Monday
July 28, 2014

Lead Law Unclear for Buyer's Reps

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Lead Law Unclear for Buyer's Reps

When it comes to lead-based paint, the rules are clear—unless you’re a buyer’s agent. The federal Residential Lead-Based Paint Hazard Reduction Act of 1992 requires sellers or lessors of single-family and multifamily properties built before 1978 or their agents to disclose the possible presence of lead-based paint to any prospective buyer or renter. The law has been in effect since 1996. Disclosure includes giving prospects a U.S. Department of Housing and Urban Development pamphlet on lead-based paint, providing any records of lead testing, and giving buyers 10 days to conduct a lead-paint inspection of the property after the purchase contract is signed.

There’s no mention of obligations by a buyer’s agent. However, regulations adopted jointly by HUD and the U.S. Environmental Protection Agency to implement and interpret the lead-based paint act indicate that the disclosure requirements also apply to buyers’ agents unless they’re paid entirely by the buyer (a rare occurrence).

Because regulatory agencies may promulgate rules only within the scope of the statute and can’t extend rules beyond what’s covered in the statute, the validity of applying the EPA and HUD disclosure requirements to buyers’ agents is questionable. This inconsistency leaves brokers and sales associates who represent buyers uncertain about their lead-paint disclosure duties.

Despite questions about its legal rights to do so, the EPA has sued or threatened to sue buyers’ agents who failed to comply with the disclosure requirements of the act. One recent EPA claim filed under the act involved a single-family residence and included both the salesperson and the broker. Such suits are unusual for the EPA, which traditionally has sued only property owners, not salespeople or brokers, and has concentrated its enforcement activities primarily on multifamily properties.

Making matters worse, an EPA enforcement proceeding, which carries penalties of up to $11,000 per violation, is often not covered under errors and omissions insurance. That’s because the EPA seeks not compensatory damages but penalties or fines.

Three court decisions—two in federal court and the recent Griffin ruling in an Illinois appellate court (Griffin v. Bruner, 2003)—have all held that the act doesn’t apply to buyers’ agents. In the Griffin case, the Illinois court went so far as to state that the law doesn’t apply even if that agent shares in a commission paid by the sellers. In disagreeing with the EPA’s position, the Illinois court stated that the EPA regulations create “an inconsistency [that] flies in the face of the clear statutory mandate of [the act].” However, the EPA isn’t bound by a state court’s decision on the interpretation of its regulations. Nor does the Illinois decision have to be followed by another state.

The two federal court decisions on the role of a buyer’s agent in lead-paint disclosure (one in Illinois, one in Maine) tend to establish and reinforce the position that buyers’ agents may not have to comply with these requirements.

Playing it safe

Faced with these inconsistencies, how do brokers and sales associates meet their responsibilities under the law? To avoid any risk of failure to comply with the act, buyers’ agents should be proactive and either provide or ensure that sellers’ agents have given the buyers all the forms, pamphlets, and disclosures required under the act before the contract is signed. Buyers’ agents may also want to confirm that the buyers have signed the acknowledgment stating they’ve received the required forms and pamphlet. This not only meets the EPA’s requirements but also is in the best interests of the buyer clients. The buyers’ rep should also ensure that the 10-day inspection period, or the buyers’ waiver of that period, is spelled out in the purchase contract. If any disclosures of lead-based paint are made, the buyers’ agent may want to suggest that buyers have an inspection and consult an attorney.

To ensure that both buyers’ and sellers’ agents understand and comply with lead-paint disclosure regulation, brokers should create a disclosure checklist (see “Lead-based paint disclosure checklist,” page 24) and require sellers’ agents, sellers, and buyers to date and initial every item on the checklist as it’s completed. In addition, brokers should provide training to all associates on the act and its regulations.

Although the role of buyers’ reps under the lead-based paint disclosure law is unclear, there’s no need for concern so long as brokers and associates are proactive. The safest course? Develop systems that ensure buyers have received the appropriate lead-based paint disclosures (both federal and any required in your state) before they sign a contract. That way, you’ll have happy clients, content regulators, and less contact with those pesky lawyers.

Lead-paint disclosure checklist

To comply with federal lead-based paint regulations, make sure you follow this checklist during the transaction and have buyers, sellers, and sellers’ agents sign off on each item.

  • Inform the sellers of their obligation to disclose any known lead-paint hazards in the home.
  • Obtain signed acknowledgment that sellers have been informed of their need to disclose known lead-paint hazards.
  • Obtain completed lead-based paint disclosure form of known hazards from sellers, and have buyers sign the form to indicate that sellers have provided them.
  • Provide any available records or reports pertaining to the presence of lead-based paint or lead-based paint hazards.
  • Obtain any supplemental reports that show testing of the property or other activity relating to the property, if applicable.
  • Provide prospective buyers with the federally approved pamphlet on lead, “Protect Your Family from Lead in Your Home.” (It’s available in packages of five from the National Association of REALTORS® by calling 800/874-6500 or by visiting REALTOR.org/Store.)
  • Inform buyers that they have 10 days to conduct a property risk assessment for the presence of lead-based paint or hazards.
  • Where applicable, obtain a waiver of risk assessment from buyers.
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