SUBSTITUTE SENATE BILL 5385
State of Washington 52nd Legislature 1991 Regular Session
By Senate Committee on Governmental Operations (originally sponsored by Senators McMullen, McCaslin and Matson; by request of Department of Licensing).
Read first time March 6, 1991.
AN ACT Relating to the protection of consumers in the sale of lands; amending RCW 58.19.010, 58.19.020, 58.19.030, 58.19.120, 58.19.180, 58.19.190, 58.19.270, 58.19.300, and 58.19.940; adding new sections to chapter 58.19 RCW; and repealing RCW 58.19.040, 58.19.050, 58.19.060, 58.19.070, 58.19.080, 58.19.090, 58.19.100, 58.19.110, 58.19.150, 58.19.160, 58.19.170, 58.19.200, 58.19.210, 58.19.220, 58.19.230, 58.19.240, 58.19.250, 58.19.260, 58.19.290, 58.19.900, 58.19.910, and 58.19.930.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1. RCW 58.19.010 and 1973 1st ex.s. c 12 s 1 are each amended to read as follows:
legislature finds and declares that the sale and offering for sale of land or
of interests in associations which provide for the use or occupancy of land
touches and affects a great number of the citizens of this state and that full
and complete disclosure to prospective purchasers of pertinent information
concerning land developments, including any encumbrances or liens ((
might attach)) attached to the land and the physical characteristics
of the development (( as well as the surrounding land,)) is essential.
The legislature further finds and declares that (( a program of state
registration and of publication and)) delivery to prospective purchasers of
a complete and accurate public offering statement is necessary in order to
adequately protect both the economic and physical welfare of the citizens of
this state. It is the purpose of this chapter to provide for (( a)) the
reasonable (( program of state registration and)) regulation of the sale
and offering for sale of any interest in significant land developments within
or without the state of Washington, so that the prospective purchasers of such
interests might be provided with full, complete, and accurate information of
all pertinent circumstances affecting their purchase.
Sec. 2. RCW 58.19.020 and 1979 c 158 s 208 are each amended to read as follows:
When used in this chapter, unless the context otherwise requires:
(1) "Affiliate of a developer" means any person who controls, is controlled by, or is under common control with a developer.
(a) A person controls a developer if the person: (i) Is a general partner, officer, director, or employer of the developer; (ii) directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies representing, more than twenty percent of the voting interest in the developer; (iii) controls in any manner the election of a majority of the directors of the developer; or (iv) has contributed more than twenty percent of the capital of the developer.
(b) A person is controlled by a developer if the developer: (i) Is a general partner, officer, director, or employer of the person; (ii) directly or indirectly or acting in concert with one of more other persons, or through one or more subsidiaries, owns, controls, holds with the power to vote, or holds proxies representing, more than twenty percent of the voting interest in the person; (iii) controls in any manner the election of a majority of the directors of the person; or (iv) has contributed more than twenty percent of the capital of the person. Control does not exist if the powers described in this subsection are held solely as security for an obligation and are not exercised.
(2) "Blanket encumbrance" shall mean a trust deed, mortgage, mechanic's lien, or any other lien or encumbrance, securing or evidencing the payment of money and affecting the land to be developed or affecting more than one lot or parcel of developed land, or an agreement affecting more than one such lot or parcel by which the developer holds said development under option, contract, sale, or trust agreement. The term shall not include taxes and assessments levied by a public authority.
"Director" means the director of licensing or his authorized
(3) "Common promotional plan" means an offering of related developed lands in a common promotional plan of disposition. Elements relevant to whether the related developed lands are being offered as part of a common promotional plan include but are not limited to: Whether purchasers of interests in the offered land will share in the use of common amenities, or other rights or privileges; whether the offered lands are known, designated, or advertised as a common unit or by a common name; whether a common broker or sales personnel, common sales office or facilities, or common promotional methods are utilized; and whether cross-referrals of prospective purchasers between sales operations is utilized.
(4) "Developer" means any owner of a development who offers it for disposition, or the principal agent of an inactive owner.
(5) "Development" or "developed lands" means land
which is divided or is proposed to be divided for the purpose of disposition
into (( ten)) twenty-six or more lots, parcels, or units
(excluding interests in camping (( clubs)) resorts regulated under
chapter 19.105 RCW and interests in condominiums regulated under chapter
64.34 RCW) (( and)) or any other land whether contiguous or
not, if (( ten)) twenty-six or more lots, parcels, units, or
interests are offered as a part of a common promotional plan of advertising and
(6) "Disposition" includes any sale, lease, assignment, or
exchange of any interest in any real property which is a part of or included
within a development, and also includes the offering of property as a prize or
gift when a monetary charge or consideration for whatever purpose is required
in conjunction therewith, and any other transaction concerning a development if
undertaken for gain or profit.
"Offer" includes every inducement, solicitation, or media
advertisement which has as a principal aim to encourage a person to acquire an
interest in land.))
means all existing or proposed unusual conditions relating to the location of
the development, noise, safety, or other nuisance which affect or might affect
the development)) "Foreclosure" means a forfeiture or judicial
or nonjudicial foreclosure of a mortgage, deed of trust, or real estate
contract, or a deed in lieu thereof.
(8) "Improvements" include all existing, advertised, and governmentally required facilities such as streets, water, electricity, natural gas, telephone lines, drainage control systems, and sewage disposal systems.
(9) "Offer" includes every inducement, solicitation, or media advertisement which has as a principal aim to encourage a person to acquire an interest in land.
(10) "Owners association" means any profit or nonprofit corporation, unincorporated association, or other organization or legal entity, a membership or other interest in which is appurtenant to or based upon owing an interest in a development.
(11) "Person" means an individual, corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership, unincorporated association, two or more of any of the foregoing having a joint or common interest, or any other legal or commercial entity.
(12) "Physical hazard" means a physical condition which poses, or
may very likely pose, a material risk of either: Material damage to the
development and improvements thereon; or material endangerment to the safety
and health of persons using the development and improvements thereon.
(13) "Purchaser" means a person who acquires or attempts to acquire or succeeds to any interest in land.
(14) "Related developed lands" means two or more developments
which are owned by the same developer or an affiliate or affiliates of that
developer and which are physically located within the same five-mile radius
"Residential buildings" shall mean premises that are actually
intended or used ((
as permanent residences of)) primarily for
residential or recreational purposes by the purchasers (( and that are
not devoted exclusively to any other purpose)).
Sec. 3. RCW 58.19.030 and 1979 c 158 s 209 are each amended to read as follows:
Unless the method of disposition is adopted for the purpose of evasion of this
chapter,)) The provisions of this chapter shall not apply to (( land
and offers or dispositions)):
By)) (1) An offer or disposition of any interest in a development to
a purchaser of developed lands for his or her own account in a single or
isolated transaction, except that this exemption shall not apply to offers
or dispositions by a developer who at any time owns twenty-six or more lots,
parcels, or interests in the development and who at the time of the offer or
disposition still owns more than nine lots, parcels, or interests in the
If fewer than ten separate lots, parcels, units, or interests in developed
lands are offered by a person in a period of twelve months; (c))) (2) A
development if each lot offered in the development is one
one-hundred-twenty-eighth of a section of land or larger, or five acres or
(( more)) larger if the land is not capable of description as a
fraction of a section of land. For purposes of computing the size of a lot
under this subsection that borders on a street or road the lot size shall be
expanded to include that area which would be bounded by the center line of the
road or street and the side lot lines of the lot running perpendicular to such
(3) Any lot, parcel, unit, or interest on which there is a residential,
commercial, or industrial building, or as to which there is a legal obligation
on the part of the seller to construct such a building within two years from
date of disposition;
To)) (4) Any person who acquires (( such)) lots, parcels,
units, or interests (( therein)) in a development
for the purpose of engaging in the business of constructing residential,
commercial, or industrial buildings or for the purpose of resale or lease or
other disposition of such lots to persons engaged in such business or
Any lot, parcel, unit or interest if the development is located within an area
incorporated prior to January 1, 1974; (g))) (5) A
development or part of a development if it became an incorporated city or a
part of an incorporated city prior to January 1, 1974;
Offers or dispositions pursuant to court order; ((
or (h))) (7)
Offers or dispositions as cemetery lots or interests(( .));
Unless the method of disposition is adopted for the purpose of evasion of this
chapter, the provisions of this chapter shall not apply to: (a))) (8)
Offers or dispositions of evidence of indebtedness secured by a mortgage or
deed of trust of real estate;
(9) Offers or dispositions of securities or units of interest issued by
a real estate investment trust regulated under any state or federal statute;
A development as to which the director has waived the provisions of this
chapter as provided in RCW 58.19.040; (d))) (10)
Offers or dispositions of securities currently registered with the (( business
and professions administration in the)) department of licensing;
(11) Offers or dispositions of any interest in oil, gas, or other
minerals or any royalty interest therein if the offers or dispositions of such
interests are regulated as securities by the United States or by (( the
business and professions administration in)) the department of licensing;
(12) Offers or dispositions of any interest in a condominium created under chapter 64.32 or 64.34 RCW;
(13) Offers or dispositions by a government or governmental agency;
(14) Offers or dispositions by foreclosure, except that this exemption shall not apply to offers or dispositions occurring after foreclosure by a person who acquired title to an interest to a development as a result of foreclosure;
(15) Offers that may be cancelled at any time and for any reason by the purchaser without penalty; or
(16) Any property located within a county or city that has adopted a comprehensive land use plan and development regulation under chapter 36.70A RCW.
NEW SECTION. Sec. 4. A new section is added to chapter 58.19 RCW to read as follows:
(1) A developer shall prepare a public offering statement conforming to the requirements of RCW 58.19.070 unless the development or the transaction is exempt under RCW 58.19.030.
(2) Any agent, attorney, or other person assisting the developer in preparing the public offering statement may rely upon information provided by the developer without independent investigation. The agent, attorney, or other person shall not be liable for any material misrepresentation in or omissions of material facts from the public offering statement unless the person had actual knowledge of the misrepresentation or omission at the time the public offering statement was prepared. The developer shall be liable for any misrepresentation contained in the public offering statement or for any omission of material fact therefrom if the developer had actual knowledge of the misrepresentation or omission or, in the exercise of reasonable care, should have known of the misrepresentation or omission.
(3) Unless the development or the transaction is exempt under RCW 58.19.030, a developer shall provide a purchaser of a lot, parcel, unit, or interest with a copy of the public offering statement and all material amendments thereto before conveyance of that lot, parcel, unit, or interest. Unless a purchaser is given the public offering statement more than two days before execution of a contract for the purchase of a lot, parcel, unit, or interest, the purchaser, before conveyance, shall have the right to cancel the contract within two days after first receiving the public offering statement and, if necessary to have two days to review the public offering statement and cancel the contract, to extend the closing date for conveyance to a date not more than two days after first receiving the public offering statement. The purchaser shall have no right to cancel the contract upon receipt of an amendment unless the purchaser would have that right under generally applicable legal principles. The two-day period shall not include Saturdays, Sundays, or legal holidays.
(4) If a purchaser elects to cancel a contract pursuant to subsection (3) of this section, the purchaser may do so by hand-delivering notice thereof to the developer or by mailing notice thereof by prepaid United States mail to the developer for service of process. If cancellation is by mailing notice, the date of the postmark on the mail shall be the official date of cancellation. Cancellation is without penalty, and all payments made by the purchaser before cancellation shall be refunded within thirty days from the date of cancellation.
(5) If a person required to deliver a public offering statement pursuant to subsection (1) of this section fails to provide a purchaser to whom a lot, parcel, unit, or interest is conveyed with that public offering statement and all material amendments thereto as required by subsection (3) of this section, the purchaser is entitled to receive from that person an amount equal to the actual damages suffered by the purchaser as a result of the public offering statement not being delivered. There shall be no liability for failure to deliver any amendment unless such failure would have entitled the purchaser under generally applicable legal principles to cancel the contract for the purchase of the lot, parcel, unit, or interest had the undisclosed information been evident to the purchaser before the closing of the purchase.
(6) A purchaser may not rely on any representation or express warranty unless it is contained in the public offering statement or made in writing signed by the developer or developer's agent identified in the public offering statement.
NEW SECTION. Sec. 5. A new section is added to chapter 58.19 RCW to read as follows:
(1) A public offering statement shall contain the following information:
(a) The name, and the address or approximate location, of the development;
(b) The name and address of the developer;
(c) The name and address of the management company, if any, for the development;
(d) The relationship of the management company to the developer, if any;
(e) The nature of the interest being offered for sale;
(f) A brief description of the permitted uses and use restrictions pertaining to the development and the purchaser's interest therein;
(g) The number of existing lots, parcels, units, or interests in the development and either the maximum number that may be added to the development or the fact that such maximum number has not yet been determined;
(h) A list of the principal common amenities in the development which materially affect the value of the development and those that will or may be added to the development;
(i) The identification of any real property not in the development, the owner of which has access to any of the development, and a description of the terms of such access;
(j) The identification of any real property not in the development to which owners in the development have access and a description of the terms of such access;
(k) The status of construction of improvements in the development, including either the estimated dates of completion if not completed or the fact that such estimated completion dates have not yet been determined; and the estimated costs, if any, to be paid by the purchaser;
(l) The estimated current owners' association expense, if any, for which a purchaser would be liable;
(m) An estimate of any payment with respect to any owners' association expense for which the purchaser would be liable at closing;
(n) The estimated current amount and purpose of any fees not included in any owners' association assessments and charged by the developer or any owners' association for the use of any of the development or improvements thereto;
(o) Any assessments which have been agreed to or are known to the developer and which, if not paid, may constitute a lien against any portion of the development in favor of any governmental agency;
(p) The identification of any parts of the development which any purchaser will have the responsibility for maintaining;
(q) A brief description of any blanket encumbrance which is subject to the provisions of RCW 58.19.180;
(r) A list of any physical hazards known to the developer which particularly affect the development or the immediate vicinity in which the development is located and which are not readily ascertainable by the purchaser;
(s) A brief description of any construction warranties to be provided to the purchaser;
(t) Any building code violation citations received by the developer in connection with the development which have not been corrected;
(u) A statement of any unsatisfied judgments or pending suits against any owners' association involved in the development and a statement of the status of any pending suits material to the development of which the developer has actual knowledge;
(v) A notice which describes a purchaser's right to cancel the purchase agreement or extend the closing under section 4(3) of this act, including applicable time frames and procedures;
(w) A list of the documents which the prospective purchaser is entitled to receive from the developer before the rescission period commences;
(x) A notice which states:
"A purchaser may not rely on any representation or express warranty unless it is contained in the public offering statement or made in writing signed by the developer or by any person identified in the public offering statement as the declarant's agent";
(y) A notice which states:
"This public offering statement is only a summary of some of the significant aspects of purchasing an interest in this development and any documents which may govern or affect the development may be complex, may contain other important information, and create binding legal obligations. You should consider seeking assistance of legal counsel"; and
(z) Any other information and cross-references which the developer believes will be helpful in describing the development to the recipients of the public offering statement, all of which may be included or not included at the option of the developer.
(2) The public offering statement shall include copies of each of the following documents: Any declaration of covenants, conditions, restrictions, and reservations affecting the development; any survey, plat, or subdivision map; the articles of incorporation of any owners' association; the bylaws of any owners' association; the rules and regulations, if any, of any owners' association; current or proposed budget for any owners' association; and the balance sheet of any owners' association current within ninety days if assessments have been collected for ninety days or more.
If any of the foregoing documents listed in this subsection are not available because they have not yet been executed, adopted, or recorded, drafts of such documents shall be provided with the public offering statement, and, before closing the sale of an interest in the development, the purchaser shall be given copies of any material changes between the draft of the proposed documents and the final documents.
(3) The disclosures required by subsection (1)(v), (x), and (y) of this section shall be located at the top of the first page of the public offering statement and be typed or printed in ten-point bold face type size.
Sec. 6. RCW 58.19.120 and 1973 1st ex.s. c 12 s 12 are each amended to read as follows:
developer shall immediately ((
report to the director)) amend the
public offering statement to include any material changes (( in the
information contained in his application for registration)) affecting
the development. No change in the substance of the promotional plan or
plan of disposition or completion of the development may be made (( after
registration without notifying the director and)) without first
making an appropriate amendment of the public offering statement. A
public offering statement is not current unless it incorporates all amendments.
Sec. 7. RCW 58.19.180 and 1973 1st ex.s. c 12 s 18 are each amended to read as follows:
It shall be unlawful for the developer to make a sale of lots or parcels within a development which is subject to a blanket encumbrance which does not contain, within its terms or by supplementary agreement, a provision which shall unconditionally provide that the purchaser of a lot or parcel encumbered thereby can obtain the legal title, or other interest contracted for, free and clear of the lien of such blanket encumbrance upon compliance with the terms and conditions of the purchase agreement, unless the developer shall elect and comply with one of the following alternative conditions:
The developer shall deposit earnest moneys and all subsequent payments on
the obligation in ((
an)) a neutral escrow depository (( acceptable
to the director: In cases where the blanket encumbrance does not provide for
partial release, all or such portions of the money paid or advanced by the
purchaser on any such lot or parcel within said development as the director
shall determine to be sufficient to protect the interest of the purchaser; or
in cases where the blanket encumbrance provides for partial releases thereof
which are not unconditional, the developer shall deposit, at such time as the
balance due to the developer from such purchasers is equal to the sum necessary
to procure a release of such lots or parcels contracted for from the lien of
such blanket encumbrance, all of the sums thereafter received from such
purchasers until either)), or real estate trust account regulated under
RCW 18.85.310, until such time as all payments on the obligation have been made
and clear title is delivered, or any of the following occurs:
(a) A proper release is obtained from such blanket encumbrance;
(b) Either the developer or the purchaser defaults under the sales contract and there is a forfeiture of the interest of the purchaser or there is a determination as to the disposition of such moneys, as the case may be; or
(c) The developer orders a return of such moneys to such purchaser.
The title to the development is held in trust under an agreement of trust ((
to the director)) until the proper release of such blanket encumbrance is
bond to the state of Washington or such other proof of financial responsibility
is furnished to the director for the benefit and protection of purchasers of
such lots or parcels in such an amount and subject to such terms, as may be
approved by the director, which shall provide for the return of moneys paid or
advanced by any purchaser on account of a sale of any such lot or parcel if a
proper release from such blanket encumbrance is not obtained: PROVIDED, That
if it should be determined that such purchaser, by reason of default, or
otherwise, is not entitled to the return of such moneys or any portion thereof,
such bond or other proof of financial responsibility shall be exonerated to the
extent and in the amount thereof. The amount of the bond or other proof of
financial responsibility may be increased or decreased or a bond may be waived
from time to time as the director shall determine)) The purchaser shall
receive title insurance from a licensed title insurance company against such
Sec. 8. RCW 58.19.190 and 1973 1st ex.s. c 12 s 19 are each amended to read as follows:
person shall publish in this state any advertisement concerning a development
subject to the ((
registration)) requirements of this chapter (( after
the director finds that the advertisement)) which contains any
statements that are materially false, misleading, or deceptive (( and
so notifies the person in writing. Such notification may be given summarily
without notice or hearing. At any time after the issuance of a notification
under this section the person desiring to use the advertisement may in writing
request the order be rescinded. Upon receipt of such a written request, the
matter shall be set down for hearing to commence within fourteen days after
such receipt unless the person making the request consents to a later date.
After such hearing, which shall be conducted in accordance with the provisions
of the Administrative Procedure Act, chapter 34.04 RCW, the director shall
determine whether to affirm and to continue or to rescind such order and shall
have all powers granted under such act)).
NEW SECTION. Sec. 9. A new section is added to chapter 58.19 RCW to read as follows:
If a developer, or any other person subject to this chapter, fails to comply with any provision of this chapter, any person or class of persons adversely affected by the failure to comply may seek appropriate relief through an action for damages or an injunctive court order. The court, in an appropriate case, may award attorneys' fees.
Sec. 10. RCW 58.19.270 and 1973 1st ex.s. c 12 s 27 are each amended to read as follows:
The commission by any person of an act or practice prohibited by this chapter
is hereby declared to be an unfair act or practice or unfair method of
competition in the conduct of trade or commerce for the purpose of the application
of the Consumer Protection Act, chapter 19.86 RCW, as now or hereafter amended. (2)
The director may refer such)) Evidence (( as may be
available to him)) concerning violations of this chapter (( or of any
rule or regulation adopted hereunder)) may be referred to the
attorney general or the prosecuting attorney of the county wherein the alleged
violation arose, who may, in their discretion, with or without such a
reference, in addition to any other action they might commence, bring an action
in the name of the state against any person to restrain and prevent the doing
of any act or practice prohibited by this chapter(( : PROVIDED, That this
chapter shall be considered in conjunction with chapters 9.04 and 19.86 RCW, as
now or hereafter amended, and the powers and duties of the attorney general and
the prosecuting attorney as they may appear in the aforementioned chapters,
shall apply against all persons subject to this chapter)).
Sec. 11. RCW 58.19.300 and 1973 1st ex.s. c 12 s 30 are each amended to read as follows:
before disposition of all or any portion of a development which is
covered by this chapter, a condition constituting a physical hazard is
discovered on or around the immediate vicinity of the development, the
developer or government agency discovering such condition shall notify the (( director
immediately. After receiving such notice, the director shall forthwith take
all steps necessary to notify the owners)) purchasers of the
affected lands either by transmitting notice through the appropriate county
assessor's office or such other steps as might reasonably give actual notice to
the (( owners)) purchasers.
Sec. 12. RCW 58.19.940 and 1973 1st ex.s. c 12 s 35 are each amended to read as follows:
chapter may be cited as the Land Development Act ((
NEW SECTION. Sec. 13. The following acts or parts of acts are each repealed:
(1) RCW 58.19.040 and 1973 1st ex.s. c 12 s 4;
(2) RCW 58.19.050 and 1973 1st ex.s. c 12 s 5;
(3) RCW 58.19.060 and 1973 1st ex.s. c 12 s 6;
(4) RCW 58.19.070 and 1973 1st ex.s. c 12 s 7;
(5) RCW 58.19.080 and 1973 1st ex.s. c 12 s 8;
(6) RCW 58.19.090 and 1973 1st ex.s. c 12 s 9;
(7) RCW 58.19.100 and 1973 1st ex.s. c 12 s 10;
(8) RCW 58.19.110 and 1973 1st ex.s. c 12 s 11;
(9) RCW 58.19.150 and 1973 1st ex.s. c 12 s 15;
(10) RCW 58.19.160 and 1973 1st ex.s. c 12 s 16;
(11) RCW 58.19.170 and 1973 1st ex.s. c 12 s 17;
(12) RCW 58.19.200 and 1973 1st ex.s. c 12 s 20;
(13) RCW 58.19.210 and 1973 1st ex.s. c 12 s 21;
(14) RCW 58.19.220 and 1973 1st ex.s. c 12 s 22;
(15) RCW 58.19.230 and 1973 1st ex.s. c 12 s 23;
(16) RCW 58.19.240 and 1973 1st ex.s. c 12 s 24;
(17) RCW 58.19.250 and 1973 1st ex.s. c 12 s 25;
(18) RCW 58.19.260 and 1973 1st ex.s. c 12 s 26;
(19) RCW 58.19.290 and 1973 1st ex.s. c 12 s 29;
(20) RCW 58.19.900 and 1973 1st ex.s. c 12 s 31;
(21) RCW 58.19.910 and 1973 1st ex.s. c 12 s 32; and
(22) RCW 58.19.930 and 1973 1st ex.s. c 12 s 34.
NEW SECTION. Sec. 14. If any provision of this act or its application to any person or circumstances is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.