United States Office of Enforcement and Office of Regulatory Enforcement

Environmental Protection Compliance Assurance Toxics and Pesticides Enforcement Division

Agency December 1999

Section 1018 - Disclosure Rule

Enforcement Response Policy

able of Contents

Final Enforcement Response Policy:

The Disclosure Rule December 1999

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Chapter 1: Introduction to the Statutory and Regulatory Authority . . . . . . . . . . . . 1

Chapter 2: Summary of Rule and Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Consultation with EPA Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II. Enforcement Response Policy Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III. Applicability to Federal Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 3: Responsible Party/Appropriate Respondent . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 4: Determining the Level of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

I. Notice of Noncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

II. Civil Administrative Complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

III. Criminal Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

IV. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

V. Multiple Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chapter 5: Assessing the Gravity-Based Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

I. Nature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

II. Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

III. Extent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 6: Determining the Number of Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 7: Adjustment Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

I. Ability to Pay/Continue in Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

II. History of Prior Such Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

III. Degree of Culpability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

IV. Other Factors as Justice May Require. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

A. Risk of Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

B. Attitude. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

C. Supplemental Environmental Projects (SEPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

D. Audit Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

E. Voluntary Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

F. Size of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

G. Adjustment for Small Independent Owners and Lessors . . . . . . . . . . . . . . . . . . . . . . . 18

H. Economic Benefit of Noncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

APPENDICES

Appendix A: Responsible Party Definitions and A Table of Scenarios. . . . . . . . . . . . . . . . . A-1

Appendix B: Penalty Matrices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1

Appendix C: Civil Penalty Worksheet Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

Appendix D: Civil Penalty Assessment Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

Final Enforcement Response Policy:

The Disclosure Rule December 1999

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The policies and procedures set forth herein are intended solely for the

guidance of employees of the EPA. They are not intended to, nor do they

constitute a rulemaking by the EPA. They may not be relied upon to create

a right or a benefit, substantive or procedural, enforceable at law or in

equity, by any person.

hapter 1: Introduction to the Statutory and Regulatory Authority

Pursuant to the Civil Monetary Penalty Inflation Adjustment Rule all of EPA’s civil monetary penalties were

increased by ten-percent, thus increasing the maximum penalty for violations of the Disclosure Rule to $11,000 per

violation 40 Code of Federal Regulations Part 19 (1998).

Final Enforcement Response Policy:

The Disclosure Rule December 1999

The U.S. Congress has found that low-level lead poisoning is widespread among American

children, affecting as many as three million children under the age of six. The Center for Disease

Control has established the level for lead poisoning at 10 micrograms/deciliter. The latest National

Health and Nutrition Examination Survey (NHANES) data indicates that there are approximately

890,000 American children with levels above 10 micrograms/deciliter. In addition, minority and low

income children are disproportionately affected. Lead poisoning in children causes intelligence

quotient deficiencies, reading and learning disabilities, impaired hearing, reduced attention span,

hyperactivity and behavior problems. The health of children living in as many as 4 million homes

in the United States is endangered by lead-based paint and/or lead-based paint hazards. In response

to this national crisis, Congress enacted Title X: Residential Lead-Based Paint Hazard Reduction Act

of 1992, 42 Unites States Section Code 4851 (“U.S.C.”)(“Title X”).

Section 1018 of Title X requires the U.S. Environmental Protection Agency (“EPA”) and the

U.S. Department of Housing and Urban Development (“HUD”) to promulgate joint regulations for

the disclosure of lead-based paint in pre-1978 housing (“target housing”) which is offered for sale

or lease. EPA and HUD jointly promulgated regulations. These regulations were published on

March 6, 1996, at 61 FR 9064, and are codified at 40 Code of Federal Regulations (“C.F.R.”) Part

745, Subpart F and 24 C.F.R. Part 35, Subpart H (“Disclosure Rule”).

This Enforcement Response Policy (sometimes referred to herein as “ERP”) addresses

violations of the Disclosure Rule and provides procedures to determine the appropriate

enforcement response to such violations.

Violations of the Disclosure Rule are subject to civil penalties under Section 16 of the Toxic

Substances Control Act, 15 U.S.C. § 2615(a) (“TSCA”). Section 1018(b)(5) specifically states:

“ It shall be a prohibited act under Section 409 of the Toxic Substances Control Act for any person

to fail or refuse to comply with a provision of this section or with any rule or order issued under this

section. For purposes of enforcing this section under the Toxic Substances Control Act, the penalty

for each violation applicable under Section 16 of that Act shall be no more than $10,000.”1

Therefore, violations of the Disclosure Rule are prohibited acts under Section 409 of TSCA.

Section 16 of TSCA states that any person who violates a provision of Section 409 shall be liable

to the United States for a civil penalty.

hapter 2: Summary of Rule and Requirement

Final Enforcement Response Policy:

The Disclosure Rule December 1999

The purpose of the Disclosure Rule is to ensure that individuals and families receive the

information necessary to protect themselves and their families from lead-based paint and/or lead-

based paint hazards. This information will help families and individuals make informed housing

decisions to reduce their risk of exposure to lead hazards.

The Disclosure Rule requires that sellers, lessors and agents must comply with certain

requirements when selling or leasing target housing. For purposes of the Disclosure Rule, “Seller”

is defined as any entity that transfers legal title to target housing, in whole or in part. The

Disclosure Rule defines “Lessor” as any entity that offers target housing for lease, rent, or sublease.

“Purchaser” is defined as an entity that enters into an agreement to purchase an interest in target

housing under the Disclosure Rule. “Lessee” is defined as any entity that enters into an agreement

to lease, rent, or sublease target housing. Finally, the Disclosure Rule defines “Agent” as any party

who enters into a contract with a seller or lessor, including any person who enters into a contract

with a representative of the Lessor or Seller, to sell or lease target housing.

The Disclosure Rule requires that before a Purchaser or Lessee is obligated under any

contract to purchase or lease target housing, certain requirements must be met. These

requirements include the following:

• Sellers and Lessors must disclose the presence of any known lead-based paint and/or lead-

based paint hazards to the Purchasers and Lessees and to any Agent;

• Sellers and Lessors must provide Purchasers and Lessees with any available records or

reports pertaining to the presence of lead-based paint and/or lead-based paint hazards in

the target housing;

• Sellers and Lessors must provide Purchasers and Lessees with an EPA-approved lead hazard

information pamphlet;

• Sellers must grant Purchasers a 10-day period to conduct a risk assessment or inspection

for the presence of lead-based paint and/or lead-based paint hazards;

• Sellers and Lessors must complete a Disclosure Form certifying compliance with the

Disclosure requirements;

• Sellers and Lessors must retain a copy of the Disclosure Form for at least three years from

completion of the transaction; and

• Each Agent involved in any transaction to lease or sell target housing must ensure

compliance with all requirements of the Disclosure Rule.

hapter 2: Summary of Rule and Requirement

Final Enforcement Response Policy:

The Disclosure Rule December 1999

The Disclosure Rule contains exclusions for the following transactions:

• Sales of target housing at foreclosure;

• Leases of target housing that have been found to be lead-based paint free by the

appropriate inspector;

• Short term leases of 100 days or less;

• Lease renewals where previous disclosure has occurred;

• The purchase, sale or servicing of mortgages;

• The sale or lease of 0-bedroom dwellings; and

• Housing for the elderly or persons with disabilities (unless any child under six (6) years of

age resides or is expected to reside in such target housing).

I. Consultation with EPA Headquarters

In the implementation of this enforcement program, EPA Headquarters is requiring that EPA

Regional Lead Coordinators (“Regions”) consult with Headquarters on a specified number of

enforcement actions to ensure consistency and to address any unique issues. Therefore, each

region must receive concurrence from Headquarters on the initial six (6) civil administrative

complaints and notices of noncompliance before issuance. The Regions must also contact and

consult with EPA Headquarters on the use of TSCA subpoenas to enforce the Disclosure Rule.

These consultation and concurrence efforts will help ensure national consistency and address issues

that arise during implementation of the Disclosure Rule enforcement program.

II. Enforcement Response Policy Applicability

This Disclosure Rule Enforcement Response Policy is immediately applicable and will be used

to determine the enforcement response and to calculate penalties in administrative enforcement

actions concerning violations of the Disclosure Rule.

III. Applicability to Federal Facilities

As discussed in Section III below, the Disclosure Rule defines “Seller” and “Lessor” to include

government agencies. Thus, when a Federal facility or government agency is the Seller or Lessor

of target housing as defined in the statute and the rule, the requirements of Section 1018 and the

Disclosure Rule apply to such facility or agency.

Section 1018(b)(5) makes a violation of the Disclosure Rule a prohibited act under Section

409 of TSCA and the facility or agency is then subject to EPA enforcement authority under Section

16 of TSCA. Section 408 of TSCA subjects each department, agency, and instrumentality of the

executive, legislative, and judicial branches of the Federal Government to all Federal, State,

interstate, and local requirements, both substantive and procedural, respecting lead-based paint,

lead-based paint activities, and lead-based paint hazards. The Federal, State, interstate, and local

substantive and procedural requirements referred to in Section 408 of TSCA include, but are not

limited to, all administrative orders and all civil and administrative penalties and fines regardless of

hapter 2: Summary of Rule and Requirement

Final Enforcement Response Policy:

The Disclosure Rule December 1999

whether such penalties or fines are punitive or coercive in nature. The Disclosure Rule contains

Federal requirements respecting lead-based paint, lead-based paint activities, and lead-based paint

hazards. Therefore, Federal facilities are subject to the Disclosure Rule requirements.

EPA thus has express penalty authority over Federal facilities. In assessing penalties against

Federal agencies, EPA will apply the Disclosure Rule Enforcement Response Policy. Before a

penalty order becomes final, Section 16(a)(2) of TSCA requires the Administrator to provide the

Federal agency with notice and an opportunity for a formal hearing on the record in accordance

with the Administrative Procedures Act. 40 C.F.R. Part 22, sets forth EPA’s general rules of

administrative practice governing the assessment of administrative penalties. The Consolidated

Rules of Practice also require that before a final order of the Environmental Appeals Board issued

to a Federal agency becomes effective, the head of the department, agency or instrumentality of

the United States to which the order was issued can request a conference with the Administrator

[40 C.F.R. § 22.31(e)].

hapter 3: Responsible Party/Appropriate Respondent

Final Enforcement Response Policy:

The Disclosure Rule December 1999

The individuals who must comply with the Disclosure Rule are sellers, lessors and agents who

are involved in the selling or leasing of target housing. The Disclosure Rule specifically addresses

the responsibilities of agents by requiring them to ensure compliance with the provisions of the

law. Agents fulfill this requirement by informing sellers and lessors of their obligations and by

making sure that these activities are completed by the seller, lessor, or the agent personally.

Accordingly, the Disclosure Rule also identifies the affirmative duty of the sellers and lessors to

disclose to their agents any known lead-based paint or lead-based paint hazards in target housing.

EPA reserves the right to exercise its enforcement prosecutorial discretion when issuing

enforcement actions against the potentially responsible party or parties. In determining the

appropriate respondent for the enforcement response, consideration must be given to the person

who has direct control over the practices for disclosure and who should be aware of the

requirement of the Disclosure Rule.

For purposes of this Enforcement Response Policy, the term “property management firm”

shall mean any entity who enters into a contract with a seller or lessor to act as their

representative for the purpose of selling or leasing target housing. For violations under the

Disclosure Rule, any notice of noncompliance issued to a property management firm must name

the agent and the property management firm as the violators. For any civil administrative

complaints, the property management firm that employs the agent generally should be named as

the sole respondent in that complaint. Notwithstanding the foregoing, EPA reserves the right to

issue a Notice of Noncompliance to a property management firm, and to name an agent as the sole

respondent in a complaint.

See Appendix A for definitions of “Responsible Party” and a chart of the most common

scenarios for both purchase and lease transactions.

hapter 4: Determining the Level of Action

Final Enforcement Response Policy:

The Disclosure Rule December 1999

The intent of the Disclosure Rule is to help to prevent exposure to lead-based paint and/or

lead-based paint hazards by requiring disclosure and notification. Once a violation has been

established with credible evidence to support a prima facie case, a determination must be made

by the Agency concerning which of the following enforcement actions may be taken: a notice of

noncompliance, a civil administrative complaint, a criminal referral, injunctive relief, or some

combination of these actions.

I. Notices of Noncompliance

In lieu of a civil administrative complaint, EPA may issue a notice of noncompliance (“NON”)

as determined on a case-by-case basis when justice would best be served. Such facts and

circumstances may occur where a violator has essentially complied with the requirements of the

Disclosure Rule and timely notification has been made. For example, an agent provided the

purchaser with the 10-day opportunity to conduct an inspection and a copy of the lead pamphlet

but failed to sign the disclosure form. A NON is typically the appropriate enforcement action

under these circumstances. In addition, if the proposed penalty is $1,000 or less following the

application of downward adjustment factors provided in this policy, the appropriate enforcement

response is the issuance of a NON to the responsible party.

The NON should require the violator to take corrective action to comply with the Disclosure

Rule. The type and nature of the corrective action will depend upon the specific violations. The

NON may also require that action should be taken by a certain date and that proof of its

completion be promptly submitted to EPA.

II. Civil Administrative Complaints

A civil administrative complaint will generally be the appropriate response to violations of the

Disclosure Rule. Violators may be subject to civil sanctions pursuant to TSCA Section 16. On

September 10, 1980, EPA published the Guidelines for Assessment of Civil Penalties Under Section 16

of the Toxic Substances Control Act; PCB Penalty Policy. 45 FR 59771 (1980). This penalty system

provides the general framework for civil penalty assessments under TSCA. It establishes

standardized definitions and applications of factors that TSCA requires the Administrator to

consider in proposing to assess a civil penalty. The TSCA penalty system also states that as

regulations are developed, specific penalty guidelines will be developed adopting in detail the

application of the general penalty system to the new regulation.

hapter 4: Determining the Level of Action

Final Enforcement Response Policy:

The Disclosure Rule December 1999

A civil administrative complaint may contain a “gravity based penalty” as the proposed penalty.

In the alternative, in cases where information relevant to proposing an appropriate penalty cannot

be obtained before issuing the complaint and there are nontheless reasons to proceed with the

action, the civil administrative complaint may be a “notice” pleading. That is to say, pleading “up

to the statutory maximum amount” for each violation alleged. This notice pleading approach

would not eliminate the need to make a definite penalty proposal, but would postpone it until full

information about the case, including violations and respondent’s defenses, are known, so that the

Agency can produce better informed penalty proposals. The property management firm generally

should be named as the Respondent, and not the employee (i.e., agent), when a civil enforcement

action involves an employee of the firm. Penalties shall be calculated in accordance with the

matrices in Appendix B herein.

A violator can generally expect to pay the maximum civil penalty if a child with an elevated

blood level (“EBL”) is present in target housing where notification has not been provided, or where

a previous order to abate lead hazards from a federal, state, or local authority has been ignored

by the responsible party. EPA may also seek maximum civil penalties where it has been determined

that a pregnant woman or child under six years of age have been exposed to lead-based paint or

its hazards. Penalties may be reduced where lead-based paint is present but no pregnant woman

or child under six lived in the target housing during the period of noncompliance. In addition, under

certain circumstances, the appropriate enforcement response generally is to issue a civil

administrative complaint with an adjusted penalty as provided in Chapter 7, Section IV. Such

adjusted penalty is available if the target housing is certified to be lead-based paint free by the

responsible party. A violator may mitigate the proposed penalty by providing the Agency with

evidence that pregnant women or children were not present in the target housing unit at the time

of the violation.

Before a penalty order becomes final, Section 16(a)(2) of TSCA requires the Administrator

to provide the Respondent with notice and an opportunity for a formal hearing, on the record, in

accordance with the Administrative Procedures Act. 40 C.F.R. Part 22 sets forth EPA’s general

rules of administrative practice governing the assessment of administrative penalties.

III. Criminal Sanctions

In addition to being subject to the various types of civil sanctions, any person who knowingly

or willfully violates any provision of 15 U.S.C. § 2689 is subject to misdemeanor criminal sanctions.

See, 15 U.S.C. § 2615(b). 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 under TSCA. As

modified by the Alternative Fines Act, 18 U.S.C. § 3571, an individual could be fined up to $100,000

for a violation that does not result in death, or an amount calculated according to the loss to a

victim or the gain by the defendant, whichever is greater. Organizations may be fined up to

$200,000 per count. When violations of the Disclosure Rule come to the attention of the Agency

which are especially egregious in nature - in terms of the threat of harm, or the level of culpability,

or both, the matter should be brought to the attention of EPA’s Criminal Investigation Division.

This Division will determine whether to exercise its discretion to pursue a criminal investigation

and, where appropriate, to refer the matter to DOJ for a prosecutorial determination.

hapter 4: Determining the Level of Action

Final Enforcement Response Policy:

The Disclosure Rule December 1999

IV. Injunctive Relief

The EPA may obtain injunctive relief by enlisting the legal support of the U.S. Department of

Justice (“DOJ”). DOJ may make an application for injunctive relief in U.S. district court under

TSCA Section 17(a) to direct a violator to comply with the Disclosure Rule. In addition to

requesting such relief, DOJ may also request on EPA’s behalf that the court use its general equity

powers to compel a violator of the Disclosure Rule to abate the lead-based paint and/or lead

based-paint hazard in the target housing. A region may make a referral only after first consulting

with EPA Headquarters.

V. Multiple Remedies

There may be circumstances where the violation(s) require that more than one enforcement

response should be taken. Multiple remedies should be used only after consultation with

Headquarters:

Criminal Sanctions: The law is well settled that simultaneous civil and criminal enforcement

proceedings are legally permissible. The Regions may conduct parallel proceedings where

appropriate.

Civil Administrative Penalty and Injunctive Relief: There may be instances in which the

concurrent filing of a civil administrative complaint and a request for injunctive relief is

appropriate.

The use of multiple remedies depends on the facts and circumstances of each case. To preserve

uniformity and fairness, the Regions are required to consult with EPA Headquarters before using

any combination of multiple remedies for a particular case.

hapter 5: Assessing the Gravity-Based Penalty

Final Enforcement Response Policy:

The Disclosure Rule December 1999

The Gravity-Based Penalty for violations of the Disclosure Rule is assessed pursuant to the

general framework described in the Guidelines for Assessment of Civil Penalties Under Section 16 of the

Toxic Substances Control Act; PCB Penalty Policy. 45 FR 59771 (1980), (“TSCA Civil Penalty

Guidelines”). Regions are advised to consult the TSCA Penalty Guidelines because only a summary

is presented below. Under the TSCA Civil Penalty Guidelines, penalties are determined in two

stages:

1)The first stage is the determination of a “Gravity-Based Penalty” (“GBP”). Gravity refers

to the overall seriousness of the violation. To determine the gravity-based penalty, the

following factors are considered:

• the “nature” of the violation;

• the “circumstances of the violation”; and

• the “extent” of harm that may result from a given violation.

These factors are incorporated into a penalty matrix that specifies the appropriate gravity-

based penalty. Once the gravity-based penalty has been determined, upward or downward

adjustments may be made to that penalty amount as described below.

2)The second stage involves upward or downward “adjustments” to the gravity-based

penalty. Adjustments to the penalty amount are made by considering factors including the

following:

• the violator’s ability to pay/ability to continue in business;

• history of prior violations;

• degree of culpability;

• such other factors as justice may require; and

• voluntary disclosure.

I. Nature

The TSCA Civil Penalty Guidelines discuss the “nature” of the violation as the essential

character of the violation, and incorporate the concept of whether the violation is of a chemical

control, control-associated data gathering, or hazard assessment nature. The requirements of 40

C.F.R. Part 745, Subpart F, are most appropriately characterized as “hazard assessment” in nature.

The Disclosure Rule requirements are designed to provide potential Purchasers and Lessees of

target housing with information that will permit them to weigh and assess the risks presented by

the actual or possible presence of lead-based paint or lead-based hazards in the target housing they

might purchase or lease. This information is vital to Purchasers and Lessees to make an informed

decision about whether to reside in target housing because young children and/or pregnant women

may be put at risk when residing in that target housing. The risk is caused by lead which was added

to paint prior to 1978. The “nature” of the violation will have a direct effect on the measure used

to determine which “circumstances” and “extent” categories are selected on the GBP matrix

Appendix B.

hapter 5: Assessing the Gravity-Based Penalty

Final Enforcement Response Policy:

The Disclosure Rule December 1999

II. Circumstances

The “circumstances” reflect the probability of harm resulting from a particular type of

violation. For a Disclosure Rule violation, the harm is associated with the failure to disclose

information on lead-based paint or lead-based paint hazards. Therefore, the primary circumstance

to be considered is the Purchaser’s and Lessee’s ability to properly assess and weigh the factors

associated with human health risk when purchasing or leasing target housing. The greater the

deviation from the regulations (such as no disclosure), the greater the likelihood that the Purchaser

and Lessee will be uninformed about the hazards associated with lead-based paint and,

consequently, the greater the likelihood of a child being exposed to lead-based paint hazards.

The following system ranks potential violations using six levels which factor in compliance with

the disclosure requirements and the level of potential harm associated with the buyer’s or lessee’s

lack of knowledge of lead-based paint and lead-based paint hazards. The specific violations of the

Disclosure Rule have been characterized with levels ranging from:

Levels 1 and 2: Violations having a high probability of impairing the ability to assess the

information required to be disclosed.

Levels 3 and 4: Violations having a medium impact of impairing the ability to assess the

information.

Levels 5 and 6: Violations having only a low impact on the ability to assess the information

required to be disclosed.

III. Extent

“Extent” is used to consider the degree, range, or scope of the violation. In the context of

the Disclosure Rule, the measure of the “extent” of harm will focus on the overall intent of the

rule, which is to prevent childhood lead poisoning. For example, the potential for harm from the

failure to disclose known lead-based paint and lead-based paint hazard information to the Purchaser

or Lessee of target housing would be considered “major” if risk factors are high for exposure.

TSCA Civil Penalty Guidelines provides the following definitions for the three extent categories:

Major: Potential for “serious” damage to human health or for major damage to the

environment.

Significant: Potential for “significant” amount of damage to human health or the

environment.

Minor: Potential for a “lesser” amount of damage to human health or the

environment.

hapter 5: Assessing the Gravity-Based Penalty

Final Enforcement Response Policy:

The Disclosure Rule December 1999

Therefore, specific violations of the Disclosure Rule requirements have been characterized

as “major,” “significant,” or “minor” in extent. Under the Disclosure Rule, the extent factor is

based upon two measurable facts:

1) the age of any children who live in target housing; and

2) whether a pregnant woman lives in the target housing.

1. Age of child(ren) living in target housing: Children under the age of six are most likely to be

adversely affected by the presence of lead-based paint and lead-based paint hazards based on

habits (e.g., play and eating) and vulnerability due to their physical development. As children

mature into adults, they are less affected by the presence of lead. The age factor will be

determined by the age of the youngest child at the time the violation occurred. The harmful

effects that lead can have on children under the age of six warrant a major extent factor.

Children above the age of six can also be harmed by exposure to lead-based paint and lead-

based paint hazards; therefore, the extent factor takes this fact into consideration as well.

With regard to transactions to sell or lease target housing, the Agency shall propose the

maximum civil penalty when evidence of the occupant’s age is not provided to the Agency

before the complaint is issued. However, a violator may mitigate the proposed penalty by

providing the Agency with evidence that pregnant women or children were not present in the

target housing unit at the time of the violation.

2. Pregnant women living in target housing: Pregnant women are also very susceptible to the

dangers of lead-based paint and lead-based paint hazards. Lead exposure before or during

pregnancy can alter fetal development and cause miscarriages. If EPA determines that a

pregnant woman occupied the target housing during the period of noncompliance, then a

“major” extent is appropriate.

EPA will reduce civil penalties in an enforcement action if the responsible party provides EPA with

documentation that no child under the age of eighteen or pregnant woman (which affects the

violation’s extent level) was present in the target housing at the time of the Section 1018

violation(s).

hapter 6: Determining the Number of Violations

Final Enforcement Response Policy:

The Disclosure Rule December 1999

Each requirement of the Disclosure Rule is a separate and distinct requirement from the other

requirements. In order to determine whether a violation of the Disclosure Rule has occurred, the

applicable requirements must be reviewed to determine which regulatory provisions have been

violated. For instance, the following are the Disclosure Rule requirements for a lessor leasing

target housing:

• Provide Lessee EPA-approved lead hazard information/pamphlet.

• Disclose to Lessee presence of any known lead-based paint and/or lead-based paint hazards.

• Disclose to each agent, presence of any known lead-based paint and/or lead-based paint

hazards, and the existence of any available records or reports pertaining to lead-based

paint.

• Provide to Lessee any records or reports available pertaining to lead based-paint and/or

lead-based paint hazards in the target housing.

• Include as an attachment, or within the contract to lease target housing, the Lead Warning

Statement.

• Include as an attachment, or within the contract, a statement by the Lessor disclosing the

presence of known lead-based paint and/or lead-based paint hazards.

• Include as an attachment, or within the contract, a list of any records or reports available

to the Lessor that pertain to lead hazard information and failed to indicate that no such list

exists.

• Include in the contract for lease a statement by the Lessee affirming receipt of the

information.

• Include in the contract, as an attachment, a statement by the agent(s) involved in the

transaction to lease target housing that the agent(s) has informed the Lessor of the Lessor’s

obligations and that the agent(s) is aware of his/her duty to ensure compliance. This only

applies if agent(s) are involved in the transaction.

• Include in the contract for lease signatures and dates of the Lessors, agents and Lessee

certifying to the accuracy of their statements.

• Retain a copy of the completed disclosure records for no less than three years from the

completion date of the lease.

hapter 6: Determining the Number of Violations

Final Enforcement Response Policy:

The Disclosure Rule December 1999

After determining what the applicable requirements are, the next step is to determine the

number of real estate transactions in which violations occurred. The number of real estate

transactions involved in a particular case is determined by the number of lease agreements or sales

contracts. For instance, if three (3) leases are being reviewed by the Agency for compliance in an

apartment complex that is target housing and has 100 apartment units, then the Region is reviewing

three (3) real estate transactions in that complex. For purposes of the Disclosure Rule, a “Real

Estate Transaction” is defined as the business dealings that results in an agreement between either

a lessor/agent and a lessee or a seller/agent and purchaser for target housing. Given that each real

estate transaction is a “stand alone” transaction, the penalty for each violations found in each

individual transaction must be assessed separately.

A violator may be involved in numerous transactions in which violations of the Disclosure

Rule occurred in each transaction. For instance, if a Lessor owns eight target housing units in an

apartment building and fails to comply with the Disclosure Rule when leasing each of these units,

the Lessor will be held liable for violating the Disclosure Rule in all eight transactions. Each

transaction “stands alone” and thus the penalty will be assessed as individual counts in the

Complaint. When the civil administrative Complaint is filed against the Lessor, all eight (8)

transactions will be included in the same Complaint. The total gravity-based penalty will be the

sum of the penalties for violations of all eight (8) transactions. See Appendix C for examples of

multiple transaction penalty calculations.

hapter 7: Adjustment Factors

Final Enforcement Response Policy:

The Disclosure Rule December 1999

Section 16(a)(2)(B) of TSCA describes the factors that EPA must also consider in determining

the amount of the civil penalty amount. With respect to the violator, these factors include: the

ability to pay/ability to continue in business, history of prior such violations, degree of culpability,

and other factors as justice may require. Other factors as justice may require include: (A) risk of

exposure; (B) attitude; (C) supplemental environmental projects (SEPs); (D) audit policy; (E)

voluntary disclosure; (F) the size of business; (G) adjustment for small independent owners/lessors;

and (H) economic benefit derived from noncompliance.

This Enforcement Response Policy acknowledges that no two cases are exactly alike. Unique

circumstances other than those taken into account by the factors discussed in the previous sections

may be significant in determining the appropriateness of a penalty.

I. Ability to Pay/Continue in Business

Section 16 of TSCA requires that the violator’s ability to pay the proposed civil penalty be

considered as a statutory factor in determining the appropriateness of the penalty. Absent proof

to the contrary, EPA can establish a respondent’s ability to pay with circumstantial evidence relating

to a company’s size and sales. The TSCA Penalty Policy states that the EPA generally will not

request penalties that are clearly beyond the financial means of the violator.

To determine the appropriateness of the proposed penalty in relation to a person’s ability

to pay, the case team should review Dun and Bradstreet reports, a company's filings with the

Securities and Exchange Commission (when appropriate) or other available financial reports before

issuing the complaint. In determining appropriate penalties for violators not found in the above

reports, relevant facts obtained from the sales contract or lease (such as the sale or lease amount

of the dwelling) or the number of dwellings owned or leased by the violator, may demonstrate the

violator’s ability to pay the penalty.

If a violator raises the ability to pay argument as a defense in its answer, or in the course of

settlement negotiations, EPA should request the following types of information:

• The last three years of tax returns;

• Balance sheets;

• Income statements;

• Statements of changes in financial position;

• The Statement of operations;

• Retained earnings statements;

• Loan applications, financing agreements, security agreements;

• Annual and quarterly reports to shareholders and the SEC, including 10K reports; and

• Statements on assets and liabilities.

EPA reserves the option, in appropriate circumstances, to seek a penalty that might prevent

a company from continuing in business. For example, even when there is an inability to pay, it is

unlikely that EPA would reduce a penalty when a Seller, Lessor, or Agent has refused to correct

a serious violation or when a Seller, Lessor, or Agent has a long history of violations. This long

history would demonstrate that a less severe measure (i.e., a penalty reduction) is ineffective.

hapter 7: Adjustment Factors

Final Enforcement Response Policy:

The Disclosure Rule December 1999

II. History of Prior Such Violations

When a violator has a history of prior such violations of the Disclosure Rule, the penalty

should be adjusted upward in accordance with the TSCA penalty policy by a maximum of 25%.

The need for such an upward adjustment derives from the violator not having been sufficiently

motivated to comply with the Disclosure Rule by the penalty assessed for the previous violation(s).

For the purpose of this policy, EPA interprets “prior such violations” to mean any prior

violation(s) of the Disclosure Rule. The following rules apply in evaluating the history of such

violations:

(1) To constitute a prior violation, the prior violation: (1) must have resulted in a consent

agreement and final order or consent order (CAFO), consent decree, default judgment, non-

consensual civil judgment or criminal conviction; and (2) must have been entered by or

executed within five (5) calendar years prior to the issuance of the subsequent complaint.

Receipt of payment made to the U.S. Treasury can be used as evidence constituting a prior

violation, regardless of whether a respondent admits to the violation or enters into a CAFO.

Issuance of a Notice of Noncompliance does not constitute a prior violation for purposes of

this policy. A prior violation refers collectively to all the violations which may have been

described in one prior CAFO.

(2) A corporation owned by or affiliated with the same parent corporation may not

necessarily effect each other's history (such as with independently-owned franchises), if they

are substantially independent of one another in their management, and in the functioning of

their Boards of Directors. The EPA reserves the right to request, obtain, and review all

underlying and supporting financial documents that form the basis of these records to verify

their accuracy. If the violator fails to provide the necessary information, and the information

is not readily available through other sources, then EPA is entitled to rely on the information

it does have in its control or possession.

(3) In the case of wholly-owned subsidiaries, the parent corporation’s history of violation

shall apply to all of its subsidiaries. The history of violation for a wholly-owned subsidiary will

apply to the parent corporation.

III. Degree of Culpability

The two principal criteria for assessing culpability are: (a) the violator’s knowledge of the

Disclosure Rule, and (b) the degree of the violator’s control over the violative condition. For

penalty purposes, when the violator intentionally commits an act which he knew would be a

violation of the Disclosure Rule or hazardous to health, or has been issued a prior NON the

proposed penalty may be increased by up to 25%.

hapter 7: Adjustment Factors

Final Enforcement Response Policy:

The Disclosure Rule December 1999

IV. Other Factors as Justice May Require

A. No Known Risk of Exposure

EPA will adjust the proposed penalty downward 80% if the responsible party provides EPA

with appropriate documentation (e.g. reports for lead inspection conducted in accordance with

HUD guidelines) that the target housing is certified to be lead-based paint free by an accredited

inspector.

B. Attitude

EPA may reduce the proposed civil penalty by a maximum amount of 30% for attitude, if the

circumstances warrant. The Attitude adjustment has three components: (1) cooperation; (2)

immediate steps taken to comply with the Disclosure Rule; and (3) early settlement.

(a) The EPA may reduce the base penalty up to 10% based on a respondent’s

cooperation throughout the entire compliance, case development, and settlement

process.

(b) The EPA may also reduce the base penalty up to 10% for a respondent's immediate

good faith efforts to comply with the Disclosure Rule and the speed and

completeness with which it comes into compliance.

filing of pre-hearing exchange documents.

C. Supplemental Environmental Projects (SEPs)

Supplemental Environmental Projects (SEPs) are environmentally-beneficial projects which a

respondent agrees to undertake in settlement of an environmental enforcement action, but which

the defendant is not otherwise legally required to perform. In return, the cost of the SEP reduces

the amount of the final penalty paid by the respondent.

EPA has broad discretion to settle cases with appropriate penalties. Evidence of a violator’s

commitment and ability to perform a SEP is a relevant factor for EPA to consider in establishing

an appropriate settlement penalty. EPA must ensure that the inclusion of a SEP in settlement of

an enforcement action is consistent with the SEP Policy in effect at the time of the settlement. The

SEP policy, effective May 1, 1998, defines categories of projects that may qualify as SEPs,

procedures for calculating the cost of a SEP, and the percentage of that cost which may be applied

as a mitigating factor in establishing an appropriate settlement amount. Additional information

about the Agency’s SEP Policy may be obtained at the following website: http://es.epa.gov/oeca.

hapter 7: Adjustment Factors

Final Enforcement Response Policy:

The Disclosure Rule December 1999

D. Audit Policy

A Seller, Lessor, or Agent who conducts an audit and voluntarily self- discloses any violations

of the Disclosure Rule under the Incentives for Self-Policing: Disclosure, Correction and Prevention of

Violations, 60 FR 66706, December 22, 1995 (“Audit Policy”) may be eligible for a 100% reduction

in the gravity-based penalty if the nine criteria established in the Audit Policy are met. The Audit

Policy is for settlement purposes. Additional information about the Agency’s Audit Policy may be

obtained at the following website: http://es.epa.gov/oeca. Reference should be made to that

document to determine whether a regulated entity qualifies for additional penalty mitigation.

E. Voluntary Disclosure

If a violator self-discloses a violation of the Disclosure Rule, but not under the Audit Policy,

the proposed civil penalty amount may still be reduced for such a voluntary disclosure. The EPA

wants to encourage voluntary disclosure for Disclosure Rule violations. In order to do this, an

automatic penalty reduction may be made. To be eligible, the violator must make the disclosure

before EPA notifies him of a pending inspection, or before EPA receives information relating to the

alleged violation. Voluntary disclosure of a violation will result in a 25% reduction of the penalty.

An additional 25% penalty reduction may be given to those violators who report the potential

violation to EPA within 30 days of discovery. Under these circumstances the penalty reductions

are as follows:

Voluntary disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%

Immediate disclosure within 30 days of discovery . . . . . . . . . . . . . . . . . .25%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .up to 50%

The reduction for voluntary disclosure and immediate disclosure may be made prior to issuing

the Civil Complaint. The Civil Complaint should state the original penalty, the reduced penalty and

the reason for the reduction pursuant to this Enforcement Response Policy.

F. Size of Business

Given the universe of parties covered by the Disclosure Rule, a violator may request

assistance under the EPA’s Policy on Compliance Incentives for Small Business (“Small Business Policy”)

(June 10, 1996). The Small Business Policy states that a business with fewer than 100 employees

is eligible for elimination of the entire civil penalty if the violator participates in the compliance

assistance program or conducts a voluntary self-audit and meets all four criteria listed in the Small

Business Policy. The four criteria are: 1) the violator has made a good faith effort to comply with

the applicable environmental requirements; 2) the violator has violated the applicable

environmental requirement for the first time; 3) the violator has remedied the violation within a

specified time; and (4) the violation does not present a significant health or environmental threat

and does not involve criminal conduct. Regions are advised to consult the Small Business Policy

to determine a respondent’s eligibility.

hapter 7: Adjustment Factors

Section 1018 of Title X also allows the Purchaser or Lessee to bring a civil action for damages, and the court may

award treble damages, court costs, reasonable attorneys fees, and expert witness fees if that party prevails.

Final Enforcement Response Policy:

The Disclosure Rule December 1999

G. Adjustment for Small Independent Owners and Lessors

The proposed civil penalty shall be adjusted downward by 50% for individuals who own one

target housing unit for lease or one target housing unit which is “for sale by owner.” However,

such reduction shall only apply if no Agent was involved in the transaction and the person has no

history of prior violations. Such Sellers and Lessors are generally not engaged in the selling or

leasing of property as a business and lack the level of knowledge and awareness of the Disclosure

Rule shared by Agents and property management owners.

H. Economic Benefit of Noncompliance

A Seller, Lessor or Agent who has violated the Disclosure Rule may not profit from his

violative acts. Congress has stated that a violator should not be allowed to profit from delays in

compliance. Assessing a penalty amount that reflects a violator’s economic benefit of

noncompliance serves two purposes which are vital to an effective enforcement program. First,

the penalty deters violators by taking away the economic incentive to violate the law; thus,

ensuring that violators do not reap economic benefit by failing to comply. Second, for a penalty

to be effective the fines must be as great as the economic gain in not complying or the penalty will

not have deterrent value. Consideration of economic benefit as part of the penalty maintains a

“level playing field” by ensuring that violators do not obtain an economic advantage over

competitors who made the necessary investments in environmental compliance.

The Disclosure Rule’s ability to prevent harm to public health and the environment is severely

weakened whenever an economic incentive exists to violate the law. The penalty system attempts

to eliminate, or at least reduce, economic incentives by adding an estimate of economic gains from

noncompliance to the base penalty. If the EPA determines that the gravity-based penalty has not

adequately captured the economic benefit, the EPA reserves the right to seek the economic benefit

from the violator and will make that determination on a case by case basis.2

APPENDIX A

Responsible Party Definitions

and

A Table of Scenarios

ppendix A: Responsible Party Definitions and a Table of Scenarios

Final Enforcement Response Policy:

The Disclosure Rule December 1999

A-1

Responsible Agent Parties in Sales Transactions: In sales situations, the Listing Agents, Selling

Agents, and Buyer Agents (if paid by the Seller or through a cooperative agreement with the listing

agent) are “Agents” and are responsible for ensuring compliance under this rule. For the purposes

of this Enforcement Response Policy, Real Estate Agencies, Contract Service Providers and

Property Management Firms are “Agents.”

Listing Real Estate Agency (Listing Agent): Traditionally, the real estate agency enters into a

direct contract with the Seller or Lessor for the right (exclusive or otherwise) to represent the

Seller. The contract states the terms of compensation in the amount of a set percentage of the

sales price in consideration of the time and effort expended by the Broker (real estate agency) on

behalf of the Seller, and in further consideration of the advice and counsel provided to the Seller.

Thus, Real Estate Agencies are Agents under the Disclosure Rule, and are responsible for ensuring

compliance with the Disclosure Rule.

Since the Sales Associate and the Real Estate Agency and/or Broker are in a contractual

relationship for the purpose of selling or leasing target housing, a signature from either party is

sufficient to satisfy the Disclosure Rule.

Selling Real Estate Agency (Selling Agent): The residential real estate sales contract

traditionally is brokered between a Listing Real Estate Agency that represents the Seller, and a

Selling Real Estate Agency that represents the Purchaser. Both agencies are generally paid its

commission by the Seller. The Listing and Selling Real Estate Agencies generally have sales

associates who share their sales commission with the real estate agency. The following chart

describes the typical “splitting of fees” between the Sales Associate and the Brokers, but the actual

percentage figures may vary from situation to situation.

Commission 6% of sales price - paid 100% by Seller

Listing Sales Associate 1.5%

Listing Real Estate Agency 1.5%

Subtotal 3.0%

Selling Sales Associate 1.5%

Selling Real Estate Agency 1.5%

Subtotal 3.0%

Total 6.0%

Buyer’s Agent: If the Selling Real Estate Agency is compensated totally by the Purchaser, the

Selling Real Estate Agency is not an Agent for the purposes of the Disclosure Rule, and therefore,

is not liable for violations of the Disclosure Rule.

Contract Service Provider: Another situation which may arise is when a Seller does not use the

services of a Real Estate Agency, but instead handles the transaction personally with the help of

a Contract Service Provider. The Contract Service Provider ensures that all the proper

documents are used, completed and signed.

ppendix A: Responsible Party Definitions and a Table of Scenarios

Final Enforcement Response Policy:

The Disclosure Rule December 1999

A-2

Property Management Firm: The Property Management Firm acts as an Agent for a Lessor by

entering into a contract with a Seller or Lessor for the purpose of leasing or selling target housing.

These duties generally entail showing the target housing to prospective Purchasers or Lessees and

ensuring that all sales and leases are properly executed by the parties. Thus, Property Management

Firms are Agents for the purposes of the Disclosure Rule.

Resident Manager: In a situation when a Resident Manager performs the same duties as