California’s 3-Day Right to Cancel Contract Form Explained

What is the 3-Day Right to Cancel?

In California, there is a "3-day right to cancel" for certain contracts. That means that you have 3 days to cancel certain contracts. The basis for this right to cancel is contained in a number of places, including the California Civil Code, the California Business and Professions Code and the California Health and Safety Code. Perhaps the most common application of the right to cancel is in the context of real estate transactions involving a residential property containing one-to-four units, which is provided for in California Civil Code Section 2984. The cancellation notice has to be delivered or postmarked within those 3 days.
The right to cancel may also apply in the context of timeshares, as well as loans and home solicitation sales.
In the case of real estate transactions, a lease, rental agreement or other contract to transfer or rent a residential property with one-to-four units comes in a few variations. It could be the actual agent’s form lease agreement that has been negotiated by the parties. Or it could be an offer to purchase a unit , where the three-day right of cancellation is specifically in the sales contract. What about oral contracts? The law specifically requires written agreements, leases, licenses, assignments and conveyances of real property with the exception of lease or license in which the term is one year or longer, where the right does not apply.
As an example of the application of the three day right to cancel, the case of Valdez v. Roesner In 1994 involved a dispute where the agent had been paid $1,500 after an offer for a 3 bedroom house was made by the buyers, and the sellers signed the purchase contract, which had some incorrect terms. The agent was given a check for the down payment but it never cleared the bank.
The seller initially thought that there must be a valid contract, but after 2 weeks, that seller canceled the contract relying upon the notice of cancellation form and served it on the agent and buyer. The seller sold the house to someone else. The buyer sued the seller and the real estate agent and the Court ultimately decided that because the contract was invalid, there couldn’t be a 3-day right to cancel, so the agent wasn’t liable for the commission.

How the 3-Day Right to Cancel Works

If you are a consumer having entered into a contract with your lender to purchase a property, you can use the 3-day right to cancel by submitting an Unconditional Termination of Contract in compliance with Civil Code section 1689(b)(1). You may cancel the contract within 3 business days after the buyer has personally signed the contract. If there is no right to cancel by the buyer under Civil Code section 1689, then the home loan rescission period also expires 3 business days after the buyer has personally signed the note and deed of trust. The realtor should provide you with the Unconditional Termination of Contract. You should provide the entire seller’s copy of the original 3-page unsigned contract (including all attachments and any modular handwritten pages) along with an original Unconditional Termination of Contract to the buyer via email or certified mail with return receipt requested.
If you are also signing loan documents, under federal law, you have 3 business days after signing the loan documents to rescind the transaction as well under Reg Z, 12 C.F.R. section 226.23. Again, you can submit to your lender a notice of cancellation by regular mail; however, it is best to hand deliver a notice to your lender on stationery that you prepare. Having this extra record will help you demonstrate notice of rescission. You should provide the entire lender’s copy of the original loan documentation and a written notice of cancellation completed in accordance with 12 C.F.R. section 226.23(b), including the property address, the date and the loan number. You should make copies of these documents for your records and have them available to provide to a court if litigation results.

Contracts that Apply

Not every type of contract is subject to the 3-day right to cancel contract form. In this case, we are talking about the home improvement context. The right to cancel can often be critical as it can allow the client to change their mind about the new project being proposed. This is because in many cases, contracts are subject to a 3-day right to cancel form where certain contracts entered into by the property owner are subject to a "3-day right to cancel". The right to cancel must be exercised within three business days. Provided that a right to cancel form is delivered, failure to deliver the right to cancel form is a defense to a mechanic’s lien or stop notice (Civil Code sections 7159-2(b) and 8708-1).
As stated in Civil Code section 7159: a) A contract subject to Section 7159 does not become enforceable until all of the following occur: (1) The contract is signed by the owner and contractor. (2) A completed copy of the notice required by subdivision (d) is attached to the front of the contract copy which is signed and dated by each party. (3) A copy of the original contract signed by the owner is delivered to the owner along with a completed copy of the notice which has been signed and dated by the contractor. (4) A completed copy of the notice is attached to the contract copy which is signed and dated by the owner and contractor. The right to rescind may be rescinded in any manner, such as written notice or oral notice, as long as it complies with California’s statutory provisions governing the right to cancel [see Business and Professions Code Section 7191]. The statute is designed to protect the consumer, so that the consumer will be the only party to the contract who has a right to rescind the agreement. As defined in the statute: the "Home Improvement Contract" is defined as including any agreement between a "homeowner" and a "contractor" for "home improvement". This includes agreements for newly manufactured homes under Article 4 (commencing with section 18000) of Chapter 3 of Part 2 of Division 13 of the Health and Safety Code; "Home Improvement" is defined by the statute as any repair, restoration, modernization, conversion, or addition to living areas of owner-occupied residential property; and includes work performed by contractors installations such as: the erection of a patio cover, upgrading kitchen cabinets, or replacing the roof. While the statutes may seem quite technical, if you are in the home improvement business, this is something worth knowing or least looking into.

How to Create a Notice to Cancel

To cancel a transaction and trigger the right to rescind under the 3-Day Right to Cancel form, it is only necessary for a buyer to give the seller notice of the cancellation. The notice should be in writing. It must include the date of the transaction and instruct the seller to cancel and refund all payments made. The notice does not have to be on the prescribed form. However, it must cover the basic essential elements of the subject matter. (See Civil Code ss. 1695.1.) The notice should be dated and signed by the buyer. As discussed above, the buyer need not explain the reason for the cancellation. Although the notice may not need to contain any special legal language, it is best to make sure that it clearly conveys its purpose. A sample notice is shown below. Date: ______________________ ____
Cancel
__________________________________(Name)
___________________________________________(Address)
To: Seller _____________________________
This letter is to inform you that I am exercising my right to cancel our transaction, as required by Civil Code s.1695. This notice of cancellation constitutes a request by the Buyer that you accept the request for cancellation of this transaction and cancel the transaction. I hereby request your prompt attention to this matter and look forward to receiving a prompt cancellation of this transaction with a refund of my down payment. If any payments have been made, this same amount shall be reimbursed promptly.
It is requested that you mail the above-mentioned refund in the postal service to the address listed under my name above.

How to Find and Use the PDF

The 3-Day Right to Cancel Contract Form is a fillable PDF that you can find at the California Department of Consumer Affairs website here. You can either fill it out on your computer or print it out to fill in by hand. If you are a seller, you should already have a copy of this form ready to provide. You do not need to wait until 3 days have passed. You just need to be able to provide it at any time during the rescission period.
If you are filling out the document on your computer, you can fill in the areas that are not shaded grey. The form must then be printed out and filed, along with proof of service. The form cannot be filed electronically . The proof of service document must be signed and dated by the underwriter, agent or broker who personally provided a copy of the right to cancel to the owner.
If you are coming up on the 3-day rescission period, you will need to complete the "Rescinding the Transaction" portion which must be signed and dated by all parties to the transaction, and, if represented, their respective agents. The rescission must be signed or written by the owner. It is normally sufficient for the underwriter, agent or broker to file the form. However, for multiple ownership situations, all owners must sign or write request to rescind the transaction. It is also a good idea to file all proofs of service at the same time as the rescission.

Exceptions and Limitations

There are two important limitations one should note. First, the 3-day right does not apply when the seller of the vehicle is a private party or where the sale is completed at a remote location away from the seller’s place of business. Second, carefully consider whether the mechanics of a particular sale make an exception apply. For example, in the case of a trade-in of an older vehicle, if the trade-in proceeds are applied to reduce the sales price of the replacement vehicle such that the dealer is still holding the later in "inventory" for purposes of the 3-day right under applicable state law, the 3-day right arguably does not apply.

Legal Significance and Guidance

The 3-day right to cancel contract form is not limited to residential real estate sales and leases, it also comes into play with any type of contract for a sale where the buyer and seller do not meet face to face at the point of sale. To be clear, for the 3-day right to cancel form to apply, the buyer and seller must not meet face to face when the buyer places the order for a product or service. If they meet face to face at the point of sale, the 3-day right to cancel contract form does not apply.
Buyer and Seller Obligations:
If in fact, the provisions of the 3-day right to cancel contract form apply, both parties have obligations under the law.
Buyers:
The first obligation is to read, understand , and follow the instructions related to the 3-day right to cancel provision. Simply exercising the right to cancel is not enough.
Sellers:
Once the consumer exercises his or her 3-day right to cancel under the law, the seller must refund all payments within 10 days of receiving notice of cancellation, including all costs for shipping and handling. If the seller does not timely refund all payments, damages can be awarded to the buyer in an amount up to twice of the amount due and payable, and sometimes up to three times.
Given the legal ramifications of a failure to provide a notice of the 3-day right to cancel, or the failure to properly honor that right if the buyer exercises that right, we recommend consumers seek qualified legal advice if they believe their rights are being violated under the law.