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It’s become a commonplace scenario: Real estate practitioners read an article, hear a speech or otherwise are informed of the dire consequences mold will bring to their clients’ real estate deals. Lawyer after lawyer is warned to advise clients to add a mold inspection to their environmental due diligence checklist. Lenders come up with new and ever-so-exciting requirements for how a lawyer’s clients should manage all those mold problems. Environmental consultants frighten mold-wary attorneys into believing that dangerous molds have likely infested the properties their clients want to acquire and that they should not proceed without extensive and costly testing. And last, but certainly not least, insurance brokers tell clients that the standard comprehensive general-liability insurance policy that they have faithfully maintained on their real estate assets now comes with a specific exclusion for any claims relating to mold. But, of course, the broker would be delighted to offer a quote on a mold-specific insurance policy that can now be purchased in addition to the standard policy coverage. In the past couple of years, lawyers across the country have been inundated with this information about the next “big environmental issue.” In the last 20 or so years the profession has had (and continues to struggle with) other similar big environmental issues that affect real estate: asbestos, radon and lead paint. But after real estate purchasers first became aware of, and then overwhelmed by, the high-profile media response to asbestos, radon and lead paint issues, canceling deals when there was even a whisper of these types of problems, these buyers eventually found their way back to the table. As uproar gave way to rational discourse and people became better informed, what previously had seemed like barriers to closing deals now became manageable. Now mold is on the map. Why should practitioners care? Or perhaps the better question is: Why should they care so much? Mold is different. Unlike other contaminants, it generally is not a “waste” or pollutant that is a byproduct of some human activity. As in the Beatles song, mold is “here, there and everywhere” in our natural environment and has been forever (there are biblical references to mildew in Leviticus). Mold is the common term routinely used for mildew and fungi. Mold and its kissing cousin, bacteria, are naturally occurring pests that can flourish in an environment that is enhanced by humans, i.e., a warm, damp or wet place, where there is some sort of organic food or nutrient source (such as many ordinary building materials, wallboard, wood, etc.). There are hundreds of thousands of mold species. Usually when we read about mold in newspaper and journal articles there are references to toxic mold, often specifically to the most notorious of all molds — Stachybotrys chartarum. When a mold grows indoors and it is disturbed, it can spread when its spores are aerosolized into the air. New mold colonies may grow where the spores land, but the spores may also land in the lungs of building occupants. Many toxic mold species seem to coexist peacefully with us in our environment and then once aerosolized, arguably create conditions that some experts say can kill us. MOLD BREAKS ITS MOLD In the past three years, countless seminars have been conducted and articles and even books have been written on our new, big environmental issue — mold (there is even a national mold litigation magazine). Generally, mold claims have centered on construction defects, negligent maintenance and repair, personal injury and insurance company bad faith for handling a claim improperly. The Ballard v. Farmers case made headlines when a Texas jury came back with a multimillion-dollar verdict against Farmers Insurance Group for mold damage that made Melinda Ballard’s house uninhabitable. See Texas District Court, No. 99-05252 (June 6, 2001). Claims for mold damage against home insurers exceeded $1 billion in 2001. Ed McMahon, Johnny Carson’s former sidekick, recently settled a lawsuit with his insurers and others for $7.2 million related to mold contamination of his home. One of the world’s largest hotels, the Hilton Hawaiian Village, closed 453 rooms in a new tower and expects to spend $55 million to rid its rooms of potentially dangerous mold. Even Erin Brockovich (famous crusader against toxic polluters) has filed suit for mold damage to her home. The mold issue may have been given a disproportionate amount of attention, and clients are entitled to a reality check. What do we now know about this menace that has been around forever but has suddenly become the subject of so much attention? First, we should take a look at the record to see what has changed in real estate deals as a result of the mold issue. Due diligence has changed. Attorneys now evaluate buildings targeted for acquisition by clients with an eye for the identification of mold growth on building materials and as to whether or not the building has conditions that support mold growth — prolonged water damage, musty odors, etc. It is not yet usual for clients to do mold assessments or investigations unless a particular fact suggests that mold contamination is an issue. Identifying existing mold growth or conditions that would obviously support mold growth, any history of mold-related claims by occupants of the building or an aged and unserviced heating, ventilation and air conditioning system (essentially, a distribution system for any mold spores) also is important. Mold assessments are not yet conducted in the ordinary course of a real estate transaction. But in a recent article that reported the results of a survey of about 300 environmental consulting firms, 92 percent of the respondents identified a rising demand for mold assessments compared to the prior year. See “Phase I Poll,” by Anthony J. Buonicore, Environmental Protection (May 2003). M&Ms? NO … O&Ms Definitions have changed. The usual definition for “hazardous substance” or “contaminant” that is tied to the representations, warranties, covenants and indemnities in transaction documents has been broadened clearly to include terms for mold or fungi and bacteria. Another development is the new requirements instituted by lenders that borrowers institute operations and maintenance (O&M) programs for mold management at their facilities and certify to their lender on a regular basis that the O&M program is in place and being faithfully observed. In general, these programs are plans for training maintenance personnel in how, through routine inspections, to identify mold and the conditions that will support mold growth. The plans also describe how to clean up any such conditions appropriately so that there is no “amplification or dissemination” of mold in the building. For the most part, the remedial methods outlined in these plans are moisture-control measures. So, due diligence has changed, legal documents have been altered and lenders have established new lending requirements in response to the mold issue. The market drives real estate clients’ concerns, justifiably or not, and lawyers have to respond appropriately. But lawyers have to craft their advice by also addressing the context of the mold issue as it specifically relates to their clients’ property or transaction. Essentially, what distinguishable characteristics of the mold issue can lawyers apply to their clients’ situations? The real estate practitioner should consider whether the venue of the real property at issue is a location where many of these mold issues have arisen. There are two elements to this analysis. First, much of the existing mold litigation has arisen in the South and in California. Is the client in a jurisdiction where mold claims are commonplace or where there is local case law that may be instructive about how a mold claim made against the client or by the client might turn out? Second, quite simply, is the real property in a hot and moist climate that could more easily support troublesome mold growth? It’s not a coincidence that many of the claims for mold damage have come in areas with humid climates. This analysis does not rule out any concern about mold in a building located in the northern part of the country, but the clients’ level of concern about a building in Cleveland should, perhaps, be a little less than one in Louisiana or Texas. A discussion with clients about the lack of identifiable standards for the level and type of mold that will be considered by regulatory authorities to be actionable contamination is the next step in applying common sense to the clients’ situation. Until recently, there even was very little agreement on how one could identify certain molds, but the U.S. Environmental Protection Agency has recently patented a method to detect 130 indoor molds through DNA analysis. At this time, there are no federal or state standards for safe or unsafe levels of mold. Guidance documents have been produced by the agency and the American Conference of Government Industrial Hygienists. Only California has passed a law requiring its department of health to promulgate permissible exposure limits for mold (but gave it no money to do the job). Why is there so much talk and writing about mold but no laws on the books? The science has not yet caught up with the legal issue. While we know mold is everywhere, and we know where it likes to live, there is a great debate in the scientific community about how much toxic mold is bad and what environmental circumstances are necessary for bad molds to grow. Also in question is whether certain toxic molds or combinations of molds affect everybody or only certain people with an individual allergy to that specific species of mold. Expert witnesses routinely battle each other in lawsuits involving mold contamination and often fail to establish causal links in court between the presence of mold in a structure and the alleged injuries suffered by plaintiffs. Research on these issues is still in the early stages. Until the scientific community reaches some kind of consensus, legislatures will not be able to enact realistic mold standards. DON’T PANIC In the event mold or conditions that support the growth of mold have been identified in a client’s building, is it time to ring the alarm bell, call off the deal, move out the tenants? The lawyerly answer is: It depends. If mold has been found throughout the structure or in an inaccessible place where its growth could be widespread, such as inside sealed walls or other building components, it could be time to be concerned. However, if a modest area of mold is found in a place where there had been some explainable dampness, the source of the moisture can be eradicated and the moldy area treated or removed and replaced with fresh building materials. The lesson is: Ignore the hype and find the facts; the solution may be straightforward and simple. Because science has not come to any clear conclusions about toxic mold, there also is no standardized licensing for mold consultants, inspectors or remediation companies. As a result, lawyers should warn their clients to take the utmost care when selecting such a professional. Clients should make certain that such professionals have the appropriate technical background and experience. At the very least, they should make certain that any consultant inspecting for mold problems is a certified industrial hygienist experienced with mold evaluations who carries adequate errors-and-omissions insurance. Bad consultants and contractors easily can turn little, resolvable issues into big, confused problems; it is very hard to put the genie back in the bottle after a consultant produces a damning, but inaccurate, report. There is so much uncertainty in this field that the black mark left by a simply wrong report cannot be easily erased. So has the mold issue been exaggerated? Has this ubiquitous organism that has been present in our environment since the beginning of time suddenly become the root of all our ills? Or have we identified a real estate problem that is generally manageable and with further study will be even easier to manage as a practical and a legal matter? Mold will not disappear as a real estate issue, but it does not have to be a showstopper. If lawyers set aside the hype, investigate the facts with the help of competent technical professionals, balance and allocate the risk fairly between the parties, they can, notwithstanding a mold issue, get the client’s deal done. Kevin D. Margolis is a partner at Cleveland’s Benesch Friedlander Coplan & Aronoff (www.bfca.com), where he is co-chairman of the firm’s real estate and environmental practice group. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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