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Mar. 11, 2010

Guest Column: EPA Lead-based Paint Disclosure Rule Violations

Dave Monz

By David J. Monz, Esq. and Eileen P. Conneely, Esq.

Despite the fact that the EPA Lead-based Paint Disclosure Rule has been in effect for more than a decade, real estate companies and other residential property owners continue to run afoul of the disclosure requirements. An ongoing enforcement initiative in which EPA Region 1: New England has targeted such companies has resulted in 44 enforcement actions since 2001 totaling over one million dollars in penalties and 7.4 million dollars in Supplemental Environmental Projects/settlement costs. The number of enforcement actions has increased each year since 2005, with eight such actions filed in 2009. Below we detail recent EPA Region 1 enforcement activity and the actions property owners and managers must take to comply with the rule when leasing pre-1978 housing.

Who does the Disclosure Rule affect?

This rule applies to all owners and managers of residential housing built before 1978 not specifically exempted. Property owners, property managers and real estate agents share responsibility equally for providing the information required under the Disclosure Rule.

Eileen Conneely

Approximately three-quarters of the housing in the United States built before 1978 contains lead-based paint. If properly managed and maintained, such paint poses little risk. If allowed to deteriorate, however, lead-based paint can pose a threat to human health. Lead affects virtually every system of the body, and children under six years of age are especially vulnerable to lead paint exposure, which can cause delays in physical and mental development, reading and learning disabilities, reduced attention span, hyperactivity and behavioral problems, neurological and renal damage, stunted growth, and hearing loss. Adults with high blood lead levels can suffer high blood pressure, difficulties during pregnancy, nerve disorders, memory problems, muscle and joint pain, seizures, coma and death. In 2009, the United States Environmental Protection Agency (EPA) characterized lead poisoning as the number one environmental hazard threatening children in the U.S.

In 1996, EPA and the United States Department of Housing and Urban Development (HUD) jointly issued a final rule entitled “Lead; Requirements for Disclosure of Known Lead-Based Paint and/or Lead-Based Paint Hazards in Housing,” (the Disclosure Rule). The rule was designed to ensure that families receive specific information on the lead history of housing as well as general information on lead exposure prevention. The requirements of the Disclosure Rule are detailed below.

Despite the fact that the Disclosure Rule was issued more than a decade ago, EPA continues to find widespread violations by residential property owners and property management companies, and EPA has responded with aggressive enforcement. Below we detail recent significant EPA New England enforcement activity, and discuss what actions residential property owners and property management companies must take to ensure compliance.

I. EPA Region 1 Aggressively Targeting Landlords and Property Owners for Violations of the Lead-based Paint Disclosure Rule

In 2000, EPA New England set forth its “Lead Agenda” with the goal of eliminating medically confirmed blood lead levels greater than 10 ug/dL among children under six years of age by 2010. This goal was to be met using three strategic objectives: building infrastructure; increasing the effectiveness of outreach and education; and increasing compliance and enforcement. Since that time, EPA New England has initiated 44 lead-based paint related civil and criminal enforcement cases to ensure landlords, property owners and property managers are complying with the Disclosure Rule. The number of actions filed has increased steadily since 2005, with eight such enforcement cases filed in 2009. A number of the most significant recent enforcement actions brought by EPA New England are highlighted below:

Community Builders – Mass. and Conn.– $2.1 million settlement

In March 2009, EPA settled an enforcement action brought against The Community Builders, Inc. (“TCB”), a large Massachusetts-based real estate corporation, for violations of the Disclosure Rule involving nearly 300 separate lease transactions between 2003 and 2006. The most significant violations included TCB’s failure to provide an EPA-approved lead-hazard information pamphlet to 246 tenants and disclose the presence of known lead-based paint or lead-based paint hazards. Under the terms of the settlement, TCB agreed to pay a $200,000 penalty and spend over $1.9 million on a Supplemental Environmental Project (“SEP”), which included the replacement of windows and the abatement of interior and exterior friction and impact surfaces containing lead-based paint.

Mayo Development Group, LLC – Boston – $180,000 settlement

In September 2008, EPA agreed to an $180,000 settlement of its enforcement action against the Mayo Development Group, LLC (“Mayo”), a Boston-based real estate company. As the result of an EPA inspection at Mayo’s offices, EPA determined that Mayo failed to provide an EPA-approved lead hazard information pamphlet and failed to provide a statement disclosing the presence of known lead-based paint and/or lead-based paint hazards to 33 tenants. The settlement included a civil penalty of over $28,000 and a $152,420 SEP, which included replacement of 157 windows containing lead-based paint.

Chestnut Hill Realty – Boston – $317,000 settlement

In February 2008, EPA agreed to a settlement with Chestnut Hill Realty, a Boston-based property management company, and associated property owners totaling over $317,000 to resolve allegations that the companies violated the Disclosure Rule at rental properties in Boston and Rhode Island. The most significant violations included failure to disclose known lead-based paint hazards and provide records regarding those hazards to 135 tenants, and failure to provide a copy of an EPA-approved lead hazard information pamphlet to 41 tenants. The settlement included a civil penalty of over $28,000 and a $289,500 SEP, which included the replacement of 190 windows containing lead-based paint.

Edgewood Village, Inc., F.O.H., Inc., and Yedidei Hagan, Inc. – New Haven, Conn.– $182,000 settlement

In February 2008, EPA settled an enforcement action brought against three closely-related New Haven, CT non-profit housing corporations, Edgewood Village, Inc., F.O.H., Inc. and Yedidei Hagan, Inc., for violations of the Disclosure Rule. Following an EPA inspection of the housing corporations’ offices, EPA determined that the corporations failed to provide an EPA-approved lead hazard information pamphlet to 19 tenants, failed to disclose the presence of known lead-based paint or lead-based paint hazards and/or provide available records of known lead-based paint or lead-based paint hazards to 19 tenants and failed to include the Lead Warning Statement in each contract to lease target housing for 18 tenants. EPA also sought a 25% culpability enhancement for violations of the Disclosure Rule because, contrary to claims, documentary evidence demonstrated that the corporations had knowledge of the violations . The $182,000 settlement included a $20,000 civil penalty and $110,000 to be spent on two SEPs, the first to replace 214 windows, sashes, frames and sills, and the second to abate other lead-based paint hazards. An additional $52,000 spent on lead-based paint abatement work during the litigation was incorporated into the settlement.

Renaissance Management Company, Inc., BHP Associates Limited Partners, GAB Hill Limited Partners, Renaissance Hill LP, and Beechwood Gardens, LP – New Haven Conn. – $432,000 settlement

In September 2007, EPA settled an enforcement action brought against Renaissance Management Company, Inc., a New Haven, CT-based real estate management company, and four of its real estate partnerships, for failure to inform tenants of potential lead-based paint or lead-based paint hazards. The $432,000 settlement included a $32,000 fine and a $400,000 SEP that involved testing of lead-based paint hazards, replacing or abating all windows and abating all other lead-based paint hazards in every property the companies owned and/or managed.

Winn Companies – Mass. – $3.8 million settlement

In September 2004, EPA and HUD settled an enforcement action against Winn Companies, a Boston-based real estate company, for alleged failure to disclose potential lead-based paint or lead-based paint hazards to its tenants in numerous states. Under the settlement, the company paid a $105,000 civil penalty and undertook an SEP costing over $3.7 million, abating lead-based paint hazards from 10,400 apartments in seven states and the District of Columbia.

II. Requirements of the Lead-based Paint Disclosure Rule

Under the Disclosure Rule, sellers and lessors of target housing, defined as housing constructed before 1978, must complete the following activities before a purchaser or lessee becomes contractually obligated to purchase or lease such housing:

– The seller or lessor must provide to the purchaser or lessee an EPA-approved lead hazard information pamphlet called Protect Your Family From Lead in Your Home.

– The seller or lessor must disclose to the purchaser or lessee the presence of any known lead-based paint and/or lead-based paint hazards in the housing being sold or leased. The term “lead-based paint” is defined as paint or other surface coatings that contain lead equal to or in excess of 1.0 milligram per square centimeter or 0.5 percent by weight. The term “lead-based paint hazard” is defined as any condition that causes exposure to lead from lead-contaminated dust, lead-contaminated soil, or lead-contaminated paint that is deteriorated or present in accessible surfaces, friction surfaces or impact surfaces that would result in adverse human health effects as established by the appropriate federal agency.

– The seller or lessor must provide to the purchaser or lessee any available records or reports pertaining to the presence of lead-based paint and/or lead-based paint hazards in the housing being sold or leased (summaries of these records, if prepared by a certified inspector, meet the requirements of the Rule, as long as the seller or lessor provides purchasers or lessees the opportunity to review the complete documents and receive copies of such documents at no cost).

– Any contract to sell or lease target housing must include an attachment containing a Lead Warning Statement, the language of which is prescribed by the regulations, certain disclosure and acknowledgment statements, and signatures of the seller/lessor, the agent, and the purchaser/lessee certifying to the accuracy of their statements.

Sellers of target housing must also provide purchasers with a 10-day period within which to conduct a risk assessment or inspection for the presence of lead-based paint and/or lead-based paint hazards before the purchaser becomes obligated under any purchase contract. This 10-day period of time may be varied by mutual agreement or waived, in writing, by the purchaser.

Significantly, any “agent” of the seller or lessor, defined as any party who enters into a contract with a seller or lessor for the purpose of selling or leasing target housing, must “ensure compliance” with the regulations. In order to do so, an agent must (1) inform the seller or lessor of his/her obligations under the regulations, and (2) either ensure that the seller or lessor has performed all activities required or personally ensure compliance with the regulatory requirements. Property owners, property managers and real estate agents equally share responsibility for providing lead disclosure information.

The regulations are extremely broad in application; however, the following transactions are excluded from the disclosure requirements:

(1)            Sales of target housing at foreclosure.

(2)            Leases of target housing that has been found to be “lead-based paint free” by a certified inspector. The term “lead-based paint free” is defined as target housing that has been found to be free of paint or other surface coatings that contain lead equal to or in excess of 1.0 milligram per square centimeter or 0.5 percent by weight.

(3)            Short-term leases of 100 days or less, where no lease renewal or extension can occur (for example, seasonal vacation rentals and most hotel/motel transactions).

(4)            Renewals of existing leases in target housing in which the lessor has previously disclosed to the lessee all information required under the regulations and no new information has come into the possession of the lessor since the time of the initial disclosure.

(5)            Sale or lease of 0-bedroom dwellings (residential dwellings where the living area is not separated from the sleeping area, i.e. efficiencies, studio apartments, dormitory housing, military barracks and rentals of individual rooms in residential buildings); or

(6)            Sale or lease of housing for the elderly or persons with disabilities (unless any child under age six resides or is expected to reside in such target housing).

III.            Sanctions

Civil Sanctions

Persons who fail to comply with the regulations are subject to significant penalties under Section 16(a) of the Toxic Substances Control Act (“TSCA”), 15 USC § 2615(a). The maximum civil penalty for each violation is up to $11,000 ($10,000 for violations occurring prior to July 28, 1997), and in certain circumstances, EPA will pursue criminal prosecution (see below). In calculating the penalty, EPA takes the following factors into consideration when determining the gravity of a violation:

- the “nature” of the violation;

- the “circumstances” of the violation; and

- the “extent” of harm that may result from a particular violation.

EPA then adjusts the penalty either upward or downward based upon the ability to pay, the history of prior violations, the degree of culpability, voluntary disclosures and other factors justice may require.

An “attitude adjustment” allows EPA to cut the proposed penalty up to 30%: a reduction of up to 10% is available for cooperation; another reduction of up to 10% is available for immediate good faith efforts to come into compliance; and EPA may reduce the adjusted proposed penalty up to 10% if the case is settled before the hearing process begins.

In addition, the regulations provide a private cause of action under which any person who knowingly violates any provision thereof may be held jointly and severally liable to the purchaser or lessee in an amount equal to 3 times the amount of damages incurred by such individual. In any such action, a prevailing buyer/lessee may also recover court costs, attorneys’ fees and expert witness fees.

Under EPA’s Self-Audit Policy, penalties are greatly reduced or waived for self-reported violations.

Notice of Noncompliance

EPA may choose to issue a Notice of Noncompliance (“NON”) when a violator has substantially complied with the requirements of the Disclosure Rule and timely disclosure has been made. Typically, if the proposed penalty is $1,000 or less following the application of downward penalty adjustment factors, EPA will issue a NON.

Criminal Sanctions

In addition to civil sanctions, any person who knowingly or willfully violates any provision of Section 409 of TSCA (15 USC § 2689) is subject to misdemeanor criminal sanctions. These sanctions include imprisonment for not more than one year, as well as a criminal fine of not more than $25,000 for each day of violation.

(David J. Monz is a principal in the Environmental Practice Group at Updike, Kelly & Spellacy, P.C. He can be reached at 203-786-8303. Eileen P. Conneely is an associate in the Environmental Practice Group at Updike, Kelly & Spellacy, P.C. She can be reached at 203-786-8317.)

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