VIRGINIA DISCLOSURE LAW & 2020 LEGISLATIVE UPDATE

The 2020 Virginia General Assembly session yielded several important revisions to the Virginia Residential Property Disclosure Act (the “Act”) (Code of Virginia §§ 55.1-700 et seq.). This article will discuss these changes as well as the most frequently asked questions on the Legal Hotline regarding the Act and other Virginia disclosure laws.

Q. What properties are covered by the Act?

The Act applies to the sale, exchange, installment sale, or lease with the option to purchase residential real property improved with one to four dwelling units. The Act does not apply to every transaction. Some of the exemptions include transfers pursuant to certain court orders; transfers by foreclosure or in bankruptcy; transfers between co-sellers or spouses; and sales of new homes. A complete list of exemptions is located at § 55.1-702.

Q. What does the Act require?

Prior to contract ratification, the Act requires the seller to provide the buyer a notification via a form developed by the Real Estate Board (“Acknowledgment”) that buyer beware of the disclosures found in the Residential Property Disclosure Statement (the “Statement”). A copy of the Statement can be found here. A copy of the Acknowledgment can be found here.

Effective July 1, 2020, the Acknowledgment has been updated to include a statement that the buyer has been advised of the disclosures listed in the Statement. Previously, the Acknowledgment merely instructed the buyer to review the disclosures listed in the Statement by directing the buyer to the Real Estate Board’s website. This revision means that that anyone who signs the form acknowledges that the buyer has been advised of the disclosures, and not simply directed to the Real Estate Board’s website.  The simplest way to ensure that buyer has been advised of the disclosures is to provide the Statement with the Acknowledgment.

 The 2020 Virginia General Assembly also added six new disclosures to the Statement, including lead pipes (HB1161 / HB1342) marine clays (marumsco soils) (HB174), EPA Radon Zones (HB175), residential building energy analysis (HB518 / SB628), defective drywall (HB1342) and the condition of dam/impounding structures (HB1569 / SB343).

Disclosures regarding stormwater detention faculties were removed from the Statement and are now mandatory, affirmative disclosure obligations of the seller (discussed below). 

Q. What other disclosures are required under the Act? Are there any other Virginia statutes that impose disclosure obligations on sellers?

In addition to advising the buyer of the Statement disclosures, the Act also imposes certain affirmative disclosure obligations on the seller. In each case, the seller must have “actual knowledge” of the particular facts subject to disclosure. Actual knowledge generally means that the seller has direct knowledge of the subject matter. Under the Act, a seller with actual knowledge of the following must disclose such to the buyer before contract ratification:

1. Military air installation (§ 55.1-704) – If the property is located in a locality in which a military air installation is located, seller shall disclose whether the property is located in a noise zone or accident potential zone, or both, if so designated and the specific zone in which the property is located according to the official zoning map. A copy of the disclosure form can be found here.
2. Pending building or zoning violations (§ 55.1-706) – If the seller has actual knowledge of any pending enforcement actions pursuant to the Uniform Statewide Building Code (§ 36-97 et seq.) that affect the safe, decent, sanitary living conditions of the property of which the seller has been notified in writing by the locality, or any pending violation of the local zoning ordinance that the violator has not abated or remedied under the zoning ordinance, within a time period set out in the written notice of violation from the locality or established by a court of competent jurisdiction. A copy of the disclosure form can be found here.
3. Property previously used to manufacture methamphetamine (§55.1-708) – If the seller has actual knowledge that the property was used to manufacture methamphetamine and has not been cleaned up in accordance with the guidelines established pursuant to § 32.1-11.7 and the applicable licensing provisions. A copy of the disclosure form can be found here.
4. Stormwater management facility (HB 859) – effective July 1, 2020, sellers with actual knowledge of any privately-owned stormwater management facility located on their property must disclose the long-term maintenance and inspection requirements. A copy of the new disclosure form can be found here.

First Sale of a Dwelling.  Under § 55.1-702(B), builders shall disclose in writing to the purchaser all known material defects which would constitute a violation of any applicable building code.

Private Septic Tank Operating Permit Waivers. Virginia Code § 32.1-164.1:1 states that any property owner/seller who obtains a waiver from the locality to repair a failing onsite sewage system in accordance with §§ 32.1-164.1:1 and 32.1-164.1:3 “ shall disclose, [prior to contract ratification], that any operating permit for the onsite sewage system that has been granted a waiver authorized by this subsection shall be null and void at the time of transfer or sale of the property and that the Board's regulatory requirements for additional treatment or pressure dosing shall be required before an operating permit may be reinstated.” Such disclosure shall be made on a form developed by the Real Estate Board. The form can be found here. If the disclosure required under § 32.1-164.1:1 is provided after ratification, buyer’s sole remedy is to void.

Lead-Based Paint and/or Lead-Based Paint Hazards.  Federal law requires that before the buyer is obligated under a contract (i.e. ratification) to purchase a property constructed prior to 1978, seller must provide and EPA approved information pamphlet and, as an attachment to the contract, a Disclosure and Acknowledgment of Information on Lead-Based Paint and/or Lead-Based Paint Hazards. Buyers of target properties may conduct a risk assessment or inspection of the property for the presences of lead-based paint and/or lead-based paint hazards. For more information, see NVAR Legal Blog Article “Lead Based Liability: Timing is Key”.

Property Owners’ Association Act / Condominium Act.  §§ 55.1-1808 and 55.1-1990 require sellers of properties subject to the respective statutes to obtain from the association a disclosure packet/resale certificate in conformity with the provisions of Property Owners’ Association Act/Condominium Act. The necessary disclosures are included in Paragraphs 8 and 9 of the NVAR Residential Sales Contract. 

Defective Drywall (HB1342)– Effective July 1, 2020, sellers are not required to disclose the existence of defective drywall, as defined in §36-156.1. The bill does not change landlords’ obligation under § 55.1-1218 of the Virginia Residential Landlord Tenant Act to disclose defective drywall to prospective tenants.  

Tourism Activity Zones. The Act also states that sellers of residential property located partially or wholly within a designated tourism activity zone established pursuant to § 15.2-982 may disclose in writing to prospective buyers or lessees that the property is located within a tourism activity zone. This disclosure is permissive and not mandatory (§ 55.1-707).

Q. When should the seller provide the disclosures?

In modern real estate practice, the buyer often makes first contact with the seller by submitting their offer via an executed contract. However, all disclosures referenced herein must be provided by the seller to the buyer before contract ratification. One method to ensure compliance is for listing agents to have sellers execute the relevant disclosure and upload to the MLS with instructions for buyers to sign and deliver with their initial offer. If the buyer delivers the Acknowledgment or other disclosure form before the seller has signed, the seller should deliver the seller-executed disclosure to the buyer before contract ratification.

Q. What if a disclosure required under the Act is not provided?

If disclosures required by the Act are provided after ratification, the buyer’s sole remedy is to terminate the contract at or prior to the earliest of:

1. Three days after delivery of the disclosure in person or by electronic delivery;
2. Five days after the postmark if the disclosure is deposited in the United States mail, postage prepaid, and properly addressed to the buyer;
3. Settlement;
4. Occupancy of the property by the buyer;
5. The buyer’s making written application to a lender for a mortgage loan where such application contains a disclosure that the right of termination shall end upon the application for the mortgage loan; or
6. The execution by the buyer after receiving the disclosure, of a written waiver of the buyer’s right of termination, in a writing separate from the real estate purchase contract.

In order to terminate the contract, the buyer must provide written notice, within the times specified above, to the seller by either: (1) hand delivery (2) U.S. mail, postage prepaid (provided that the sender retains sufficient proof of mailing, which may be a certificate of service prepared by the sender confirming such mailing) (3) electronic delivery or (4) overnight delivery via commercial service or U.S. Postal Service.

Q. What are Licensee’s Disclosure Obligations Under the Act? Are there any other statutes that apply?

Under the Act, real estate licensees, regardless of which side they represent, are required to inform their clients of their rights and responsibilities under the Act. This duty also applies to listing brokers dealing with unrepresented buyers. In practice, this means discussing the Act’s requirements with your client, directing them to the Real Estate Boards website, and if necessary, an attorney. “Provided that a real estate licensee performs those duties, the licensee shall have no further duties to the parties to a residential real estate transaction … and shall not be liable to any party to a residential real estate transaction for a violation of [the Act] or for any failure to disclose any information regarding any real property subject to [the Act].” A nearly identical duty appears in § 32.1-164.1:1(F) regarding sewage system waivers.

Real estate licensees have additional disclosure obligations outside of the Act.

Licensee shall disclose to prospective buyers/tenants all material adverse facts pertaining to the physical condition of the property which is known by the licensee. “Physical condition of the property” does not include (i) matters outside the boundaries of the land or relating to adjacent or other properties in proximity thereto, (ii) matters relating to governmental land use regulations, or (iii) matters relating to highways or public streets. Such disclosure shall be made in writing.

Pursuant to § 54.1-2131, licensees engaged by sellers, buyers, landlords, tenants, or as property managers must protect the interest of their client by disclosing “material facts related to the property or concerning the transaction of which the licensee has actual knowledge”. (§§ 54.1-2131 – 2135).

Effective July 1, 2020, licensees engaged by landlords with actual knowledge must disclose to prospective tenants the existence of “any pipe, pipe or plumbing fitting, fixture, solder, or flux that does not meet the federal Safe Drinking Water Act definition of ‘lead-free’ pursuant to 42 U.S.C. § 300g-6 in a residential property” (HB1161). The bill eliminates the required disclosure regarding defective drywall for licensees engaged by landlords. Property managers with actual knowledge must disclose to the owner that the property contains defective drywall § 54.1-2135(D).

Q: What are REALTORS’® Disclosure Obligations Under the Code of Ethics?

In addition to state law disclosure obligations, REALTORS® are also subject to the REALTOR® Code of Ethics. Article 2 of the Code of Ethics states that “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” This disclosure obligation is much broader than that under state law described above. Simply put, a pertinent fact is one that could be a determining factor in a reasonable buyer’s decision to purchase a property. REALTORS® are only obligated to discover adverse factors reasonably apparent to someone with expertise in those areas required by their real estate license. Even if a fact is not “pertinent”, Article 1 of the Code of Ethics prohibits intentional misrepresentations by REALTORS®, if directly asked

Q. What about deaths or major crimes on the property – are sellers/agents required to disclose?

§ 55.1-713 of the Act states that “no cause of action shall arise against an owner or a real estate licensee for failure to disclose that the real property was the site of: (1) an act or occurrence that had no effect on the physical structure of the real property, its physical environment, or the improvements located thereon (e.g. presence of spirits); or (2) a homicide, felony, or suicide.”

As for REALTORS®, Article 2 of the Code of Ethics likely does not require disclosure, even though such incidents may be “pertinent”. This is supported by Standard of Practice 2-5, which states, “factors defined as ‘non-material’ by law or regulation or which are expressly referenced in law or regulation as not being subject to disclosure are considered not 'pertinent' for the purposes of Article 2.”

Q. What about sex offenders – are sellers/agents required to disclose?

Contrary to popular belief, sellers subject to the Act have no obligation to disclose information on sexual offenders beyond the buyer beware disclosure in the Statement. As with homicides, information regarding sex offenders is likely “non-material” for purposes of Article 2 of the Code of Ethics since it’s expressly referenced in law or regulations as not being subject to disclosure (Standard of Practice 2-5). For more information on this topic, see the following Legal Blog post.

Q. What about polybutylene (“poly”) pipes – are sellers/agents required to disclose?

Polybutylene is a form of plastic pipe used in residential plumbing until the late-1990s. Poly-pipes are well known in the industry for their propensity to fail. Some residential insurance policies won’t cover damage from poly-pipe failures. Nevertheless, Virginia law does not require Sellers to disclose the existence of poly-pipes. REALTORS® may have a disclosure obligation under Article 2 of the Code of Ethics if the existence of poly-pipes is a “pertinent fact” of which the REALTOR® has actual knowledge. The determination of whether or not the presence of poly-pipes in a property is a “pertinent fact” for which disclosure is required is determined by a Professional Standard Hearing Panel. However, the harm from premature failure is well known, has resulted in countless news articles and lawsuits, and therefore could certainly be pertinent to a reasonable buyer.

As always, contact the Legal Hotline if you any additional questions.