BARRISTER'S BRIEFING: Refresher on Requisite Client Disclosures

Although Realtors and all Licensees are cautioned against practicing law without a license (which includes the giving of legal advice), they are permitted however to give up-to-date and accurate legal information. As such, this article will address the requisite forms currently required for landlords in New York at the time of the execution of a lease. It will also address the Property Condition Disclosure Statement required of sellers. These forms are a starting point and additional disclosures may be required by local law at the time of signing of the lease or purchase contract.

Sprinkler Disclosure (for Landlords)

New York Real Property Law, Article 7, Section 231-a requires that all residential leases entered into on or after Dec. 3, 2014 must disclose whether or not there is a fire safety sprinkler installed within the rental unit. The law, while defining a sprinkler system, does not define a “lease” or “premises.” The law makes no exceptions for premises that are governmentally regulated or run.

The law covers main leases and subleases, new leases and renewal leases. However, while stating what exists, the law currently has no enforcement mechanism and no penalty for noncompliance. Suffice to say, since a penalty mechanism could later be promulgated through amending the statute, or by regulation, landlords are cautioned against non-compliance.

Lead Paint Disclosure (for Landlords and Sellers)

In 1996, the U.S. Environmental Protection Agency and the U.S. Department of Housing and Urban Development released joint regulations (24 CFR Part 35) regarding disclosure of known lead-based paint information by entities selling or leasing residential real estate, including co-ops and condominiums.

The regulations apply to the sale and leasing of housing built pre-1978, when the use of lead paint was banned. Owners and lessors of pre-1978 buildings must:

• Provide purchasers and lessees with a lead information pamphlet (available online at www.epa.gov/getleadsafe).

• Disclose the presence of known lead-based paint.

• Give the purchaser or lessee any existing records or reports pertaining to the presence of lead-based paint.

• Give appropriate disclosure language in either the contract of sale or the lease (sellers and landlords should seek the advice of private counsel for this form of tailored legal advice).

Sellers, specifically, must also provide buyers with a 10-day opportunity to conduct an inspection for the presence of lead-based paint before being obligated on the contract, although this inspection may be waived by the purchaser. Alternatively, the parties may agree on a different time period for the inspection. It is a sound idea to use a disclosure rider for all leases on pre-1978 apartments. This rider must:

• Be signed by the lessor, the lessee and any applicable agents.

• Disclose the presence of any known lead-based paint and lead-based paint hazard, or indicate lack of knowledge regarding either.

• Include a statement to be signed by the lessee acknowledging receipt of the disclosure and the required pamphlet on lead, and a statement by any agent involved that the agent has informed the cooperative or condominium and its board of its obligations (if applicable).

The EPA has developed sample disclosure formats for leases. Copies can be obtained from the EPA website at www.epa.gov. Sales contracts must also include specific disclosures and acknowledgements, the drafting of which should be completed by private counsel.

These regulations are not applicable to the following:

• Housing built after 1977 (whether for sale or lease).

• Any housing for the elderly or disabled and any housing in which the living area is not separated from the sleeping area e.g. efficiencies or studio apartments.

• Properties sold by way of foreclosure.

• Pre-1978 rental housing found to be free of lead-based paint.

• Short-term leases for 100 days or less (such forms of leases may otherwise be prohibited by local law).

• Lease renewals if the information required by the regulations have been previously disclosed in the original lease.

The regulations only require disclosure of known information. Neither a seller nor a landlord is required to independently investigate such information regarding the presence of lead-based paint if not already known. Once the presence of lead-based paint is known, however, it must be disclosed. Failure to comply can result in penalties of up to $10,000 for each violation.

Failure to comply is also an independent violation of a federal statute known as the Toxic Substances Control Act, 15 U.S.C. §2601 et seq. (1976) The Toxic Substances Control Act of 1976 provides the EPA with authority to require reporting, record-keeping and testing requirements, and restrictions relating to chemical substances and/or mixtures. Certain substances are generally excluded from TSCA, including, among others, food, drugs, cosmetics and pesticides.

The act also allows for awards of triple damages to the purchaser or lessee against any person who knowingly violates it. Finally, a court can award court costs, reasonable attorneys’ fees and expert witness fees to an individual who prevails in an action against the building under this act.

Property Condition Disclosure Statement (for Sellers)

As a response against the common law doctrine of caveat emptor (“let the buyer beware”), the New York legislature created the Property Condition Disclosure Act, N.Y. Real Prop. Law §§ 460-467, which became effective in 2002.

As such, sellers must make certain disclosures (the form of which is available at the New York Department of State website, www.dos.ny.gov) under the law or pay a credit of $500 to the buyer at closing. The PCDA applies to “residential real property,” which the law defines as a one- to four-family dwelling that is either actually used as a home or residence by one or more people, or intended to be used as a home or residence by one or more people

The term does not include condominium units, cooperative apartments, vacant land on which the owner intends to build a residence, or property in a homeowner’s association that is not owned by the seller. (N.Y. Real Prop. Law §461(5).) The law applies to all contracts for the purchase of “residential real property,” including long-term installment contracts and leases with either an obligation or an option to purchase the property. (N.Y. Real Prop. Law §461(4).)

Sellers are not obligated to complete and deliver the disclosure statement for certain types of property transfers that are exempt from the PCDA.

Such exemptions include:

• Transfer ordered by the court in a lawsuit including probate, mortgage foreclosure, bankruptcy, legal partition, or divorce.

• Transfer to another co-owner of the property, or to your spouse or a relative from a common ancestor or descendant.

• Transfer that has not been ordered by a court, but is part of the settlement of a family law proceeding.

• Transfer to the State of New York, or any other unit of local government, if part of condemnation proceedings, or otherwise.

• Transfer of newly constructed property that is uninhabited, and has not been occupied previously.

• Transfer to your lender to prevent foreclosure or satisfy a mortgage transfer made to distribute the property according to fiduciary responsibilities in a probate proceeding.

By providing the aforementioned forms at the time of the signing of the lease or purchase contract, not only will landlords and sellers keep themselves out of legal hot water, but they will foster trust with their tenants and buyers, an immeasurable benefit in this competitive market for Realtors.

Editor’s Note: The foregoing is for informational purposes only. For a legal opinion specific to your situation, please consult with an attorney-at-law in your jurisdiction.

Leon Cameron, Esq.
Leon Cameron, Esq., is Director of Legal Services & Professional Standards Administrator for the Hudson Gateway Association of Realtors.