New regulations, new risks

One newly proposed and two finalized regulations mean that housing providers face new litigation risks and compliance costs in 2001. Lobbying efforts by the National Multi Housing Council (NMHC) and its joint legislative partner, the National Apartment Association (NAA), reduced the burden of these rules, but providers still must be aware of the new requirements.

Housing-related harassment

The U.S. Department of Housing and Urban Development (HUD) recently requested comment on proposed standards for housing-related sexual harassment. While sexual harassment certainly violates the Fair Housing Act, the proposed rule breaks new ground by suggesting that legal standards found in employment-related sexual harassment be applied to the housing context. Citing a recent Supreme Court ruling addressing the scope of corporate liability for employees' acts of sexual harassment, the draft rule opens the door to a potential controversy over the scope of a housing provider's responsibility for resident-on-resident and resident/guest sexual harassment occurring on its property.

Written correctly, the rule potentially benefits housing providers by clarifying the steps companies should take when sexual harassment is occurring against residents. On the other hand, the new rule indicates that HUD may broadly expand housing providers' liability exposure.

The final rule will address many important questions. For example, what sort of duty does an apartment management company have toward acts of sexual harassment committed by a resident's guests during a community party on its property? When the site manager fails to follow established procedures in such a case, can the apartment management company nonetheless be held liable?

Even if HUD's final rule provides clear liability standards that track established standards in the employment context, the prospect of expanded litigation in this area is real. Going forward, we may see an increasing number of “hostile environment” claims to accompany the quid pro quo claims that currently make up the bulk of the housing-related sexual harassment claims. NMHC/NAA raised this issue with HUD Secretary Mel Martinez on behalf of a coalition of multifamily owners. In the meantime, companies are encouraged to review corporate anti-harassment training and procedures for compliance with current employment standards.

Consumer privacy laws

Last November, the Federal Trade Commission (FTC) published an important and complex new rule governing consumer privacy that also impacts certain real estate activities. The rule requires firms that are “significantly engaged” in consumer credit and financial activities to devise a privacy policy that addresses how the firm uses nonpublic, personal information about its consumers (such as applicants) and customers.

The FTC rule also requires companies to periodically inform customers of that policy and to obtain a consumer's permission before sharing his/her information with unaffiliated third parties. Furthermore, customers must have the right to opt out of disclosure to an unaffiliated third party. The rule went into effect Nov. 13, and although the FTC has delayed compliance until July 1, it has encouraged companies to provide required notices “as soon as is practicable.”

The rule's hybrid nature means that companies that are “significantly engaged” in real estate activities that the Federal Reserve Board has permitted bank holding companies to engage in are also subject to the FTC rule, whether or not they are banks. Thus, real estate appraisers, affordable housing providers and debt collection and credit bureau service providers appear to be subject to the rule.

Thanks to lobbying efforts by NMHC/NAA, multifamily owners and managers who are involved in property operations do not appear to be covered by the FTC rule. However, where an owner/manager engages with a third party in the sale of a financial product, such as rental insurance, the rule could apply to the owner/manager, the insurance provider or both, depending on the terms of the agreement. The rule's complex definition suggests that companies should review the rule with their legal counsel.


November also marked the release of a new ergonomics rule from the Occupational Safety and Health Administration (OSHA) that expands the definition of muscoloskeletal disorders (MSDs) and provides employees who complain about such injuries with new rights. According to OSHA, an MSD is a disorder of the muscles, nerves, tendons, ligaments, joints, cartilage, blood vessels or spinal discs that is work-related and not the result of traumatic injury.

The rule applies to “general industry,” which includes real estate and financial services industry employees. The law took effect Jan. 13, and already has been challenged in court. By Oct. 15, employers must educate themselves about MSDs. Whenever an MSD is reported, employers must review the employee's job to see if it contains risk factors for the reported MSD. If an MSD is confirmed, employers may have to perform a job-hazard analysis for similar jobs, agree to work restrictions and purchase ergonomically-designed furniture and equipment.

So what do we do?

These three last-minute and onerous regulations from the Clinton administration will have a real cost impact on real estate providers. NMHC/NAA have already advocated changes to ameliorate the impact of these rules, and we will urge the new administration to examine whether the rules' benefits justify their certain costs. In the near term, since two of these are final regulations, real estate companies are advised to review their operations for compliance.

Jay Harris is vice president of property management for the National Multi Housing Council. He can be reached at [email protected].

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