On Sept. 23 New York significantly amended certain sections of the
Real Property Law regarding the requirements and obligations surrounding the Property Condition Disclosure Statement with a particular focus on flood hazards in residential real estate.
These historic changes could not have been timelier, as merely one week after its passage, New Yorkers were hit with devastating rainfall and costly flood damage to many area homes.
Historically, New York has been a caveat emptor or buyer beware state with the onus of due diligence and thorough property inspections generally placed on the buyer. New York started the shift toward increased seller disclosure with the 2002 Property Condition Disclosure Act.
Regulating one- to four-family dwellings, except vacant land, co-ops and condominiums, the
Property Condition Disclosure Act originally featured a 48-question disclosure statement in connection with a real estate purchase contract.
The disclosure statement addressed a variety of items such as: (1) general information, i.e., ownership details, age of structure and cost of utilities; (2) environmental matters, i.e., radon and the exposure through leaks, spillage or otherwise of toxic substances; (3) structural matters, such as damage caused by water, smoke, fire or pest infestations; and
(4) mechanical systems such as plumbing and HVAC.
Notwithstanding the detailed questioned covered by the act, it has been largely ineffective as sellers understandably relied on an inexpensive remedy to avoid disclosure to the buyer.
Regardless of the size or value of the property, pursuant to Real Property Law Section 465, the seller could credit a buyer $500 at the time of closing and be exempt from completing the Property Condition Disclosure Act. Sellers counsel throughout New York state have generally advised their clients to give this minor credit to protect sellers from additional liability and disclosure requirements.
With the passage of the new flood disclosure bill, the disclosure requirements and details will fundamentally change effective March 20, 2024. Under the new law, sellers will no longer be able to give a $500 credit in lieu of completing the disclosure statement.
Sellers will also be required to answer an expanded disclosure form and provide comprehensive information about the property’s condition with a number of new questions on flood insurance coverage, disclosure of being in a flood risk zone, and if the seller has ever filed a claim for flood damage.
This disclosure is required to be provided to the buyer before entering into a legally binding contract of sale.
In applicable transactions, the Property Condition Disclosure Act imposes a duty upon a listing real estate broker to timely inform the seller of their obligation to deliver the disclosure form to the buyer.
The act further provides that a buyer’s real estate broker — or the seller’s real estate broker if the purchaser is not represented by a real estate broker — is required to inform the purchaser of their right to timely receive the disclosure form. Real estate brokers should never complete the disclosure form, which should be completed by the seller to the best of their actual knowledge.
It is critical that the brokerage community understand the timing requirements for this information as this could affect the negotiation process as well as understand that the seller has certain obligations to provide a revised disclosure form under certain circumstances.
These changes do not, however, modify Real Property Law Section 463.
Section 463 provides a number of exemptions to the disclosure requirement: New construction homes, foreclosures sales, estate sales and certain other fiduciary transfers remain exempt from the disclosure requirement. It is important that a seller understand early in the process if they qualify for one of the exemptions under the statute.
Clients need to be aware that the disclosure requirement is on all nonexempt transactions pursuant to a real estate purchase contract as defined in Real Property Law Section 465.
Such a contract not only applies to a traditional sale, but also to installment contracts as well as leases with a tenant option to purchase the property.
It is customary practice that many real estate agents and clients use a published form lease for a residential lease, and the addition of a mere sentence in the additional clauses section of that form document granting a tenant option to purchase could trigger a disclosure obligation with a potential liability for the unsuspecting landlord for failure to disclose.
The new amendments to the act are both timely and far-reaching. Enacting new legislation with real disclosures, with a new focus on the risk and damage from flooding, will put New
York in line with more states throughout the nation.
New York’s residential real estate market is diverse and has many different customs throughout the state. These changes will affect the duties and standard of practice for real estate brokers, with important consequences for the unprepared.
New York also has many sellers and landlords that do transactions directly; they will need to be well advised by their counsel to avoid liability and be in compliance with these fundamental shifts under the new law.
With a March 2024 effective date, the upcoming spring market will be further reshaped, as the balance between buyers and sellers have already been tremendously altered by the rapid rise in mortgage interest rates and limited inventory in recent years.
It will be the obligation of attorneys and the real estate brokerage community to help their clients navigate these new requirements and the new equilibrium of the market.
Steven R. Ebert is a partner at Cassin & Cassin LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
How NY Residential Property Condition Disclosure Is Shifting, Law 360
On Sept. 23 New York significantly amended certain sections of the
Real Property Law regarding the requirements and obligations surrounding the Property Condition Disclosure Statement with a particular focus on flood hazards in residential real estate.
These historic changes could not have been timelier, as merely one week after its passage, New Yorkers were hit with devastating rainfall and costly flood damage to many area homes.
Historically, New York has been a caveat emptor or buyer beware state with the onus of due diligence and thorough property inspections generally placed on the buyer. New York started the shift toward increased seller disclosure with the 2002 Property Condition Disclosure Act.
Regulating one- to four-family dwellings, except vacant land, co-ops and condominiums, the
Property Condition Disclosure Act originally featured a 48-question disclosure statement in connection with a real estate purchase contract.
The disclosure statement addressed a variety of items such as: (1) general information, i.e., ownership details, age of structure and cost of utilities; (2) environmental matters, i.e., radon and the exposure through leaks, spillage or otherwise of toxic substances; (3) structural matters, such as damage caused by water, smoke, fire or pest infestations; and
(4) mechanical systems such as plumbing and HVAC.
Notwithstanding the detailed questioned covered by the act, it has been largely ineffective as sellers understandably relied on an inexpensive remedy to avoid disclosure to the buyer.
Regardless of the size or value of the property, pursuant to Real Property Law Section 465, the seller could credit a buyer $500 at the time of closing and be exempt from completing the Property Condition Disclosure Act. Sellers counsel throughout New York state have generally advised their clients to give this minor credit to protect sellers from additional liability and disclosure requirements.
With the passage of the new flood disclosure bill, the disclosure requirements and details will fundamentally change effective March 20, 2024. Under the new law, sellers will no longer be able to give a $500 credit in lieu of completing the disclosure statement.
Sellers will also be required to answer an expanded disclosure form and provide comprehensive information about the property’s condition with a number of new questions on flood insurance coverage, disclosure of being in a flood risk zone, and if the seller has ever filed a claim for flood damage.
This disclosure is required to be provided to the buyer before entering into a legally binding contract of sale.
In applicable transactions, the Property Condition Disclosure Act imposes a duty upon a listing real estate broker to timely inform the seller of their obligation to deliver the disclosure form to the buyer.
The act further provides that a buyer’s real estate broker — or the seller’s real estate broker if the purchaser is not represented by a real estate broker — is required to inform the purchaser of their right to timely receive the disclosure form. Real estate brokers should never complete the disclosure form, which should be completed by the seller to the best of their actual knowledge.
It is critical that the brokerage community understand the timing requirements for this information as this could affect the negotiation process as well as understand that the seller has certain obligations to provide a revised disclosure form under certain circumstances.
These changes do not, however, modify Real Property Law Section 463.
Section 463 provides a number of exemptions to the disclosure requirement: New construction homes, foreclosures sales, estate sales and certain other fiduciary transfers remain exempt from the disclosure requirement. It is important that a seller understand early in the process if they qualify for one of the exemptions under the statute.
Clients need to be aware that the disclosure requirement is on all nonexempt transactions pursuant to a real estate purchase contract as defined in Real Property Law Section 465.
Such a contract not only applies to a traditional sale, but also to installment contracts as well as leases with a tenant option to purchase the property.
It is customary practice that many real estate agents and clients use a published form lease for a residential lease, and the addition of a mere sentence in the additional clauses section of that form document granting a tenant option to purchase could trigger a disclosure obligation with a potential liability for the unsuspecting landlord for failure to disclose.
The new amendments to the act are both timely and far-reaching. Enacting new legislation with real disclosures, with a new focus on the risk and damage from flooding, will put New
York in line with more states throughout the nation.
New York’s residential real estate market is diverse and has many different customs throughout the state. These changes will affect the duties and standard of practice for real estate brokers, with important consequences for the unprepared.
New York also has many sellers and landlords that do transactions directly; they will need to be well advised by their counsel to avoid liability and be in compliance with these fundamental shifts under the new law.
With a March 2024 effective date, the upcoming spring market will be further reshaped, as the balance between buyers and sellers have already been tremendously altered by the rapid rise in mortgage interest rates and limited inventory in recent years.
It will be the obligation of attorneys and the real estate brokerage community to help their clients navigate these new requirements and the new equilibrium of the market.
Steven R. Ebert is a partner at Cassin & Cassin LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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Steven R. Ebert
Partner
914.517.6941
sebert@cassinllp.com