Why this matters: Learn about the federal lead-based paint disclosure and how to timely disclose to buyers the existence of a lead-based paint hazard on residential properties built prior to 1978.
Follow along with an audio reading of this article adapted as a chapter from our upcoming Real Estate Practice course update.
Crystal clear awareness for users
An agent arranges a meeting with the seller of an older single family residence (SFR) regarding entering into a seller representation agreement to market the property for sale. Prior to the meeting, the agent gathers facts about the property, title conditions and recent sales or similar property to determine the range of its likely market value.
As the first step, the agent pulls a property profile on the SFR from a title company website or online property information service. On receipt of the profile, the agent confirms their suspicion the structure was built prior to 1978.
The agent confirms the property is the target of state and federal environmental protection disclosure programs designed to prevent the poisoning of children by the presence of lead-based paint.
To prepare documents for the meeting, the agent fills out the seller representation agreement and attaches all the information disclosure forms needed to properly market the property and locate a buyer, called a marketing package. [See RPI Form 102 §7]
At the meeting with the seller, the agent lays out the requisite representation and marketing requirements needed to most effectively market the property for sale.
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Read more about lead-based paint.
Disclosure of lead-based paint conditions
Among other informational forms for this pre-1978 SFR property, the seller agent includes two forms which address lead-based paint conditions on the property:
- the Federal Lead-Based Paint (LBP) Disclosure [See RPI Form 313]; and
- the California Transfer Disclosure Statement (TDS). [See RPI Form 304]
During the review of the representation agreement with the seller, the seller agent explains the seller’s legal obligations owed to prospective buyers and buyer agents to provide them with all property information:
- known to the seller or readily available to the seller or the seller agent by observation or inquiry; and
- which might adversely affect the value or use of the property.
Further, the seller is made aware the agent will prepare a marketing package setting forth all known and knowable conditions which might adversely affect a buyer’s use of the property. The initial purpose for the seller is to comply with mandated disclosures of conditions a buyer might consider adverse to their intended use of the property.
However, the seller agent’s — or seller’s — negotiations with a buyer and their buyer agent mandates delivery of a marketing package containing all property disclosures to the buyer:
- as soon as practicable (ASAP) on the buyer’s inquiry for more information; and
- always before the seller enters into a purchase agreement.
With timely disclosures, the seller agent, and thus the seller, avoids renegotiations and demands from the buyer for a price correction, repairs or cancellation of their purchase agreement. [Jue v. Smiser (1994) 23 CA4th 312]
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Duties of the seller agent
Again, a seller agent’s disclosure to a prospective buyer about adverse conditions on the property are mandated to take place before entering into a purchase agreement. However, the seller agent is not obligated to review or explain to the buyer the effects of the disclosed facts. Application of the facts disclosed and the potential consequences flowing from the facts which may affect the prospective buyer’s use, possession or ownership of the property are not among the seller agent’s general duties owed to buyers.
However, federal LBP rules do require the seller agent to advise the seller about their need to make the required disclosures to a prospective buyer before they enter into a purchase agreement.
Editor’s note — The seller has no obligation to have the property inspected or a report prepared on the presence of lead-based paint or any lead-based paint hazards. Also, the seller need not perform any corrective work to clean up or even eliminate the lead-based paint conditions, unless agreed to with the buyer. [24 Code of Federal Regulations §35.88(a); 40 CFR §745.107(a)]
Thus, the seller facilitates the LBP disclosure requirement and their agent’s marketing efforts by:
- filling out and signing the federal LBP disclosure form required on all pre-1978 residential construction [See RPI Form 313];
- filling out and signing the TDS containing the lead-based paint, environmental and other property conditions [See RPI Form 304]; and
- providing the seller agent with copies of any reports or documents containing information about lead-based paint or lead-based paint hazards on the property.
Related Client Q&A:
Client Q&A: What do I need to know about lead-based paint disclosure?
Lead-based paint and hazards
Lead-based paint is any surface coating containing at least:
- 1.0 milligram per square centimeter of lead; or
- 0.5% lead by weight. [24 CFR §35.86; 40 CFR §745.103]
The Federal Consumer Product Safety Commission banned the use of lead-based paint beginning with 1978.
A lead-based paint hazard is any condition which causes exposure to lead from lead-contaminated dust, soil or paint which has deteriorated to the point of causing adverse human health effects. [24 CFR §35.86; 40 CFR §745.103]
Editor’s note — A list of statewide laboratories certified for analyzing lead in hazardous material, including paint, is available from the National Lead Information Center at (800) 424-LEAD. Lists are also available on the EPA’s website.
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LBP disclosure content
The LBP disclosure form includes the following:
- the Lead Warning Statement as worded in federal regulations [See RPI Form 313 §1];
- the seller’s statement disclosing the presence of known lead-based paint hazards or the seller’s lack of any knowledge of existing lead-based paint [See RPI Form 313 §2];
- a list of records or reports available to the seller which indicates a presence or lack of lead-based paint, which have been handed to the seller agent [See RPI Form 313 §2.2];
- the buyer’s statement acknowledging receipt of the LBP disclosure, any other information available to the seller and the lead hazard information pamphlet entitled Protect Your Family From Lead in Your Home [See RPI Form 313 §3.1; see RPI Form 316-1];
- the buyer’s statement acknowledging the buyer has received a ten-day opportunity to inspect the property for lead-based paint or has agreed to reduce or waive the inspection period [See RPI Form 313 §3.2];
- the seller agent’s statement noting the seller has been informed of the seller’s disclosure requirements and the agent’s duty to ensure the seller complies with the requirements [See RPI Form 313 §4]; and
- the signatures of the seller, buyer and seller agent. [24 CFR §35.92(a)(7); 40 CFR §745.113(a)(7)]
The seller and the seller agent each keep a copy of the disclosure statement signed by all involved for at least three years from the close of escrow. [24 CFR §35.92(c); 40 CFR §745.113(c)]
Further, the written language of the disclosure form needs to match the language of the purchase agreement. For example, when the purchase agreement is in Spanish, then the LBP disclosure will also be in Spanish. [24 CFR §35.92(a); 40 CFR §745.113(a)]
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Form-of-the-Week: Lead-Based Paint Disclosure and Hazards Disclosure Booklets – Forms 313 and 316-1
Opportunity to evaluate risk
A prospective buyer of a residence built prior to 1978 is put on notice of LBP conditions by the seller agent handing them the disclosure forms when the buyer requests further property information ASAP on the seller agent’s earliest opportunity.
The disclosures advise the buyer they have a ten-day period after the seller accepts their offer to evaluate the lead-based paint risks involved. The buyer may agree to a lesser period of time or simply waive all their rights to the federally permitted risk evaluation period.
However, the buyer may not waive disclosures about the SFR property conditions using an “as-is” sale provision or otherwise. [See RPI Form 313; 40 CFR §745.110(a)]
Related video:
Watch more about property disclosures.
Pre-contract disclosures avoid cancellation
Consider a prospective buyer who indicates an interest in buying a pre-1978 residential property. The seller agent hands the prospective buyer or their buyer agent a lead-based paint disclosure signed by the seller of the property which discloses lead-based paint is known to exist on the property.
The prospective buyer is also handed independent reports and documents related to the existence of lead-based paint on the property.
Eventually, the prospective buyer and the seller enter into a purchase agreement but do not waive the ten-day contingency for a lead-based paint risk evaluation.
After the seller’s acceptance of the offer, the buyer has the property inspected. The inspector’s report states lead-based paint exists as stated in the seller’s disclosure documents. The buyer now seeks to cancel the purchase agreement due to the presence of lead-based paint.
May the buyer refuse to complete the purchase of the property due to the existence of the lead-based paint as previously disclosed by the seller?
No! The buyer had full knowledge of the presence of lead-based paint and any lead-based paint hazards prior to the seller’s acceptance of the purchase agreement offer. Thus, the buyer agreed to purchase the property as disclosed. Also, the purchase agreement did not contain conditions calling for removal or abatement of the disclosed existence of lead-based paint.
The risk evaluation period only enables the buyer to cancel when the seller fails to disclose the presence of any lead-based paint or lead-based paint hazards prior to acceptance.
Thus, prior to the buyer entering the purchase agreement, the buyer was put on notice — symmetry of property information — about the presence of lead-based paint on the SFR property. When timely disclosed, the buyer may not later, when under contract, use the existence of lead-based paint as justification for cancellation of the purchase agreement.
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Disclosure exemption
Exempt from the Federal LBP disclosures are foreclosure sales of residential property, such as a trustee’s foreclosure sale or a sheriff’s sale. [24 CFR §35.82(a)]
Yet, a foreclosing mortgage servicer still has a common law duty to disclose property defects known to them at the time of the foreclosure sale. A foreclosing mortgage servicer is not protected from liability for intentional misrepresentation (negative fraud by omission — deceit) when the property is sold “as-is” at a foreclosure sale and the foreclosing mortgage servicer fails to previously disclose a known defect to the bidders. [Karoutas v. HomeFed Bank (1991) 232 CA3d 767]
However, the LBP foreclosure exemption does not apply to the resale of housing acquired by the mortgage servicer at a foreclosure sale, commonly called real estate owned (REO), or to the resale by a third-party bidder who acquired the property at a foreclosure sale.
Thus, when a mortgage servicer or other bidder acquires property at a foreclosure sale and is reselling it, the resale needs to comply with the lead-based paint disclosure requirements. [61 Federal Register 9063]
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