LEGAL CORNER: The Amended Property Condition Disclosure Act Update

It has been nearly three months since the amendments to the updated Property Condition Disclosure Act (“PCDA”) [see https://bit.ly/3Xi8B5C] have gone into effect (i.e., March 20, 2024) and it appears, from a transactional standpoint, that both attorneys and real estate agents, at least in downstate New York State, are still getting used to the new PCDA and the requirement to provide a completed Property Condition Disclosure Statement (PCDS) under Section 462 of the Real Property Law [see https://bit.ly/4cfCWWn]. Attorneys and real estate agents need to acclimate to the new requirements so as to avoid delays and move transactions along seamlessly.

Differences in Customs Developed Early On: Upstate vs. Downstate

Prior to March 20^th, it was a well-settled practice for sellers in southern New York not to complete and deliver the PCDS to purchasers. Instead, sellers opted to provide purchasers with a $500 credit at closing. In upstate New York, however, where broker-prepared real estate contracts, subject to attorney review, are commonplace, it has been a customary practice for sellers to provide a completed PCDS to purchasers, thereby avoiding the credit.

One reason for the difference in custom is that in upstate markets, where real estate prices were (and still are) comparatively lower than downstate values, many sellers opted to complete the PCDS and not provide the $500 credit. In downstate New York, attorneys and sellers quickly chose to provide the $500 credit instead. The higher real estate prices, and the perceived exposure to liability for providing a PCDS, made it an easy choice for sellers.

The Real Estate Licensees’ Duty Under Section 466

As pointed out in the October 2023 Legal Corner article [see https://bit.ly/3VBBt7F], while Section 466 of the RPL was not modified, it is important to review the duties of a real estate licensee in connection with the PCDS. Section 466 provides as follows:

“An agent representing a seller of residential real property as a listing broker shall have the duty to timely inform each seller represented by that agent of the seller’s obligations under this article. An agent representing a buyer of residential real property, or, if the buyer is not represented by an agent, the agent representing a seller of residential real property and dealing with a prospective buyer, shall have the duty to timely (in any event, before the buyer signs a binding contract of sale) inform such buyer of the buyer’s rights and obligations under this article.”

As long as real estate agents “perform the duties and obligations imposed” under Section 466, they “shall have no further duties under this article and shall not be liable to any party for a violation of this article.” The “timely” requirement becomes much more important now that sellers will be delivering the PCDS. Additionally, the New York State Association of Realtors created general broker/agent disclosure confirmation forms, which real estate licensees may choose to use so they can document compliance with the requirements. While these forms are optional, it is strongly recommended that agents utilize them.

Important Practical Considerations for Real Estate
Agents Resulting from the Amended PCDA

While the legal obligations and duties of the real estate licensee under Section 466 of the PCDA have not changed, there are new practical considerations that should be considered. With the elimination of the $500 credit, now, under Section 462, “every seller of residential real property pursuant to a real estate purchase contract shall complete and sign a property condition disclosure statement…and cause it, or a copy thereof, to be delivered to a buyer or buyer's agent prior to the signing by the buyer of a binding contract of sale.” On upstate transactions, brokers usually fill in and prepare the form contract of sale (which is subject to attorney review). The agent would also obtain the completed PCDS from the seller, attach it to the form contract of sale, and transmit everything to the parties and their attorneys.

In contrast, on downstate transactions, a memorandum of sale is prepared by the seller’s agent and transmitted to the buyer’s agent and the parties’ attorneys. The seller’s attorney would then prepare the contract of sale and send it to the buyer’s attorney for review. Prior to the amendment, after there was initial discussion between the agents, attorneys, and clients about the PCDS and the $500 credit, there usually would be no further mention of the PCDS. The seller’s attorney would simply include a provision in the contract of sale indicating that the seller would be providing the purchaser with a $500 credit in lieu of delivery of the PCDS.

The Seller, Seller’s Agent and the PCDS

Now that the PCDS is required to be delivered under the PCDA, and attached to the contract of sale, it is important for the seller’s agent to inform the seller in a “timely manner” of the seller’s obligation to complete the PCDS. Discussions between the seller and the seller’s agent regarding the PCDA and the PCDS form should be had at the early stages of the real estate transaction, for example, when the Section 443 Disclosure documents are provided to the seller. While the seller’s agent should provide a copy of the PCDS form to a seller, it is important to note that the seller’s agent should not assist the seller in completing the form. The seller’s agent should recommend that the seller-client contact their attorney immediately so that they may discuss the legal requirements and ramifications of the PCDA, and to request assistance from their attorney in completing the form. Once the seller has completed the PCDS the seller should provide it to seller’s attorney.

The PCDS form should be completed and signed by the seller, and should be ready before there is an accepted offer on the property so that when the contract is prepared the PCDS is ready to be attached to it as required under Section 462. If the sellers wait until the contract of sale is prepared to complete the PCDS and only then discuss the PCDA with their attorney, it will inevitably delay the process. In the current environment, sellers want to lock in a potential purchaser as soon as possible, and purchasers do not want to risk losing out on a particular property. On some recent transactions, sellers have not completed the PCDS in advance and this has caused delays in preparing and transmitting contracts.

Since the enactment of the new PCDA, some purchasers’ attorneys have been demanding that they receive the completed PCDS form before they even begin their review of the contract of sale, hence, another reason why it should be done early on.

The Buyer, Buyer’s Agent and the PCDA

As mentioned above, the buyer’s agent should inform the buyer very early as well. It is important to note that if the buyer is not represented by an agent, the seller’s agent has the obligation to “timely inform the buyer of buyer’s rights and obligations” under the PCDA. Again, while there is no obligation of the buyer’s agent beyond “timely informing” the buyer of obligations and rights under the PCDA, it is recommended that the buyer’s agent request a copy of the completed PCDS from the seller’s agent prior to the buyer making an offer on the property. The PCDS may include information that may help the buyer determine what offer to make. It would also be helpful to have the PCDS before having the home inspected so the buyer’s inspector is able to review it and determine if any additional inspections are needed, or if any issues need to be further investigated.

The PCDS and the Attorney’s Role

The role of the attorney in downstate residential real estate transactions has also been affected by the new changes to the PCDA. As indicated above, customarily, the seller’s real estate attorney does not become involved in the real estate transaction until receipt of the memorandum of sale. Once the memorandum of sale is transmitted, and in light of the current market conditions, normally contracts are expected to be prepared and transmitted to the purchaser’s attorney the same day or the next business day, however, without the PCDS from the seller, this will not be possible.

The Role of the Seller’s Attorney

It is important for attorneys to explain to seller-clients the legal risk and exposure to liability for making false or misleading statements on the PCDS. If the seller requests assistance in completing the PCDS, the attorney should provide the seller with the necessary assistance.

It is important for an attorney to inform the seller the PCDS does not require a seller to make any independent investigations relating to the subject matter contained in each of the questions contained therein. Sellers are required to answer the questions to the best of their actual knowledge. Therefore, unless a seller personally and actually knows of an issue or knows the answer to the question, or knows for certain that a particular issue does not exist or is not applicable, then the seller would answer “Yes”, “No” or “N/A”.

If, however, the seller does not know, or is uncertain of, an answer to a question, then the seller should answer “unknown.” The seller’s attorney should also point out to the seller that if the seller had inspections conducted when the seller purchased the home, any information contained in the inspection reports may be information that is within seller’s actual knowledge (which the seller may have simply forgotten) and subject to disclosure. Therefore, a seller needs to be careful so as not to provide an answer to a question in the PCDS that may be false or misleading as liability may arise.

The Role of the Purchaser’s Attorney

The purchaser’s attorney also needs to advise the purchaser-client as to the importance of the PCDS and the importance of receiving it in advance. Some seller attorneys are already advising their seller-clients not to deliver the PCDS and the purchaser’s attorney must recommend that purchaser demand that the PCDS be delivered before proceeding. Unfortunately, the purchaser may not want to risk losing the home and may agree to proceed without receiving the PCDS.

Additionally, since the enactment of changes to the PCDS, there have been a myriad of provisions included in riders to the contract of sale (e.g., provisions requiring purchasers to waive certain rights under the PCDS or waiving the provision entirely, provisions reducing statute of limitations periods, damages and more). Again, purchasers and purchasers’ attorneys need to push back as much as possible (which, many times, is easier said than done).

It's Still Early; Only Time Will Tell

It is almost three months since the amendments to the PCDA went into effect, and like the original passage of the PCDA in 2002, there is much controversy and unclarity with the new amendments. Real estate practitioners are trying to work through all of it and make the transition as smooth as possible for both buyers and sellers. As the renowned real estate attorney, Professor Karl Holtzschue, has said, the PCDA leaves us with more questions than answers. Only time will tell how it all will work out, but if the downstate practitioners can take something away from the experiences of the upstate practitioners, it may not all be as dire as we think.

Legal Column author John Dolgetta, Esq. is the principal of the law firm of Dolgetta Law, PLLC. For information about Dolgetta Law, PLLC and John Dolgetta, Esq., please visit https://www.dolgettalaw.com. The foregoing article is for informational purposes only and does not confer an attorney-client relationship and shall not be considered legal advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views or positions of HGAR, its affiliates, or any other entity.