The Realities of Real Estate: Ruling on lead paint law rocks the rental market

The Realities of Real Estate: Ruling on lead paint law rocks the rental market

Source: http://www.hometownannapolis.com, January 22, 2012
By: Bob & Donna McWilliams

When anyone purchases or rents a place to live, above all, they want it to be safe. Our home is our refuge, and it’s important to be aware of anything that could challenge our security or sense of well-being.

Those challenges can come in many forms. The presence of high crime might be the first thing that comes to mind, but there are also less obvious concerns that can be equally threatening to the quiet enjoyment of our home. Nearby industry, power plants or military installations might cause excessive amounts of pollution or noise, and even within the house itself, there are issues to be mindful of in protecting your health and safety. Things like mold, asbestos and lead paint are but a few examples.

Recently, there have been changes in the laws governing how we address lead paint. These changes will have a dramatic and far-reaching effect on the housing market. But, before we get into that, let’s first review why lead paint is a concern and what has been done to date in an effort to protect real estate consumers.

Just as lead used to be in our gasoline because it made engines perform better, lead was also commonly found in paint because it improved coverage and durability. Millions of homes were covered with lead paint. In its day, it was considered a high-quality product.

But, as with leaded gasoline, we discovered that lead paint posed a health hazard. Whether it be inhaled or consumed by mouth, lead paint can be especially harmful to pregnant women and young children. Specifically, lead poisoning can produce attention deficit disorders, learning disabilities, convulsions, hyperactivity, violent behavior, mental retardation, and loss of hearing, motor control and balance. The reason children are so vulnerable is two-fold. First, their young, developing mind and body are more susceptible to lead’s toxicity than the body of an adult. Second, lead paint actually tastes “sweet,” which encourages youngsters to eat flakes or chipping paint that they might find around the house.

Due to the obvious danger, lead paint has been banned in the United States for many years. Nevertheless, older homes can still have the stuff. Especially in a historic town like Annapolis, lead paint is common. It might be right on the surface, or it could be buried under many coats of subsequent paint jobs. It could even be found in the soil from a day past when the house was scrapped and painted.

When selling or renting a house that was built prior to 1978, the seller/landlord must provide the buyer/tenant with certain disclosures regarding lead paint. Specifically, if they know lead paint is present or have any reports/testing pertaining to lead paint, a seller/landlord must communicate this to the buyer/tenant. Additionally, it is also required that the seller/landlord provide the prospective buyer/tenant with an Environmental Protection Agency pamphlet that helps people understand the potential issues and dangers of lead paint poisoning.

If a property was built before 1950, and the intent is to rent that property, it must also be registered with the Maryland Department of the Environment (MDE). By having the house registered with the MDE, two things are accomplished.

First, the MDE will inspect the property and require that it be made “lead safe.” That doesn’t necessarily mean lead-free. With approved lead paint risk reduction techniques and abatement procedures, primarily through encapsulation and the elimination of any flaking or peeling paint, a house can still have lead paint, but be made safe.

Second, registering with the MDE has heretofore provided landlords with a limit on the liability they might assume for damages to tenants as a result of lead paint poisoning. Under a law established in 1994, the potential financial risk to a landlord registered with the MDE, and in compliance with their standards, was limited to $17,000.

The availability of this $17,000 limit is where we have recently seen some big changes. On Oct. 24, 2011, the Maryland Court of Appeals declared that the $17,000 monetary cap was unconstitutional. Consequently, the sky is now the limit on financial damages against landlords in civil lawsuits pertaining to lead paint.

The effect of this ruling will be both good and bad.

If you’re the parent of a child who has been poisoned by lead paint and is permanently disabled due to a negligent landlord, $17,000 in compensation was hardly adequate, and lifting the limit is clearly appropriate.

However, if you’re a landlord who has been complying with the MDE requirements necessary to make a rental property lead safe, you are now suddenly exposed to almost unlimited financial liability. And, as we all know, despite one’s best efforts, anything can happen in court, and a lawyer may be able to prove that even though a landlord is complying with lead safe regulations, they still failed to show due diligence.

The significantly expanded liability for landlords can also extend to other parties involved with a rental transaction, people like real estate agents or property managers. Without the traditional business protections of limited liability, much of the rental business could ultimately come to a grinding halt.

As always, changes in the law will unleash the byproduct of unintended consequences. Although making sufficient compensation to lead paint victims is a noble and needed cause, the effect of unlimited liability for landlords and others involved with the process will likely produce a shortage in the availability of rental housing, as well as an increase in rental rates. Therefore, the very people this legal ruling is intended to protect may also be harmed in their ability to find affordable housing.

The initial step in lead poisoning prevention was highly successful. Since the MDE instituted its requirements on landlords in 1994, along with the associated carrot of a $17,000 liability limit, the Baltimore Sun reports that the number of lead poisoning cases in Baltimore City has dropped by 98 percent. That’s a significant achievement given that most of 100,000 rental units in the city contain lead paint.

Going forward, there will likely be additional changes to lead paint laws in an effort to strike a practical balance between tenant rights/protection, just compensation for victims of negligence associated with lead paint, and levels of liability that will permit the ongoing availability of reasonably priced rental housing. If that can’t be achieved, then the ability to rent a property built prior to 1978 might become a thing of the past.

In a place like Florida, where much of the housing is fairly new, that might not be an issue. But in a place like Maryland, where many of the homes, especially rental properties, tend to predate 1978, taking that amount of rental stock offline would have a severe impact.

Some might suggest making older homes lead free, but short of gutting a house, that’s a difficult and expensive proposition that would also drive up rental rates. The Maryland Legislature urgently needs to bring the interested parties together and find a solution that will be acceptable to everyone. In the meantime, the rental market is going to be a bit of a mess.

Leave a Reply

Your email address will not be published. Required fields are marked *