[The following is an excerpted from “Environmental Liability: Managing Environmental Risks in Corporate, Real Estate and Brownfield Transactions” written by Larry Schnapf and published by Lexis Law Publishing]

Disclosure Requirements for Residences With Lead-Based Paint

Exposure to lead can cause a variety of health problems and can be particularly damaging to children. Until 1978, lead was used extensively in paints. Because of the risk of lead exposure to children, the Consumer Product Safety Commission banned the use of lead-based paints in residential properties in 1978. However, the Department of Housing and Urban Development (HUD) has estimated that 75% of the nation's housing built before 1978 (approximately 57 million dwellings) still contain lead-based paint. Many of these buildings are located in low-income urban areas. In these buildings, occupants can become exposed to lead when the old paint around windows, doors, stairways, porches and fences peels or cracks as well as from lead dust that is thrown into the air from sanding operations.
Because of the continuing health concerns caused by exposure to lead-based paints, Congress enacted the Residential Lead-Based Paint Hazard Reduction Act of 1992. This law directed HUD and the Environmental Protection Agency (EPA) to promulgate regulations that would mandate disclosure of certain information and require inspection opportunities for certain residential transactions.
In 1994, HUD and EPA jointly issued regulations to implement the provisions of Residential Lead-Based Paint Hazard Reduction Act (the Lead Paint Rule). A final rule became effective on September 6, 1996 for owners of buildings with more than four units and on December 6, 1996 for owners of 1-4 residential units. The EPA has estimated that the Lead Paint Rule will add $6 to the cost of an individual sale or lease of residential property and that it will affect 9 million rental transactions and 3 million sales at an aggregate annual compliance cost of close to $75 million.
The Lead Paint Rule applies to sales or leases of interests in properties known as “target housing." This term generally includes all residential dwellings, including apartment buildings, constructed prior to 1978. Excluded from the definition of "target housing" are residences such as studio apartments where the living area is unsupported from the sleeping area and residences for the elderly and disabled, unless, in either ease, children under six years of age are living in these residences. Also excluded are rental transactions of “target housing” that are certified to be free of lead-based paints by certified inspectors.
Foreclosure sales are not subject to the Lead Paint Rule. However, a lender or other party who acquires target housing at a foreclosure sale would be required to comply with the provisions of the Lead Paint Rule when the property is subsequently transferred or leased. In addition, the Lead Paint Rule does not apply to short-term leases of less than 100 days where no extension or renewal may occur. This exception is intended to apply to seasonal vacation rentals as well as motel or hotel transactions. Month-to-month leasing arrangements will be subject to the rule unless the parties establish in advance that the lease will not exceed 100 days. 
The Lead Paint Rule  defines sellers as any entity that sells an interest in target housing. This term includes partnerships and entities such as co-op boards which transfer shares in co-operatively-owned projects or which transfer interests in leaseholds. Listing agents, selling agents or brokers who sell or lease target housing on behalf of sellers or lessors are also required to comply with the EPA Rule or must ensure compliance by the sellers or lessors they represent. However, agents or brokers who act on behalf of purchasers or lessees AND who are paid exclusively by the purchaser/lessee are not required to comply with the rule. Although the Lead Paint Rule is not clear on this issue, it would appear that, in the case of a transfer of an individual cooperative apartment, both the tenant-shareholder and the cooperative corporation would be required to comply. Purchasers are also broadly defined, thereby requiring compliance even in transactions between investors who do not intend to occupy the target housing.

DISCLOSURE REQUIREMENTS

Under the Lead Paint Rule, a seller or lessor (or the agent/broker acting on their behalf) is required to provide a purchaser/lessee with written documentation of all information regarding the presence of lead-based paints which are known to the seller/lessor. This requirement includes any reports or records of lead-based paint inspections, risk assessments and abatement activities involving any units within the target housing. If the target housing is in a building which contains more than one residential dwelling, similar disclosures are also required regarding the common areas of the building and other dwellings in the building. If specific information is not available on the unit being sold or leased but the unit is in a multi-family building, information that is available on other units must be disclosed. 
In addition to disclosing information regarding known lead-based paint conditions, sellers, lessors and agents are required to provide a purchaser or lessee with a lead hazard pamphlet prepared by EPA or a state lead disclosure pamphlet that has been approved by EPA. The pamphlet must be given to lessee/purchaser prior to the execution of any contract for sale or lease of the target housing. Significantly, the Lead Paint Rule does not require sellers or lessors to conduct inspections of their properties in order to provide the required disclosures nor are any abatement procedures required when lead-based paints or lead-based hazards are known to exist.

CONTRACT REQUIREMENTS

In addition to the required disclosures, the Lead Paint Rule mandates that certain language be included in all sales contracts and leases relating to target housing and that certain disclosure and acknowledgement forms be executed or delivered in connection with the contract. Both EPA and HUD have developed disclosure and acknowledgement forms which have four parts as follows:

Part 1.	A 'lead warning statement," in language prescribed by the Rule.

Part 2.	A certification by the seller or lessor listing the information known to the seller regarding lead-based paints and lead-based paint hazards.

Part 3.	A certification of the agent regarding compliance by it, or the seller or lessor with the Lead Paint Rule.

Part 4.	An acknowledgement by the purchaser or lessee that it has read and understood the lead warning statement and has received the required information.

In the proposed Lead Paint Rule, EPA and HUD proposed that sellers and lessors be required to maintain the executed disclosure and acknowledgement forms for three years after the date of closing or the commencement date of the lease. However, the final rule version does not contain a mandated record retention period. 

INSPECTION PERIOD

After a seller has provided its purchaser with the mandated disclosure information and the four-part acknowledgement form, the Lead Paint Rule requires that the purchaser be given a ten-day period to conduct a risk assessment or inspection for the presence of lead-based paint prior to the time that the purchaser becomes contractually obligated to purchase the target housing. However, the parties are agree to negotiate a shorter period and the purchaser may waive the ten-day period entirely. The EPA and HUD did not determined if the inspection must be conducted prior to the execution of the sales agreement or whether it should be a pre-closing contingency similar to a mortgage contingency where the contract would be contingent on no lead-based paints being detected during the purchaser's inspection. 
The ten-day inspection period does not apply to leases.

ENFORCEMENT

The Lead Paint Rule tracks the penalty provisions set forth in Title X by Congress. Failure to comply with the provisions of the Lead Paint Rule could subject parties to civil penalties of up to $10,000 per violation. In addition, persons who knowingly violate the rule may be liable for treble damages as well as attorneys' and expert witnesses' fees. The Lead Paint Rule also provides for criminal fines of up to $10,000 per day of violation and imprisonment of up to one year. However, noncompliance with the provisions of the Lead Paint Rule will not create a defect in title, nor will it render a contract or lease unenforceable or permit a purchaser or lessee to terminate the contract or lease.
Approximately 25 states and some cities have enacted their own lead paint statutes or regulations, which vary in scope. For example, both New York State and New York City impose remediation obligations on owners and managers of buildings containing lead-based paint in certain Situations. As a result, although the new federal requirements will heighten awareness of lead paint conditions in residential properties, the responses to these conditions in different jurisdictions are likely to vary considerably. For example, a New York state court ruled that a landlord had an affirmative duty to inspect for and remove lead paint and the failure to comply with this statutory duty was held to be negligence per se.
Debris from a residential lead paint abatement project must be handled as a hazardous waste and be disposed in accordance with RCRA. In Duckworth v. Barrios, a landowner was allowed to maintain a private RCRA 7002 action against a neighbor after paint chips that were removed from a neighbor's house contaminated the plaintiff's property.

(c) Copyright 1999 Lawrence Schnapf