2.3 Kentucky Seller Disclosure Act
Key Takeaways
- KRS 324.360 requires the seller of residential property to complete KREC Form 402, the Seller's Disclosure of Property Conditions, at the time the listing agreement is signed
- The listing agent must deliver the completed form to a prospective buyer within 72 hours of receiving a written offer
- Sellers must disclose only known conditions and have no duty to inspect, investigate, or guarantee the property
- The form covers basement/roof leaks, water supply and sewage source, working condition of systems, and other matters the Commission specifies
- Federal law adds a lead-based paint disclosure and a 10-day inspection opportunity for homes built before 1978
The Kentucky Seller Disclosure Act (KRS 324.360)
KRS 324.360 requires the seller of residential real property to give the buyer a written disclosure of known property conditions on KREC Form 402, the Seller's Disclosure of Property Conditions. The statute is a disclosure law, not a warranty law: the seller reveals what they actually know but does not promise the property is defect-free.
Statutory Timing (Heavily Tested)
Kentucky's timing rule is precise, and the exam rewards memorizing it exactly:
| Step | Requirement |
|---|---|
| Seller completes Form 402 | At the time of signing the listing or marketing agreement |
| Listing agent delivers to buyer | Within 72 hours of the agent's receipt of a written offer |
| Form is signed | By the seller (and acknowledged by the buyer) |
Exam Alert: The single most commonly missed fact here is the 72-hour delivery window after a written offer. Older study materials say "before or after the contract" – that is vague; the statute fixes the deadline at 72 hours from receipt of the written offer.
When the Disclosure Is Required
Form 402 applies to most residential sales but not commercial or large multifamily property:
| Property type | Required? |
|---|---|
| Single-family home | Yes |
| Condominium | Yes |
| Townhome | Yes |
| 1–4 unit residential | Yes |
| Commercial property | No |
| 5+ unit residential | No |
What Form 402 Covers
The statute and form require disclosure across these categories:
- Structural: basement condition and whether it leaks; roof condition and whether it leaks; foundation, walls, floors
- Water and sewage: source and condition of the water supply; source and condition of sewage service (septic vs. public)
- Systems: working condition of plumbing, electrical, heating/cooling, and built-in appliances
- Environmental: drainage/flooding history, radon, mold, and lead paint
- Legal/boundary: easements, encroachments, zoning, and known disputes
- Pests: termites and other wood-destroying insects
The Seller's Standard of Disclosure
| Seller MUST | Seller is NOT required to |
|---|---|
| Disclose known defects and conditions | Inspect or hire inspectors |
| Disclose known material and latent defects | Discover unknown defects |
| Answer the form truthfully | Guarantee future performance |
| Update if a known condition changes | Repair anything before closing |
Key Point: The operative word throughout KRS 324.360 is known. A seller who genuinely does not know of a defect, and had no duty to investigate, is not liable for failing to disclose it – but a seller who conceals or misrepresents a known defect commits fraud.
Exemptions from Seller Disclosure
Certain transfers are exempt from Form 402 because the transferor typically lacks knowledge of the property's condition or the transfer is involuntary:
| Exemption | Reason |
|---|---|
| Foreclosure / lender (REO) sale | Lender has no occupancy knowledge |
| Estate or probate sale | Personal representative did not live there |
| Bankruptcy / trustee sale | Trustee lacks property knowledge |
| Court-ordered sale (divorce, judgment) | Involuntary transfer |
| New construction with builder warranty | Warranty governs instead |
| Transfer between co-owners | Buyout / dissolution |
| Transfer to a family member (gift, inheritance) | Non-arm's-length |
Warning: An exemption excuses the Form 402 itself, not the agent. Even in an exempt sale, a Kentucky licensee must still disclose any known material defects – the customer/client disclosure duties from Section 2.1 never disappear.
Federal Lead-Based Paint Disclosure
Layered on top of Kentucky law, the federal Residential Lead-Based Paint Hazard Reduction Act (Title X) applies to housing built before 1978:
| Requirement | Detail |
|---|---|
| Disclosure form | Seller/lessor completes the lead disclosure and discloses known lead hazards |
| EPA pamphlet | Provide "Protect Your Family From Lead in Your Home" |
| Inspection window | Buyer gets a 10-day opportunity to test (waivable) |
| Records | Seller provides any existing lead test reports |
Worked example: A 1965 home in Lexington is sold. Kentucky's Form 402 covers the general property condition, and federal law adds the lead disclosure, the EPA pamphlet, and a 10-day inspection window. A 1995 home would need Form 402 but no lead disclosure, because it was built after 1978.
Agent vs. Seller Responsibility
| The agent | The seller |
|---|---|
| Must disclose known material defects | Completes and signs Form 402 |
| Cannot misrepresent or conceal | Is responsible for the form's accuracy |
| Has no duty to independently investigate | Has no duty to discover unknown defects |
| Liable for own misrepresentation | Liable for fraud or active concealment |
Common trap: A foreclosure sale is exempt from Form 402, but the listing agent who knows the basement floods must still disclose that known material fact to buyers. Mark exemption questions carefully – they test whether you confuse the form's exemption with the agent's ongoing duty.
Caveat Emptor and Stigmatized Property
Kentucky retains a limited caveat emptor ("let the buyer beware") tradition for conditions the seller does not know about, which is why the known-defect standard matters. Buyers are still expected to inspect; the disclosure law does not replace a professional home inspection. The exam may contrast a seller's narrow disclosure duty with a buyer's responsibility to investigate before closing.
Many states, including Kentucky, treat psychologically stigmatized facts differently from physical defects:
| Fact about the property | Generally must disclose? |
|---|---|
| Active roof leak the seller knows of | Yes – known material defect |
| Failing septic system the seller knows of | Yes – known material defect |
| A death by natural causes in the home | Generally not required |
| A prior occupant's illness (e.g., HIV/AIDS) | No – fair-housing protected, do not disclose |
Warning: Disclosing a former occupant's protected health status or familial information can violate federal Fair Housing law. Limit disclosures to physical, material property conditions; do not volunteer protected-class information even if a buyer asks.
Remedies for Disclosure Failures
If a seller knowingly conceals or misrepresents a material defect on Form 402, the buyer may pursue rescission of the contract or damages for fraud, and the agent who participated in concealment faces KREC discipline. Honest completion of the form is the seller's best protection, and an "as-is" clause does not waive the statutory duty to disclose known defects.
Under KRS 324.360, when must the listing agent deliver the completed Seller's Disclosure of Property Conditions (Form 402) to a prospective buyer?
Which transaction is exempt from the Kentucky Seller's Disclosure of Property Conditions requirement?
Federal lead-based paint disclosure requirements apply to residential housing built: