Getting the Lead Out

New Lead-Paint Rules Affect Real Estate Sales

The Author:

Ron Pennington

is an associate with the law firm of Tom Bolt & Associates, in St. Thomas, U.S. Virgin Islands. He has been practicing since 1992 and his emphasis is on real estate law, corporate and general business law, and collections. He received his Juris Doctor degree from Walter F. George School of Law in Macon, Georgia, and is a member of the American Bar Association, the Georgia Bar Association, the Virgin Islands Bar Association, the Virgin Islands Bar Journal Committee and Young Lawyers.

E-mail: rpennington@vilaw.com
Web: www.vilaw.com

By Ron R. Pennington

ONG-TERM EXPOSURE TO LEAD contained in paint, soil and dust can cause serious health problems, especially children under six years of age. Health problems include brain damage, learning disabilities, and damage to the nervous system.

After many years of notice and comment from the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Housing and Urban Development (HUD), their joint final rule on lead-based paint in residential structures has been published. The joint rule is in response to the Residential Lead-Based Paint Hazard Reductions Act of 1992, in which Congress addressed the dangers of lead-based paint in residential structures.

This new rule will have immediate impact on the real estate industry, and requires the attention of all parties -- owners, buyers, landlords, tenants and their attorneys -- involved in the sale or lease of residential real estate.

When approaching a transaction, the first question that should be asked is whether the rule applies to the particular structure. The new federal law is written to cover residential dwellings built before 1978. This has been interpreted to mean housing in which a building permit was obtained before January 1, 1978, the year lead-based paint was banned.

Specifically, the law covers single family residential dwellings, structures attached to a single family dwelling and structures that contain more than one single-family dwelling, i.e. apartment buildings. There are, of course, exceptions to these types of structures that must be kept in mind when determining whether the law applies.

THERE ARE EXCEPTIONS TO EVERY RULE

THE SPECIFIC EXCEPTIONS ARE: housing for the elderly (defined as housing reserved for households composed of at least one person age 62 or older at the time of initial occupancy), housing for persons with physical or mental disabilities (unless a child younger than six resides or is expected to reside in the dwelling), and "0 bedroom dwellings", which includes the rental of individual rooms in residential dwellings and dormitory housing, but does not include married student housing and university-owned apartments, which would be covered by the law.

Once it is determined that the new lead paint rule covers the specific property, the next determination is whether the rule applies to the particular transaction. Sales, leases, subleases and lease renewals involving residential dwellings are all included within the scope of the rule.

Once again, there are exceptions that must be considered before final determination of whether the federal law applies to the transaction. The exceptions to consider are as follows: a foreclosure sale, a lease of property that has been certified as free from lead-based paint by an inspector certified by a federal or territorial certification program, a lease of 100 days or less that does not allow extensions or renewals, a renewal of an existing lease when the landlord previously complied with the disclosure requirements and no new information about lead-based paint has come into its possession. Any change in the lease terms, including an increase in rent, is considered a renewal for purposes of the new rule.

DISCLOSURE IS REQUIRED

ONCE THESE INQUIRIES have been made, and the property and the transaction fall within the scope of the rule, a seller or landlord must then comply with the requirements of the federal law. While not particularly difficult, the requirements will place a further burden on those involved in the transactions. Under the rule, a seller or landlord must disclose to the buyer or tenant and each agent the following:

the presence of any known lead-based paint or lead based paint hazard; and
any additional information concerning the lead-based paint and lead-based paint hazards and the basis for determining the existence of, location and condition of the paint.

Fortunately, a seller or landlord is required to disclose only such information within their actual knowledge. There is no requirement to seek information from other sources.

Additionally, if a seller or a landlord has in their possession or can reasonably obtain any records or reports that concern lead-based paint or lead-based paint hazards, they must provide these to the buyer or tenant. A reasonable search must be made to obtain records or reports, but there is no need to have an inspection or an evaluation made. Records or reports concerning common areas or other units in a multi-family dwelling should also be provided to the buyer or tenant. Real estate agents must be informed of the existence of the records or reports, but do not need to be given copies.

When the transaction is a sale, the seller must provide the buyer with a ten (10) day period within which the buyer may conduct a lead-based paint or lead-based paint hazard risk assessment or inspection. This requirement can easily be incorporated into the standard Virgin Islands contract of sale, which allows a ten (10) day period for a structural inspection of the property. This period for lead-based paint inspection may also be extended, reduced or waived if in writing and signed by both seller and buyer.

The buyer or tenant must also be provided with an EPA-approved pamphlet that contains lead hazard information.

WHO IS BOUND BY THESE RULES?

PERSONS OR ENTITIES bound by these requirements under the rule include individuals and all forms of businesses and governmental entities. The rule does not bind those who hold a lien on the property as collateral, or to the purchase, sale or servicing of mortgages when title to the property is not conveyed.

Sellers and landlords, however, are not the only persons or entities affected by this new rule. Real estate agents involved in the transaction are bound by certain requirements as well. A real estate agent has the responsibility of informing the seller or landlord of their respective obligations under the federal rule. Further, a real estate agent must ensure that the requirements are met by the seller or landlord or comply themselves. This task may be more onerous than what is required of the seller or landlord. Fortunately, a real estate agent will not be held liable for failure to disclose that which was not disclosed to it.

The lead-based paint rule became effective as to owners of more than four (4) residential units September 6, 1996, and will become effective December 6, 1996 for owners of one to four residential units. Failure to comply with the rule once it is effective to your transaction may result in severe penalties. HUD may impose civil penalties of up to $10,000 per violation for a knowing and material violation, as well as take steps to enjoin the violation. The EPA also may impose civil penalties up to $10,000 per violation of failure or refusal to comply with the rule, and also has the option to impose criminal penalties of up to $10,000 per day of violation for a knowing and willful violation.

Anyone who has questions or requires further information with regard to the new federal lead-based paint rules should contact the National Lead Information Clearinghouse at (800) 423-LEAD or their local real estate attorney.

Web Law Review, Winter 1997