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CALIFORNIA
LEGISLATES AGAINST MOLD
By: Phillip M.
Adleson, Esq.
ADLESON, HESS & KELLY, P.C.
577 Salmar Avenue, Second Floor
Campbell, California 95008
408-341-0234 (voice) 408-341-0250 (fax)
email:
padleson@ahk-law.com
Webpage:
www.ahk-law.com
Real estate legislation and litigation like many areas
in life is subject to trends and fads. Some years ago the problem with
underground storage tanks (“USTs”) was all the rage. As time went on,
removal and replacement partially remedied the problem at a huge cost.
In addition, we discovered that the USTs’ problems or risks, while real,
were overstated. Currently, lawsuits based on properties containing
toxic molds have become the lawsuit du jour. Insurance claims relating to
mold claims are up an estimated 900% in the past year.
Undoubtedly, every real property has some level of mold
as there are more than 100,000 known species of mold and over 1,000 common
species just in the United States. Molds can be beneficial, benign or
detrimental to human beings. Different individuals have different
sensitivities to various types of molds. Many mold problems can be
remedied by simple owner-occupant cleaning and care. Others require
more expertise and skill. Still others have required the improvement on the
property to be demolished for lack of an economical remedy.
The common causes of excessive mold are water damage
caused by floods, leaks, plumbing, icemakers, washing machine hoses,
improper grading, drainage, defective roofs, fires, etc. Obviously, areas
prone to more moister or annual flooding will have greater problems than
drier, flood free areas.
The California Legislature has come to the rescue
attacking mold head-on by passing “The Toxic Mold Protection Act of 2001”
(herein the “Act” or “SB 732”).
The Act falls within the jurisdiction of the existing California Department
of Health Services (“DHS”) which is currently in charge of promulgating and
enforcing regulations relating to public health in California.
SB 732 breaks down into three main phases. Phase
one is a study by the DHS which will convene a task force comprised of
public and industry members to advise the DHS on the various standards
required by the act (discussed below). Phase two is for the DHS to
adopt permissible exposure limits, standards and guidelines. The third
phase is to create new disclosures relating to indoor mold to be given in
connection with the sale and leasing of real property located in California.
THE TASK FORCE
The task force will advise the DHS of standards under
the law and will include public health officers, experts on molds, medical
experts, consumer attorneys, affected industries (i.e., realtors, lenders,
trustees), etc. Participation in the task force will be voluntary and
not subject to reimbursement for expenses.
Creating Standards and Guidelines.
The task force will advise the DHS on the adoption of
“permissible exposure limits” to mold in indoor environments; “practical
standards” to assess the public health threat of molds; mold identification
guidelines and mold remediation guidelines relating to the removal and
abatement of mold.
If feasible, the DHS consulting with the task force
will adopt permissible exposure limits to mold in indoor environments that
would avoid adverse health effects with an adequate margin of safety and to
avoid any “significant risk to public health.” Not having ever known a
government agency to not find further regulation feasible, we can assume
that the DHS will find the setting of permissible exposure limits to be
feasible. Then, the question becomes: “What are the limits”?
When the DHS commences preparation of the “permissible
exposure limits,” “practical standards” to assess the public health threat
of molds; mold identification guidelines and mold remediation guidelines, it
is required to provide notice electronically on its website informing
interested persons that the DHS has initiated work on the applicable
standard or guideline and setting forth a brief description or bibliography
of technical documents or information the DHS has identified to date as
relevant to the preparation of the standard or guideline. The notice
shall also inform those who wish to submit information concerning exposure
to molds of the name, address and person in the DHS to whom information may
be sent, the date by which the information must be received in order for the
DHS to consider it in the preparation of the permissible exposure limits and
that all information submitted will be made available to any member of the
public who makes the request. Currently, the DHS website can be found
at
http://www.dhs.ca.gov.
It is important that people in the real estate, loan
servicing, foreclosure and lending industries participate in this process so
that standards are not set so as to be unduly restrictive having a
potentially devastating impact on the real estate market, on the
availability of housing, on the availability of financing and on the value
of real property.
Once the DHS propounds standards, it may amend the
permissible exposure limits to a lesser standard based on the same criterion
as the original exposure limits that were set, as long as it is done through
clear and convincing evidence (i.e., a standard that is far more
difficult to achieve than that required to initially set exposure limits).
Therefore, once permissible exposure limits are set which are too high,
lowering them may prove to be difficult, if not impossible.
Common Elements.
In SB 732, the DHS is entitled to review and adopt EPA
or similar agency standards and guidelines for the purpose of adopting
national standards and guidelines.
Each standard and guideline is to be developed under
procedures that balance protecting public health with technological and
economic feasibility.
In addition, the DHS is required at least once every
five years to review and amended the standards and guidelines based upon the
criteria originally set forth in the Health and Safety Code, if there are
changes in technology and treatment techniques that permit a materially
greater protection to public health, or, if the scientific evidence that
indicates molds may present a materially different risk to the public heath
than was previously determined.
The Act repeatedly provides that neither its provisions
nor the standards or guidelines shall require air or surface testing to
determine the presence of mold exceeding the permissible limits or which may
constitute a health threat. This recognizes the extraordinary cost
that may be involved if every improved real property is required to be
tested or if the potential liability from not testing has the effect of
requiring testing.
In adopting standards and guidelines, the DHS is to
prepare a property inspection reporting form to document the presence of
mold. The DHS must issue a report on its progress regarding the
standards and guidelines to the Legislature by July 1, 2003.
The DHS is required to make information on contracting
for removal of mold available to the public on request as well as the
remediation standards once they are developed.
DISCLOSURES
The real estate and lending industries should not
overlook the opportunity to have input into the permissive exposure limits,
practical standards, mold identification guidelines and remediation
guidelines. However, most licensees are more focused upon the
disclosures required by SB 732. None of the disclosures created under
SB 732, become effective, or are required, until either the January 1 or
July 1 that occurs six months after the DHS adopts the permissible standards
and guidelines required by SB 732. Undoubtedly, this will be several
years away, at least. Assuming the Act is not amended in the meantime,
the following disclosures will be required.
Seller/Transferor of Commercial or
Industrial Real Property
The seller/transferor of commercial or industrial real
property will have to give a written disclosure to a prospective buyer as
soon as practicable before the transfer of title, when the seller or
transferor knows of the presence of mold that exceeds the “permissible
exposure limits” or that poses a health threat pursuant to DHS guidelines.
Obviously, at this juncture, no one knows what the future “permissible
exposure limits” will be or what will constitute a health threat pursuant to
the future guidelines. Of concern, however, is even once the
“permissible exposure limits” and guidelines are established, how will one
become aware (i.e., know) of the presence of mold that exceeds the
permissible exposure limits or poses a health threat pursuant to DHS
guidelines? The issue of “knowledge” is vague.
As actual air-surface tests are not to be required, one
assumes that this will be disclosed by either an inspection report issued in
the course of selling or financing a property or through complaints from
tenants. Part of the problem is that even if permissible exposure
limits and guidelines are established, it is very difficult and problematic
for a real restate licensee to be able to determine whether the limits are
exceeded or whether there is a health threat pursuant to DHS guidelines.
Undoubtedly, inspections companies will provide this service (giving
opinions on these matters). However, the hope is not to have to
inspect in every case. Do the unusual sensibilities of one tenant in a
200-unit apartment building require that the landlord do further testing of
the complaining tenant’s unit or all of the units in the apartment building?
These and other questions that might lead to either knowledge of the problem
or to liability remain unanswered.
The Act provides for an exemption from disclosure where
the seller/transferor has effected remediation according to the DHS
guidelines. Again, there are no requirements for air or surface tests
to determine whether mold is present exceeding the permissible limits which
post a public health threat pursuant to DHS guidelines.
Commercial/Industrial Landlords
Commercial/industrial landlords are required to give a
written disclosure to a prospective tenant when the landlord knows
that there is mold in the unit or building that exceeds the DHS permissible
exposure limits or poses a health threat under DHS guidelines. The
disclosure is to be given as soon as practicable and prior to entering into
the rental or lease agreement. With respect to current tenants in an
affected unit (the Act does not in this instance reference the entire
building), the notice is to be given as soon as reasonably practicable.
Unfortunately, the Act does not say as soon as reasonably practicable from
what point in time. One assumes that it is from actual knowledge of mold
exceeding the permissible exposure limits or from actual knowledge of a
public health threat under DHS guidelines. Again, the disclosure need
not be made if the landlord has effected remediation pursuant to DHS
remediation guidelines and there will be no requirement for air-surface
testing to determine these facts.
Obligations of Tenant in
Commercial/Industrial Real Property
If the tenant of commercial/industrial property
knows that mold is present in the building, heating system,
ventilation or air conditioning system, or appurtenant structures, or that
there is a condition of chronic water intrusion or flooding, the tenant is
obligated to notify the landlord of those conditions within a “reasonable
period of time”. The tenant is required to make the property available to
the landlord or the landlord’s agent for appropriate assessment or
remediation as soon as reasonably practicable where the landlord is
responsible for maintenance. By implication, therefore, if the tenant
is responsible for maintenance of the problems leading to the presence of
mold, chronic water intrusion or flooding conditions, he/she will be
obligated to remedy the problem. Landlords, however, should be
concerned that failure of the tenant to remedy these problems could lead to
substantial cost when the tenant vacates the premises leaving unremedied
toxic mold problems.
A commercial or industrial landlord who knows that mold
is present in the building, heating system, ventilation or air conditioning
system, or appurtenant structures, or that there is a condition of chronic
water intrusion or flooding, has a duty to assess and conduct the necessary
remediation. Apparently, notice from the tenant will trigger this
duty. The exception to this rule is where the tenant is obligated by
the contract to maintain the property “including remediation.”
Even before the disclosure provisions of SB 732 become effective, it would
be wise to start including in all new leases a provision that a tenant has a
duty to maintain the property, and an express obligation that the tenant’s
duty includes remediation caused by the presence of mold, chronic water
intrusion and/or flooding.
Where the tenant is responsible to maintain the
property and for remediation, he/she is required to give notice of the
condition to the landlord in writing, and as soon as reasonably practicable,
to correct the condition in compliance with the terms of the lease.
Public Entity Disclosure
Public entities that own, lease or operate a building
are required to give a written disclosure to all building occupants and
prospective tenants when the public entity knows, or has reasonable cause to
believe, that a condition of chronic water intrusion or flooding exists, or
that mold, both visible and invisible or hidden, is present that affects the
building or unit and the mold either exceeds permissible exposure limits or
poses a health threat according the DHS guidelines. The notice is to
be given to the tenant occupants as soon as reasonably practicable and prior
to their entering into a lease. With respect to current
occupants/tenants of a building, the notice is to be given as soon as
reasonably practicable (we again assume this duty arises from the time of
knowledge or notice to the public entity).
Once again, the notice is not required where there has
been remediation pursuant to DHS guidelines.
Residential Landlords
Residential landlords are required to give a written
disclosure when the landlord knows, or has reasonable cause to believe, that
mold, both visible and invisible or hidden, is present that affects the unit
or the building and the mold either exceeds permissible exposure limits or
poses a health threat according the DHS guidelines. Again, there is no
obligation to do air or surface testing; the disclosure arises from actual
knowledge.
The notice must be given to the tenant prior to
entering a residential rental or lease agreement. As to current
tenants, notice shall be given to a tenant in an affected unit “as soon as
reasonably practical.” There is a remediation exception where the
remediation is pursuant to DHS guidelines.
In addition, residential landlords must also give a
written disclosure of the potential health risk and health impact from
exposure to mold by distributing a consumer oriented booklet developed and
disseminated by the DHS. (Health & Safety Code section 26148). This
book must be given to the prospective tenant before entering into the rental
agreement or lease. Unlike many consumer statutes, this Act does not
distinguish between one to four and larger residential properties.
Enforcement
SB 732 expressly does not change or affect existing law
including the warranty of habitability, statutes or ordinances relating to
habitability and/or common law. Nothing in the statue affects or
impacts any disclosures that would be required currently under common law or
under Civil Code §§ 1102.6 and 1102.6(a). Nothing in this Act affects
the real estate licensees’ duty to make a reasonably diligent visual
inspection pursuant to Civil Code § 2079.
The Act provides that public health officials, code
enforcement officers, environmental health officers, city attorneys, and any
other appropriate government entities may respond to complaints about mold
and may enforce standards adopted by DHS as well as the disclosure
requirements imposed by the code. The Act provides that the disclosure
enforcement guidelines shall include development of a form of disclosure and
penalties, if any, which may be imposed for failure to disclose. There
is an exception that no penalty shall be imposed against an owner for
failure to disclose where the owner provides a disclosure to the tenants in
a form which substantially conforms to the disclosure form developed by DHS.
Local enforcement will not start until either the January 1 or July 1 that
occurs at least six months after development by DHS of the disclosure
enforcement guidelines.
DHS is permitted to create regulations similar to those
created by the Commissioner of the Department of Real Estate.
It is currently unclear the extent to which the Act may
be bootstrapped into actions under the Unfair Business Practices Act
(Business & Professions Code § 17200, et seq.) and the Consumer Legal
Remedies Action frequently employed by plaintiff’s counsel. (Civ. Code §§
1750, et seq.)
Post-Mortem
Because of the rising tide of litigation and insurance
claims, there is a rapidly rising consciousness of toxic mold in indoor
environments and its impact on real property. Real estate agents,
lenders and principals already have to address what may be the appropriate
disclosures to be given when selling or leasing real property that may have
a toxic mold problem. The imposition of standards pursuant to SB 732
may prove to reduce, and not increase, owner/lender/landlord liability, as
long as the real estate, foreclosure and lending industries have input into
to the standards and guidelines established pursuant to the Act. It is
important that the standards and guidelines are formulated on a rational,
scientific basis balancing public health, economics and technology. If
groups who often use junk science to justify their political ends prevail,
disturbing the balance, there will be a massive shift of wealth from real
property owners to the new toxic mold inspection and remediation industry,
increased REO and holding costs and lower sales prices of real property.
The result, however, for real estate licensees and foreclosure trustees may
be to become ensnarled in further lawsuits over problems for which they have
little or no control. To determine the actual impact of SB 732, we
will have to wait until the DHS issues its permissible limits, practical
standards, guidelines and disclosures.
Several areas, however, need to be addressed before the
DHS concludes its studies and makes recommendations to the legislature.
In particular, is the classical situation of forced sales. In
trustee’s sales, execution sales and probate sales, the sellers are
generally not in a position to know much about the property. The foreclosure
trustee or sheriff rarely has access to the property or detailed information
about the property. These sales are sold sight unseen with little or
no contact with either the tenants and/or the former owner. Absent an
express exclusion for these types of sales, it is likely that the toxic mold
Act will be used to chill bidding at these involuntary sales or, at least,
the Act will have that effect. While overlooking it to date, the
Legislature should consider a similar exclusion to that set forth in the
real property disclosure law found in Civil Code §§ 1102, et seq.
Civil Code § 1102 expressly excludes many of the situations referenced above
including sales or transfers involving foreclosure.
While such an exclusion would be helpful, it does not
resolve the problems that exist by common law, whereby a lender has notice
in its file of a problem affecting the value and desirability of a property
and is required under common law to give notice to prospective buyers.
(Karoutas v. Home Fed. Bank (1991) 232 Cal.App.3d 767; Civ.Code §
2924h(g).) Lenders and trustees will have to assess the extent to
which Karoutas disclosures must be made.
In addition, for sales and leasing agents, owners and
landlords, it is unclear what their respective duties would be when a tenant
claims that he/she is affected by mold but there is no other information
indicating a problem. When and how much investigation must be done for
an ultra-sensitive tenant? Will there be any obligation of the
landlord if the mold is within the permissible exposure limits?
Real estate licensees may begin to recommend
inspections in every sale if for no other reason than to decrease the risk
of becoming embroiled in litigation. Doing so, while eliminating
problems up front, will undoubtedly be unpopular with the principal/sellers
who have no knowledge of mold problems at the time the property is put up
for sale. Rather than deal with the required remediation, may
owner/sellers, particularly in a declining market, will let the lender take
the secured property back in foreclosure. Buyers’ agents, on the other hand,
will be inclined to recommend inspections for fear that not doing so would
be viewed as a breach of fiduciary duty imposing liability upon them.
Every mold report that indicates a problem may give actual knowledge that
could evoke the provisions of the Act. This, unfortunately, will impact
lenders who are concerned about acquiring through foreclosure real
properties that have toxic mold problems, that are involved in litigation
and that require substantial remediation costs. As such, it is likely
to become common for lenders, particularly in commercial loan transactions,
to require in addition to Phase I environmental inspections and reports, a
report that includes inspection and reporting for toxic mold.
The result of SB 732 is that we are likely to have
inspections in most cases involving sales or long-term leases. This
will create or expand an inspection and remediation industry. Soon we
will know more about molds that anyone ever wanted to know. It is
unclear whether anyone knows whether or not the scope of the real problem
merits the kind of response anticipated in SB 732.
All else being said
and done, the real estate and lending industries have time and an
opportunity for input on the standards and guidelines under SB 732 and
should have ample time to address either amendments to the Act and/or the
nature and extent of disclosures that will be required.
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