that a licensed care facility is located in the

neighborhood. We conclude that such disclosure is not required and

indeed is only permissible in extremely narrow circumstances.

In the landmark case of Easton v. Strassburger (1984) 152

Cal.App.3d 90, the Court of Appeal stated:

"Despite the absence of privity of contract, a real

estate agent is clearly under a duty to exercise

reasonable care to protect those persons whom the agent

is attempting to induce into entering a real estate

transaction for the purpose of earning a commission.

[Citations.]" (Id., at p. 98, fn. 2.)

With respect to facts known by the real estate agent, the court

summarized the applicable rule of law as follows:

"It is not disputed that current law requires a

broker to disclose to a buyer material defects known to

the broker but unknown to and unobservable by the buyer.

(Cooper v. Jevne (1976) 56 Cal.App.3d 860, 866; Lingsch

v. Savage (1963) 213 Cal.App.2d 729, 733; see also

regulations of the Department of Real Estate set forth in

Cal. Admin. Code, tit. 10, § 2785, subd.. (a)(3).) The

Cooper case contains the most complete judicial

articulation of the rule: 'It is the law of this state

that where a real estate broker or agent, representing

the seller, knows facts materially affecting the value or

the desirability of property offered for sale and these

facts are known or accessible only to him and his

Similarly, the Legislature has provided in Welfare and

Institutions Code section 5116 that a "licensed family care home,

foster home, or group home serving six or fewer mentally disordered

or otherwise handicapped persons or dependent and neglected

children . . . shall be a permitted use in all residential zones

for single-family dwellings." (See City of Los Angeles v.

Department of Health (1976) 63 Cal.App.3d 473, 477-478.)

2. 89-902

principal, and the broker or agent also knows that these

facts are not known to or within the reach of the

diligent attention and observation of the buyer, the

broker or agent is under a duty to disclose these facts

to the buyer. (Lingsch v. Savage [1963] 213 Cal.App.2d

. . .).' (56 Cal.App.3d at p. 866.) If a broker fails

to disclose material facts that are known to him he is

liable for the intentional tort of 'fraudulent

concealment' or 'negative fraud.' (Warner Const. Corp.

v. City of Los Angeles (1970) 2 Cal.3d 285, 293-294;

Cooper v. Jevne, supra, 213 Cal.App.2d at p. 735-736.)"

(Id., at p. 99.)

The court then announced a new principle of law regarding the

disclosure of facts previously unknown by the real estate agent.

The court held that the agent had a duty to inspect the residential

property and disclose what such an investigation would reveal. The

court concluded:

"In sum, we hold that the duty of a real estate

broker, representing the seller, to disclose facts,

includes the affirmative duty to conduct a reasonably

competent and diligent inspection of the residential

property listed for sale and to disclose to prospective

purchasers all facts materially affecting the value or

desirability of the property that such an investigation

would reveal." (Id., at p. 102, fn. omitted.)

Easton, as well as the two principle cases upon which it relied,

Cooper v. Jevne (1976) 56 Cal.App.3d 860 and Lingsch v. Savage

(1963) 213 Cal.App.2d 729, dealt with defects in the particular

property offered for sale.

The Legislature has now codified the Easton decision in

Civil Code section 2079-2079.6. (See Stats. 1985, ch. 223, § 4

["The Legislature . . . declares that the provisions of this act

are, and shall be interpreted as, a definition of the duty of care

found to exist by Easton v. Strassburger, and the manner of its

discharge"].) The basic statutory duty is for a real estate agent

"to conduct a reasonably competent and diligent visual inspection

of the property offered for sale and to disclose to [a] prospective

purchaser all facts materially affecting the value or desirability

of the property that such an investigation would reveal." (Civ.

Code, § 2079.) That the disclosure requirement is limited to the

particular property site offered for sale is made clear in Civil

Code section 2079.3, which provides: "The inspection to be

performed . . . if the property comprises a unit in a planned

development as defined in Section 11003.1 of the Business and

Professions Code, a condominium as defined in Section 783, or a

stock cooperative as defined in Section 11003.2 of the Business and

Professions Code, does not include an inspection of more than the

unit offered for sale . . . ." Accordingly, Easton and its

3. 89-902

statutory codification do not require disclosures of off-site

conditions such as the presence of a licensed care facility in the

neighborhood.

Another case meriting discussion is Reed v. King (1983)

145 Cal.App.3d 261. In Reed, the real estate agent failed to

disclose that a woman and her four children had been murdered in a

house 10 years prior to its being offered for sale. The buyer

claimed that the disclosure was required. The court stated:

"The murder of innocents is highly unusual in its

potential for so disturbing buyers they may be unable to

reside in a home where it has occurred. . . . Murder is

not such a common occurrence that buyers should be

charged with anticipating and discovering this

disquieting possibility. . .

" . . . . . . . . . . . . . . . . . . . . . .

"Reputation and history can have a significant

effect on the value of realty. 'George Washington slept

here' is worth something, however physically

inconsequential that consideration may be. Ill-repute or

'bad will' conversely may depress the value of a

property. Failure to disclose such a negative fact where

it will have a foreseeably depressing effect on income

expected to be generated by a business is tortious. (See

Rest.2d Torts, § 551, illus. 11.) Some cases have held

that unreasonable fears of the potential buying public

that a gas or oil pipeline may rupture may depress the

market value of land and entitle the owner to incremental

compensation in eminent domain. (See Annot., Eminent

Domain: Elements and Measure of Compensation for Oil or

Gas Pipeline Through Private Property (1954) 38 A.L.R. 2d

788, 801-804.)

"Whether Reed will be able to prove her allegation

the decade-old multiple murder has a significant effect

on market value we cannot determine. If she is able to

do so by competent evidence she is entitled to a

favorable ruling on the issues of materiality and duty to

disclose."

The Reed court carefully limited its holding to the

unique set of facts presented. It was not concerned with off-site

circumstances. The Legislature has further limited Reed by

enacting Civil Code section 1710.2 [no duty "to disclose. . . the

occurrence of an occupant's death upon the real property. . . where

the death has occurred more than three years prior to the date the

transferee offers to purchase, lease or rent the real property"].

Under these particular circumstances, we find that Reed does not

require disclosures of off-site conditions such as the presence of

a licensed care facility in the neighborhood.

4. 89-902

With respect to whether a particular fact "materially"

affects the value or the desirability of property offered for sale,

we look to all the facts of the particular case. ( Saporta v.

Barbagelata (1963) 220 Cal.App.2d 463, 475.) As stated in Lingsch

v. Savage, supra, 213 Cal.App.2d 729, 737:

"It should be pointed out that whether the matter

not disclosed by the seller or his agent is of sufficient

materiality to affect the value or desirability of the

property, and thus make operative the rule announced by

the foregoing authorities, depends on the facts of the

particular case. Some idea can be obtained of the reach

of the foregoing rule and of the vitiating character of

the particular nondisclosure from the holding of some of

the cases cited above. Thus nondisclosure of the fact

that a lot was filled with debris thereafter covered over

(Clauser v. Taylor, supra, 44 Cal.App.2d 453) or that a

lot contained filled ground to a substantial depth

(Rothstein v. Janss Investment Corp., supra, 45 Cal.2d

64) or that the house sold was constructed on filled land

(Burkett v. J. A. Thompson & Son, supra, 150 Cal.App.2d

523) or that improvements were added without a building

permit and in violation of zoning regulations (Barder v.

McClung, supra, 93 Cal.App.2d 692) or in violation of

building codes (Curran v. Heslop, supra, 115 Cal.App.2d

476) has been held to be of sufficient substantiality to

cause the duty of disclosure to arise."

None of the examples given in Lingsch would support the conclusion

that the location of a nearby licensed care facility would be a

material fact in the purchase of a particular residential property.

In a somewhat related situation concerning the issue of

materiality, we concluded in 53 Ops.Cal.Atty.Gen. 196 (1970) that

the race of a prospective buyer was not a material fact to be

disclosed to the seller ["race is not a material fact and thus need

not be disclosed"]. (Id., at p. 199.)

In 58 Ops.Cal.Atty.Gen. 154 (1975), we were asked whether

a real estate broker could answer an inquiry from a prospective

home buyer concerning the ethnic composition of a residential

neighborhood. Our conclusion was:

"A real estate broker's response to an inquiry from

a prospective buyer as to the ethnic composition of

various areas which is factual and in good faith, does

not violate the Rumford Fair Housing Act (Health & Saf.

Code § 35700 et. seq.). A violation would occur if the

broker either has the intent to aid in a plan to keep

neighborhoods segregated or makes differing responses

5. 89-902

based on the race of the prospective purchaser." (Id.,

at p. 155.)3

The Legislature has prohibited licensed real estate

agents (as well as other persons holding licenses under the

provisions of the Business and Professions Code) from practicing

"any discrimination, or restriction in the performance of the

licensed activity" due to a person's "race, color, sex, religion,

ancestry, physical handicap, marital status, or national origin."

(Bus. & Prof. Code, § 125.6.) "Physical handicap" is defined for

purposes of this statutory prohibition as including "impairment of

physical ability because of amputation or loss of function or

coordination, or any other health impairment which requires special

education or related services." (Ibid.)

Under Business and Professions Code section 10177, the

license of any real estate licensee may be suspended or revoked if

the licensee has "[w]ilfully disregarded or violated any of the

provisions . . . of the rules and regulations of the commissioner

for the administration and enforcement of the Real Estate Law . .

. ." Regulation 2780 (Cal. Code of Regs., tit. 10, § 2780)

prohibits "discriminatory conduct" by a real estate licensee, which

it defines as follows:

"Prohibited discriminatory conduct by a real estate

licensee based upon race, color, sex, religion, ancestry,

physical handicap, marital status or national origin

includes, but is not limited to, the following:

" . . . . . . . . . . . . . . . . . . . . . . .

"(h) Making any effort to encourage discrimination

against persons because of their race, color, sex,

religion, ancestry, physical handicap, marital status or

national origin in the showing, sale, lease or financing

of the purchase of real property.

" . . . . . . . . . . . . . . . . . . . . . . .

"(j) Making any effort to obstruct, retard or

discourage the purchase, lease or financing of the

purchase of real property by persons whose race, color,

sex, religion, ancestry, physical handicap, marital

status or national origin differs from that of the

majority of persons presently residing in a structural

improvement to real property or in an area in which the

real property is located.

The Rumford Fair Housing Act has been repealed, and its

subject matter is now covered in the California Fair Employment and

Housing Act (Gov. Code, §§ 12900-12996).

6. 89-902

" . . . . . . . . . . . . . . . . . . . . . . .

"(k) Performing any acts, making any notation,

asking any questions or making or circulating any written

or oral statement which when taken in context, expresses

or implies a limitation, preference or discrimination

based upon race, color, sex, religion, ancestry, physical

handicap or national origin;...

" . . . . . . . . . . . . . . . . . . . . . . .

"(o) Making any effort to discourage or prevent the

rental, sale or financing of the purchase of real

property because of the presence or absence of occupants

of a particular race, color, sex, religion, ancestry,

physical handicap, marital status or national origin, or

on the basis of the future presence or absence of a

particular race, color, sex, religion, ancestry, physical

handicap, marital status or national origin, whether

actual, alleged or implied.

" . . . . . . . . . . . . . . . . . . . . . . .

"(q) Providing information or advice to any person

concerning the desirability of particular real property

or a particular residential area(s) which is different

from information or advice given to any other person with

respect to the same property or area because of

differences in the race, color, sex, religion, ancestry,

physical handicap, marital status or national origin of

such persons.

" . . . . . . . . . . . . . . . . . . . . . . .

"(t) Making, printing or publishing, or causing to

be made, printed or published, any notice, statement or

advertisement concerning the sale, rental or financing of

the purchase of real property that indicates any

preference, limitation or discrimination because of race,

color, sex, religion, ancestry, physical handicap,

marital status or national origin, or any intention to

make such preference, limitation or discrimination.

" . . . . . . . . . . . . . . . . . . . . . . .

"(u) Using any words, phrases, sentences,

descriptions or visual aids in any notice, statement or

advertisement describing real property or the area in

which real property is located which indicates any

preference, limitation or discrimination because of race,

color, sex, religion, ancestry, physical handicap,

marital status or national origin.

7. 89-902

" . . . . . . . . . . . . . . . . . . . . . . . .

"(y) Advising a person of the price or value of real

property on the basis of factors related to the race,

color, sex, religion, ancestry, physical handicap,

marital status or national origin of residents of an area

or of residents or potential residents of the area in

which the property is located.

" . . . . . . . . . . . . . . . . . . . . . . ."

Similarly, the California Fair Employment and Housing Act

prohibits real estate agents from practicing arbitrary

discrimination in the sale, rental, lease, or acquisition of

housing accommodations. Government Code section 12948 provides:

"It shall be an unlawful practice under this part for a person to

deny or to aid, incite, or conspire in the denial of the rights

created by Section 51 or 51.7 of the Civil Code." Civil Code

section 51 creates the rights of "full and equal accommodations,

advantages, facilities, privileges, or services in all business

establishments of every kind whatsoever," regardless of a person's

"sex, race, color, religion, ancestry, national origin, or

blindness or other physical disability." (Emphasis added.) Under

this Civil Code provision, read in conjunction with Government Code

section 12948, a real estate agent is prohibited from practicing

any arbitrary discrimination in the services he or she renders,

including arbitrary discrimination with respect to a person having

a physical disability. (See Lee v. O'Hara (1962) 57 Cal.2d 476,

478; 59 Ops.Cal.Atty.Gen. 223, 224 (1976); 58 Ops.Cal.Atty.Gen.

608, 609-610 (1975); 58 Ops.Cal.Atty.Gen. 154, 155 (1975); 53

Ops.Cal.Atty.Gen. 196, 196-197 (1970).)

Federal law also prohibits discriminatory practices in

the real estate industry. The Fair Housing Act (42 U.S.C. §§ 3601­

3631) generally makes it unlawful:

"To make, print, or publish, or cause to be made,

printed, or published any notice, statement, or

advertisement, with respect to the sale or rental of a

dwelling that indicates any preference, limitation, or

discrimination based on race, color, religion, sex,

handicap, familial status, or national origin, or an

intention to make any such preference, limitation, or

discrimination." (42 U.S.C. § 3604 (c); emphasis added.)

For purposes of the federal legislation, "handicap" is defined to

include "a physical or mental impairment which substantially limits

one or more of such person's major life activities." (42 U.S.C. §

3602 (h)(1).

The express prohibition against discrimination based upon

handicap was added to the federal law in 1988. The Secretary of

8. 89-902

Housing and Urban Development has issued regulations implementing

the recent federal statutory amendments, including 24 Code of

Federal Regulations, section 100.70 (1989):

"(a) It shall be unlawful, because of race, color,

religion, sex, handicap, familial status, or national

origin, to restrict or attempt to restrict the choices of

a person by word or conduct in connection with seeking,

negotiating for, buying or renting a dwelling so as to

perpetuate, or tend to perpetuate, segregated housing

patterns, or to discourage or obstruct choices in a

community, neighborhood or development.

" . . . . . . . . . . . . . . . . . . . . . .

"(c) Prohibited actions under paragraph (a) of this

section, which are generally referred to as unlawful

steering practices, include, but are not limited to:

"(1) Discouraging any person from inspecting,

purchasing or renting a dwelling, because of race, color,

religion, sex, handicap, familial status, or national

origin, or because of the race, color, religion, sex,

handicap, familial status, or national origin of persons

in a community, neighborhood or development.

"(2) Discouraging the purchase or rental of a

dwelling because of race, color, religion, sex, handicap,

familial status, or national origin, by exaggerating

drawbacks or failing to inform any person of desirable

features of a dwelling or of a community, neighborhood,

or development.

"(3) Communicating to any prospective purchaser that

he or she would not be comfortable or compatible with

existing residents of a community, neighborhood or

development because of race, color, religion, sex,

handicap, familial status, or national origin.

" . . . . . . . . . . . . . . . . . . . . . . ."

24 Code of Federal Regulations, section 100.135 (1989) also

provides:

"(a) It shall be unlawful for any person or other

entity whose business includes engaging in the selling,

brokering or appraising of residential real property to

discriminate against any person in making available such

services, because of race, color, religion, sex,

handicap, familial status, or national origin.

9. 89-902

"(b) For the purposes of this section, the term

appraisal means an estimate or opinion of the value of a

specified residential real property made in a business

context in connection with the sale, rental, financing or

refinancing of a dwelling or in connection with any

activity that otherwise affects the availability of a

residential real estate-related transaction, whether the

appraisal is oral or written, or transmitted formally or

informally. The appraisal includes all written comments

and other documents submitted as support for the estimate

or opinion of value.

"(c) Nothing in this section prohibits a person

engaged in the business of making or furnishing

appraisals of residential real property from taking into

consideration factors other than race, color, religion,

sex, handicap, familial status, or national origin.

"(d) Practices which are unlawful under this section

include, but are not limited to, using an appraisal of

residential real property in connection with the sale,

rental, or financing of any dwelling where the person

knows or reasonably should know that the appraisal

improperly takes into consideration race, color,

religion, sex, handicap, familial status, or national

origin."

Our prior conclusions reached in 53 Ops.Cal.Atty.Gen. 196

(1970) and 58 Ops.Cal.Atty.Gen. 154 (1975) relied upon various

state and federal laws for support. Pertinent here with respect to

the disclosure of the location of a licensed care facility is the

following analysis in 53 Ops.Cal.Atty.Gen. 196 (1970):

"The materiality of the fact of race is negated by

the formidable complex of Federal and State legislation

prohibiting discrimination in housing, which renders

illegal the use of the race of a prospective buyer or

tenant as a determinant in decisions involving the sale

or rental of any housing. And in order for a fact to be

material it `must be such that the contract would not

have been entered into without it.' Adkins v. Wykoff,

152 Cal.App.2d 684, 689 (1957). Cf. Anderson v. Martin,

375 U.S. 399 (1964). But even if the fact of race were

deemed material for some purposes, a specific statutory

prohibition against disclosing racial information must be

regarded as controlling over any common law duty to the

contrary. See Lawman v. Stafford, 226 Cal.App.2d 31, 39

(1964). And since, as noted, the Fair Housing Act

prohibits such disclosures by real estate agents, any

conflicting common law duty of disclosure is no longer

operative." (Id., at pp. 199-200, fn. omitted.)

10. 89-902

As we preliminarily noted herein, the Legislature has

declared a strong public policy in favor of developing licensed

care facilities throughout the state (§ 1566) and treating them as

any other single family dwelling in the same area (§§ 1566.2­

1566.5). The Legislature has also prohibited real estate agents

from practicing discrimination based upon a person's physical

handicap. (Bus. & Prof. Code, § 125.6; Civ. Code, § 51; Gov. Code,

§ 12948.)

Following our prior opinions, then, we conclude that the

location of a licensed care facility is not a material fact

required to be disclosed under California law. Indeed,

volunteering information concerning the presence of a licensed care

facility could violate state and federal law prohibiting

discrimination based upon a person's physical handicap, especially

the prohibition against "[u]sing any words . . . describing . . .

the area in which real property is located which indicates any . .

. discrimination because of . . . physical handicap" (Cal. Code of

Regs., tit. 10, § 2780, subd. (u)) and "[d]iscouraging any person

from . . . purchasing . . . a dwelling . . . because of the . . .

handicap . . . of persons in a community" and "[c]ommunicating to

any prospective purchaser that he or she would not be comfortable

or compatible with existing residents of a community, neighborhood

or development because of . . . handicap . . . " (24 C.F.R. §

100.70(c)(1), (3) (1989)). Similarly, volunteering information

about the price or value of property with respect to the presence

or location of a nearby licensed care facility could violate state

and federal law, particularly the prohibition against "[a]dvising

a person of the price or value of real property on the basis of

factors related to the . . . physical handicap . . . of residents

of an area . . . in which the property is located" (Cal. Code of

Regs., tit. 10, § 2780, subd. (y)) and "using an appraisal of

residential real property . . . where the person knows or

reasonably should know that the appraisal improperly takes into

consideration . . . handicap . . . " (24 C.F.R. § 100.135(d)

(1989)). Disclosure intended to prejudice the selection of a site

for a residential care facility or to prevent those living in such

facilities from residing in the area of their choosing is

forbidden. While it is doubtful that a real estate agent could

volunteer information concerning the location of a licensed care

facility without violating state or federal law, disclosure in

response to an inquiry would be permissible if it is factual, not

intended to foster discrimination against or segregation of

licensed care facilities within a community, and in fact does not

have that effect.

We thus conclude in answer to the question presented that

a licensed real estate agent is not required to disclose the

location of a licensed care facility serving six or fewer people to

prospective buyers of residential property. Disclosure is

permitted if it is factual, not intended to foster discrimination

11. 89-902

against or segregation of licensed care facilities within the

community, and in fact does not have that effect.

* * * * *

12. 89-902