Lead-Based Paint Disclosure Penalty Increased
In a final rule published in the Federal Register on June 22, 2011, the Department of Housing and Urban Development (HUD) raised the maximum civil money penalty for failure to disclose lead-based paint hazards. The increase adjusted for inflation as required by the Debt Collection Improvement Act of 1996. The rule increases the maximum penalty from $11,000 (in effect since 1996) to $16,000 effective July 22, 2011.
Considering this recent 45.5 percent increase in maximum penalty, it is worthwhile to review the law which has been in effect since 1996
Under federal law owners and sellers (and their agents) of single-family and multi-unit housing constructed prior to 1978 are required to follow certain disclosure procedures when leasing or selling. The HUD and the U.S. Environmental Protection Agency (EPA) jointly adopted lead-based paint disclosure regulations to implement the Federal Residential Lead-Based Paint Hazard Reduction Act.
The Residential Lead-Based Paint Hazard Reduction Act, commonly known as Title X, was enacted in the U.S. in 1992. EPA regulations implementing Title X as to rental property became effective September 6, 1996 for owners of rental housing containing more than four (4) units. The effective date was December 6, 1996 for owners of housing containing one to four (4) units (including single family homes).
The following types of housing are not covered by Title X:
- Housing certified as lead-free by an inspector certified under a federal certification program,
- Zero-bedroom (efficiencies, studios, dormitories, and single room occupancy units),
- Short-term vacation rentals, non-renewable leases of 100 days or less,
- A single room rented in a residential dwelling,
- Housing designed for seniors or for persons with disabilities, unless children under the age of 6 are regularly present,
- Foreclosure sales, and
- Lease renewals when the landlord has previously provided full disclosure.
Before a tenant or buyer becomes obligated under a lease agreement or a sale contract, the owner or owner’s agent must provide the buyer or tenant with the pamphlet prepared by the EPA titled “Protect Your Family from Lead in Your Home” and disclose to the prospective tenant or buyer and to any leasing or selling agent the presence of any known lead-based paint and/or lead-based paint hazards in the property.
Even if the owner didn’t cause or know about lead-based paint or pipes in a rental building, he/she has an obligation to give potential buyers and tenants notice that such hazards might exist.
The owner must also provide the leasing or selling agent and the buyer or tenant any available records or reports related to lead-based paint and/or lead-based paint hazards in the property.
Every sale contract or lease agreement must include as a separate page an EPA-approved disclosure form containing a specified lead warning statement and required acknowledgments. The form must be signed by all of the parties to the transaction, including the owner’s selling or leasing agent. Sellers, landlords, and their agents must retain copies of the signed forms for 3 years from the closing date of sale or the commencement date of the lease.
Before a buyer becomes obligated under a sale contract the seller must give the buyer a ten (10) day period to conduct a lead-based paint inspection or risk assessment (unless the parties have agreed in writing to a longer or shorter period or to waive such inspection rights).
The EPA and HUD have authority under the regulations to impose monetary penalties – now up to $16,000 – on any landlord, seller, or agent who knowingly violates the lead-based paint disclosure requirements. A violator may also be may be sued for an amount equal to 3 times the actual damages suffered by the tenant or the buyer and may also be subject to criminal fines and imprisonment.
Landlords and sellers have no obligation under the federal regulations to inspect their properties for lead-based paint or to remove lead-based paint or abate any lead-based hazards that may exist on their properties. That is, the federal regulations impose only a duty to disclose known lead-based paint facts.
In addition to the federal regulations, some states and cities also have their own lead paint laws, usually more stringent than the federal, so investors in pre-1978 residential income property should be sure to understand the lead paint laws of the state in which they invest.
While violations of the disclosure requirements expose an owner to potential civil and criminal penalties, the fact that a buyer discovers that a seller knew of lead-based paint hazards and did not make a disclosure, does not invalidate a sale contract, lease agreement, or property transfer and does not give the buyer or tenant a right of rescission after the sale contract or lease has become effective.
In addition to the disclosure requirements described above, there are a variety of requirements at the federal, state, and local levels involving inspection and abatement of lead-based paint hazards if and when an owner deals with lead-based paint issues at their properties.
There are two specific lead-based paint disclosure issues that a buyer should be concerned with. One is the disclosure to the buyer that is required for the sale. The other is the disclosure required when the seller rented to the current tenants. The latter is important because a buyer may be named in a lawsuit for failure of the seller to have provided proper disclosure to the tenants.
If the form indicates that the seller has had any lead-based paint inspection, testing, or remedial work performed, the buyer should be sure to get copies of the reports and/or certificates. If there are any concerns, the buyer might want to consult with an expert to avoid being stuck with many thousands of dollars worth of required abatement work after close of escrow. Regulations of some jurisdictions do not allow an owner the option of correcting or not correcting problems as do federal regulations.
The buyer will want to ensure that the seller provides copies of executed lead-based paint disclosure forms for all tenants. Without these, the buyer could become legally liable due to violations of the law by the previous owner.
If the seller had not followed the law regarding disclosure for each tenant, the seller should be required to obtain them immediately to provide them to buyer soon after acceptance of the contract. However, the buyer must consider that buying a property for which disclosure was not obtained in accordance with the law prior to tenants moving in is not without possible risks. Tenants who were unaware of the hazard may want to now terminate their leases. Considering the potential penalties and legal risks, a landlord should think carefully before arguing with a tenant who wishes to terminate occupancy because of the issue even if the tenant doesn’t have a right to do so under law.