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New Lead Paint Rule Affects Residential Transactions

Spring 1996

A joint U.S. EPA/federal Housing and Urban Redevelopment ("HUD") rule requiring real estate sellers and lessors to disclose lead paint hazards was finalized March 16, 1996. The rule is broad in scope and requires sellers and/or lessors, and in many instances their agents, to (1) provide purchasers and/or lessees with a lead hazard information pamphlet (obtained from U.S. EPA or HUD), (2) to disclose the presence of known lead hazards or lead paint, (3) to permit purchasers (but not lessees) a 10-day inspection period for the presence of lead hazards, and (4) requires sales contracts to include a lead warning statement acknowledged by the purchaser.

The rule does not impose a positive obligation upon a seller or lessor to conduct an evaluation of lead hazards. However, as mentioned, the seller/lessor must disclose the presence of known lead or actual lead paint or lead-based paint hazard (i.e., conditions that cause exposure to lead contaminated dust, soil or paint). Further, the seller/lessor must also disclose to its agent this same information, as well as provide purchasers or lessees with records or reports regarding lead paint removal or inspection reasonably obtainable by the seller/lessor.

Importantly, a seller or lessor must complete all required disclosure activities prior to acceptance, and before a purchaser or lessee can be obligated under a contract. In doing so, the seller/lessor must allow the purchaser or lessee an opportunity to review information and possibly amend their offer.

In addition to sellers or lessors, their agents are covered by the rule, and must "ensure compliance" with the rule (the rule does not apply to so-called "buyers" agents). To do this, an agent must inform the seller/lessor of their obligations under the rule and ensure that the seller/lessor has performed all activities required, or do so themselves. However, if the agent has informed the seller/lessor of its obligations, the agent will not be liable for its own failure to disclose to any purchaser or lessee.

While broad, the rule only covers certain "target housing." "Target housing" is any housing, except housing constructed after 1978, or "housing for the elderly" or for persons with disabilities, and so-called zero (0) bedroom dwellings. Thus, retirement communities and similar housing reserved for persons 62 and older, housing for the disabled, as well as those dwellings in which living areas are not separated from sleeping areas (i.e., 0-bedroom), and including efficiencies, studio apartments, dormitory housing, military barracks and rentals of individual rooms in residential dwellings, are not covered by the rule. In addition, the rule does not apply to the purchase, sale or servicing of mortgages or lease renewals. However, it does apply to informal lease agreements.

The rule also provides an exemption for leased dwelling units that have received and passed a federally certified inspection; but this exemption does not apply to purchases because new purchasers are required to comply with the rule as part of future transactions.

The rule is being phased in and will take effect for owners of more than 4 residential dwellings on September 6, 1996, and for those owners with 4 or fewer on December 6, 1996.

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