I. General information regarding the new regulation and its impact.

On March 6, 1996, the final rule regarding Lead-Requirements for Disclosure of Known Lead-Based Paint and/or Lead-Based Paint Hazards in Housing ("Rule") was promulgated. Due to the serious consequences of lead poisoning, Congress promulgated the Rule. The Rule applies to residential dwellings constructed prior to 1978 ("target housing"). The Rule goes into effect on September 6, 1996 for owners of more than four residential dwellings and on December 6, 1996 for owners of one to four residential dwellings.

The Environmental Protection Agency ("EPA") and the Department of Housing and Urban Development ("HUD") were a driving force behind the Rule in an effort to provide information to the general public regarding the dangers of lead-based paint. Approximately three-fourths of the housing built before 1978 contains some lead-based paint. While lead-based paint does not pose a hazard if properly maintained, it can pose a significant danger to young children and pregnant women. The effects of lead poisoning in children include permanent brain damage, behavioral and learning problems, slowed growth, hearing problems, and headaches. In adults, lead poisoning may cause reproductive problems in both men and women, high blood pressure, digestive problems, nerve disorders, memory problems, and muscle and joint pain.

The Rule affects all sellers, landlords, and real estate licensees for the sale or rental of target housing. The Rule provides that all sellers, landlords and their agents are responsible to ensure that the appropriate disclosures, as discussed below, are given to buyers. According to the Rule, "agent" is defined as:

"Any party who enters into a contract with a seller or lessor, including a party who enters into a contract with a representative of the seller or lessor, for the purpose of selling or leasing target housing. This term does not apply to purchasers or any purchaser's representative who receives all compensation from the purchaser." 24 CFR § 35.96.

Therefore, under a broad interpretation of the language, even a buyer broker under an exclusive right to buy agency agreement with the buyer could be responsible to ensure that the appropriate disclosures are made, if the buyer broker receives compensation from other than the buyer. (If the property is listed in the MLS, then it could be argued that the buyer broker, as the selling agent, has a contract with the listing broker for payment of a commission. Therefore, the buyer broker has entered into an agreement with a representative of the seller for the purpose of selling target housing.)

The impact of these Rules on sellers and landlords is that certain disclosures must be made for the sale or lease of target housing, before the buyer or tenant becomes bound by the contract or the lease. Those disclosures include the following:

1. Disclose all known lead-based paint and lead-based paint hazards in the housing and any available reports on lead in the house.

2. Give buyers a copy of the EPA pamphlet Protect Your Family from Lead in Your Home.

3. Include certain language in the contract as well as signed statements from all parties and real estate licensees verifying that all requirements have been met.

4. Retain signed acknowledgments for a period of three years as proof of compliance.

5. Provide buyers with a ten-day opportunity to inspect or test the house for lead.

Real estate licensees have the responsibility to ensure the following:

1. Sellers and landlords are aware of their obligations under the Rule.

2. Sellers and landlords disclose the proper information to lessors, buyers, and tenants.

3. Sellers provide buyers with the opportunity for an inspection.

4. Lease and sales contracts contain the appropriate notification and disclosure language and proper signatures.

The EPA and HUD have provided sample Disclosure Forms for sellers and agents to use. In addition, the Colorado Real Estate Commission is working on a Commission approved form for use by real estate licensees. (A copy of the final draft of the form being considered is available from Frascona, Joiner, Goodman and Greenstein, P.C.)

Compliance with the Rule should not be taken lightly. Sellers and landlords are neither required to perform any testing of their properties for lead nor to remove any lead-based paint. The failure of the seller or landlord to comply with the Rule does not invalidate or otherwise void leasing and sales contracts. However, failure to comply with the Rule can subject sellers, landlords, or agents to civil monetary penalties by HUD. The EPA may seek injunctive relief and civil penalties of $10,000.00 for each violation. Civil lawsuits from injured buyers or tenants may subject a landlord, seller, or agent to treble damages plus attorney fees.

The Rule does not include: 1) housing that does not contain a bedroom such as lofts, efficiencies, and studios; 2) leases of dwelling units of 100 days or fewer, such as vacation homes and short term rentals; 3) designated housing for the elderly and/or the handicapped (unless children reside or are expected to reside there); and 4) rental housing that is certified to be lead-based paint free by a certified inspector. (As of the date of this article, there are no certified inspectors in Colorado.)

II. Guidelines on how to handle a real estate transaction for targeted housing.

A. Sellers, landlords, and their agents.

At the time a property is listed for sale or lease with a real estate broker or advertised by an owner for sale or lease, the seller/landlord should complete the Lead-Based Paint Disclosure Form. The seller/landlord and their agents should then sign the form. Copies of this form should be available at the targeted housing for potential buyers or tenants. Upon receipt of any offer from a buyer, if it is not accompanied by a Lead-Based Paint Disclosure Form, the seller/landlord or agent should ensure that a copy of the form is submitted to the buyer/tenant for signature before the offer is accepted or a counteroffer prepared. In the Additional Provisions to the Contract to Buy and Sell Real Estate or the Lead-Based Paint Disclosure Form, reference should be made to paragraph 10 of the contract, the inspection clause. The inspection clause may be referenced as the mechanism for providing the buyer with the ten-day period to test for lead-based paint. (This time frame may be shortened or extended by the parties, and the buyer may waive the opportunity to conduct a risk assessment of the premises.) In a lease transaction, the lease should provide the tenant with a ten-day period to test for lead-based paint.

B. Buyer/Tenant Brokers and transaction brokers working with buyers/tenants.

Selling brokers should not presume that the listing broker or seller has complied (or will comply) with the Rule. The selling broker should supply the buyer or tenant with a copy of the EPA Pamphlet, Protect Your Family From Lead in Your Home. The selling broker should also request a copy of the Lead-Based Paint Disclosure Form at the time the target housing is first shown to the buyer or tenant. Prior to the buyer or tenant presenting an offer to buy or lease, the selling broker should obtain a copy of the Lead-Based Paint Disclosure Form from the seller/landlord or agent. The buyer/tenant and the selling broker should then review and sign the form. The fully-executed form should be attached to the offer to buy or lease as a part of the contract or lease.

C. As a fall back provision, all leases and sales contracts should probably contain the following or similar language:

"Unless exempt, if the improvements on the Property include one or more residential dwelling(s) built prior to 1978, this contract/lease is expressly conditioned upon the execution of a completed Lead-Based Paint Disclosure form by Seller/Landlord and the required real estate licensee(s), which must occur prior to or concurrent with Buyer signing such form as an attachment to this contract/lease. All parties must sign such form no later than the Acceptance Deadline or Lease Effective Date. Until so signed, Buyer/Tenant is not obligated under this Contract/Lease."

This language, minus the references to leases and tenancies, has been distributed by the Colorado Real Estate Commission for use in the Additional Provisions section of the Contract to Buy and Sell Real Estate.

III. Conclusion

Lead-based paint is considered to be a serious threat to the public health. The new Rule creates serious ramifications for selling or leasing targeted housing without providing the proper disclosures. All owners of target housing are at risk if they fail to make the proper disclosures. The definition of "agent," as well as who is responsible to ensure that the disclosures are made, is very broad and can include any real estate licensee working on a transaction, if that licensee is being paid by other than the buyer. All real estate licensees, homeowners, and landlords need to become familiar with the Rule, and they need to have the EPA pamphlet and appropriate disclosure forms available.

Joyce M. Bergmann is a shareholder in the law firm of Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm.  Her practice areas include Real Estate, Litigation, Association Law, Business Law, Corporations, Probate, Wills & Trusts, and Employment Law.   She can be reached at contact Joyce Begrman.

Disclaimer -- Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.