P R O B A T E   &   P R O P E R T Y
March/April 2003
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Environmental Law Update

Environmental Law Update
provides information on developments in environmental law as it applies to property, probate, and trust matters. The editors of Probate & Property welcome information and suggestions from readers.

Dealing with the Mold Monster

Over the past several years thepresence of mold in commercial and residential buildings has received increased attention. Although most in the real estate industry are aware of the high-profile toxic tort law suits that have garnered national media attention (with plaintiffs winningmillions of dollars), the industry is just waking up to the fact that indoor mold can create similar large liability exposure for the entire industry, including property owners and landlords, property managers, condominium owners, tenants, architects, builders and contractors, and suppliers of building materials. Lawsuits alleging property damage or personal injury related to the presence of mold are fast increasing. In turn, the insurance industry has taken action to limit coverage of such claims. As a result, anyone involved in the real estate industry should address the potential risks of mold to reduce the likelihood of liability claims.

The first important fact to recognize is that mold is everywhere. To be sure, areas of the country, such as Texas, where the climate is more humid are more likely to have mold issues. Mold (also known as fungus or mildew) can grow, however, in virtually any environment (indoor and outdoor) that has the proper balance of moisture and oxygen. Because mold can be airborne, it can enter a building on clothing, through windows, heating, ventilation, and air-conditioning systems, or in construction materials. Once inside, mold can flourish on a variety of substances. Many building materials include nutrients that encourage mold to grow such as wet cellulose materials, including paper and paper products, cardboard, drywall, ceiling tiles, wood, and wood products. Mold grows when there is sufficient moisture, which often arises from water damage, excessive humidity, condensation, water infiltration, or flooding.

Given that it is ubiquitous, obviously not all mold levels are harmful to humans. Excessive mold levels can, however, damage property, be very difficult to remove, and cause mild to severe health problems, ranging from itchy eyes and minor headaches to more severe allergies, skin rashes, asthma, and memory loss. In particular, Stachybotrys chartarum (which looks greenish-black) has been linked to numerous claims of health problems in residential and commercial buildings alike. These health effects are the result of mold adversely affecting indoor air quality and creating a type of sick building syndrome.

Unlike other toxic substances typically associated with improved real estate such as lead-based paint or asbestos, neither OSHA nor the Environmental Protection Agency has promulgated any regulatory limits on mold levels. California, however, has passed legislation directing that research be done leading to the possible adoption of mold limits in 2003. The California OSHA has already adopted a rule effective September 4, 2002, requiring that “[w]hen exterior water intrusion, leakage from interior water sources, or other uncontrolled accumulation of water occurs, the intrusion, leakage or accumulation shall be corrected because of the potential for these conditions to cause the growth of mold.” This rule was explicitly based on the conclusion that mold is an unsanitary condition that should be reduced and prevented to decrease the risk of damage to human health.

The lack of established exposure limits, however, has not deterred parties from filing complaints under common law tort theories because of property damage or personal injury. In fact, this uncertainty in the law in part explains the rapidly increasing volume of litigation over mold claims. Thus, steps should be taken to reduce the chances of mold growing in buildings, and certainly any level of mold should be taken seriously and ought to be addressed as soon as it isdiscovered.

The U.S. Environmental Protection Agency, the State of California, and the City of New York have published guidelines for the prevention and removal of mold. Given that mold requires moisture to grow, the most important step is to eliminate sources of water infiltration and reduce the humidity level. Property owners and managers ought to enact regular audits that include monitoring for wet areas and condensation. Leaky pipes or roofs and any other source of water in the building envelope (for example, condensation from HVAC units) must be fixed immediately. Wet building materials ought to be dried immediately and, where possible, replaced. This is especially true of wallboard and other paper-containing materials. If it is possible, moisture-generating machinery ought to be vented to the outside or at a minimum the condensation ought to be collected and regularly removed. HVAC units should be inspected and maintained regularly. The relative humidity of buildings should be maintained below 60 percent. Finally, the drainage of the property ought to be examined to ensure that water does not sit against building walls or foundations. Remember, any water infiltration increases the likelihood of a mold infestation.

Given mold’s potential to create both property damage and health problems, mold ought to becomepart of the due diligence inspection before purchasing a property. Although it is not currently included under the ASTM standard Phase I Environmental Site Assessment, potential purchasers should add mold conditions to their standard checklist. Inspectors should look for wet areas in buildings, water staining, and mildew or musty odors. If significant mold is found, the parties should consider hiring a firm to conduct an air quality analysis. Either an industrial hygienist or a toxicologist can test for mold by gathering air samples. If significant mold is found, the parties also should consider hiring an engineer or architect with expertise in analyzing the source and level of water penetration to report whether the condition can be easily rectified or would present a major problem. Mold is not easy to remove, so it is important to have a good idea of what it would take to both curtail and remediate theproblem.

Given the problems in both detection, prevention, and remediation, it makes sense to expressly allocate responsibility for mold problems in sale, lease, and construction agreements. Limiting warranty liability to repair of the defect and disclaimers regarding consequential damages obviously will reduce exposure to mold liability. Explicitly requiring regular inspections and prompt reporting of defects permitting water infiltration or excessive humidity also limits the potential liability. Of course a developer’s best protection against mold liability is to ensure the design process and construction team use the best practices and state-of-the-art materials for mold growth avoidance.

Finally, property owners ought to check their insurance policies. Until the recent upsurge in mold claims, insurance companies were not concerned with mold coverage. Now that courts have given a few large damage awards, some insurance companies are excluding mold coverage under property and liability insurance policies upon renewal. A few companies have started offering mold-specific environmental coverage.

At this point, it is unclear whether mold liability will become as significant an issue as its extensive media coverage suggests. Nonetheless, the generally accepted potential of high mold levels to cause damage and injury means that real estate lawyers and their clients ought to take the risks of mold liability seriously and make mold detection, prevention, and remediation a part of standard good environmental housekeeping.

Environmental Law Update Editor: Rafe Petersen, Holland & Knight LLP, 2099 Pennsylvania Ave., N.W., Suite 100, Washington, DC 20006-6801, rapeters@hklaw.com.