New Disclosures Required Beginning Oct. 1

Dear Forms Guy: We’ve heard that the Offer to Purchase and Contract (form 2­T) has to be changed soon to include a seller disclosure about oil and gas rights. Is that correct?

Sincerely, Frick and Frack

Dear Frick and Frack: Yes, that is correct. The so­called “fracking” legislation (Senate Bill 820) enacted by the General Assembly this past summer over the Governor’s veto included a section addressing concerns pertaining to the well­publicized situation involving Triangle­area buyers of D.R Horton homes who claimed they didn’t understand that Horton had retained mineral rights in the properties they bought. Section 5 of Senate Bill 820 amends the Residential Property Disclosure Act to require sales contracts of residential properties covered under the Act to include an “Oil and Gas Rights Disclosure.” The wording and format of the new disclosure is set forth in Senate Bill 820, a copy of which can be accessed on the General Assembly’s website (ncga.state.nc.us). Once you navigate to it, the text of the new disclosure begins at the bottom of page 24. Sincerely, Forms Guy

Frick: When will the new disclosure go into effect?

Forms Guy: Section 5 of Senate Bill 820 goes into effect Oct. 1, 2012. Therefore, effective this coming Oct. 1, the Offer to Purchase and Contract (form 2­T) has been amended to include the new Oil and Gas Rights Disclosure.

Frack: Have any other forms been changed to include the new disclosure?

Forms Guy: Yes. The Oil and Gas Disclosure has also been added to the Offer to Purchase and Contract­New Construction (form 800­T) effective Oct. 1.

Frick: Wait a minute. The Residential Property Disclosure Act doesn’t apply to sales of new construction homes, does it? Why would the new disclosure need to be included in a contract for new construction?

Forms Guy: Great question, Frick. Although transfers of new construction typically are exempt from the requirements of the Residential Property Disclosure Act, subsection (b2)(1) of Senate Bill 820 makes it clear that such transactions are not exempted from the new Oil and Gas Rights Disclosure requirement.

Frack: How about the Offer to Purchase and Contract­Vacant Lot/Land (form 12­T)?

Forms Guy: Great question, Frack. The Residential Property Disclosure Act does not apply to transfers of property that don’t include one to four dwelling units, and Senate Bill 820 did not impose any requirement that the Oil and Gas Disclosure be added to contracts for the transfer of such property. Since it’s not required by law, the Oil and Gas Rights Disclosure is not being added to the Offer to Purchase and Contract­Vacant Lot/Land (form 12­T) at this time. However, the possible addition of the Oil and Gas Rights Disclosure to form 12­T will be discussed this fall.

Frick: How are forms 2­T and 800­T being changed to include the new disclosure?

Forms Guy: The Oil and Gas Rights Disclosure will be added as a new paragraph 7(f) in the Offer to Purchase and Contract (form 2­T) and in a new paragraph 9(e) in the Offer to Purchase and Contract­New Construction (form 800­T).

Frack: When will the updated forms be available?

Forms Guy: You can get PDF copies of both forms now on the NCAR website (ncrealtors.org). After you log in, click on the “Forms and Contracts” button and on the next page click on “Go directly to the Forms and Contracts Library.” Then, select “NCAR/NC Bar Association Joint Forms” in the drop­down menu to access forms 2­T and 800­T. Since the existing versions of the forms will also be available through the end of September, be sure to select the Oct. 1, 2012, versions of the forms. The updated forms have been sent to NCAR’s two approved forms software vendors. Questions about the rollout date for an updated forms software program should be directed to your vendor.

Frick: Will we have the customary 60­day grace period to transition to the new versions of these forms?

Forms Guy: Senate Bill 820 does not contain a grace period, so the answer is “no.” Contracts on all transactions covered under the new law entered into on and after Oct. 1, 2012, should include the new Oil and Gas Rights Disclosure. And that goes for all covered contracts, not just standard NCAR/NC Bar Association forms. v