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Environmental Issues in Real Estate Transactions

Written by: Barry Needleman

Environmental issues routinely arise in all types of real estate transactions, from the sale of individual residences to the transfer of large commercial and industrial facilities. Managing the associated risks is almost always possible. The bigger challenge tends be initially spotting environmental issues. Failure to identify and address such issues may result in parties unknowingly assuming substantial liabilities.

Land contamination is often the environmental concern that receives the most attention in real estate transactions. This contamination may originate either on the site (from the activities of present or past owners) or from off-site sources. Since the site owner's liability may vary depending on the context in which the contamination arose, locating its source is important in order to quantify the potential risk and allocate responsibility. Moreover, such issues may become even more complicated if there are drinking water supply wells on or near the property.

Mold contamination is becoming a subject of increasing concern. Mold contamination generally arises in buildings that have been poorly constructed or lack adequate ventilation. Different types of mold may breed in the air circulation systems and walls of a structure. While the presence of moisture and mold can result in significant physical damage to the structure, several types of mold are also toxic and can cause a variety of medical conditions. Several high-profile law suits have recently succeeded in securing substantial personal injury judgments as a result of exposure to toxic molds. In fact, several mold cases are presently being pursued here in New Hampshire. The insurance industry has been paying particular attention to mold in recent years because of its potential to generate substantial claims related to both property damage and personal injury.

The possible presence of mold is certain to become an increasingly important issue for anyone who owns residential, commercial or industrial buildings not only because property damage could be excessive, but also because residential tenants and employees working in commercial and industrial establishments could, inadvertently, be exposed to toxic molds. Landlords and employers should take care to evaluate these issues. Moreover, anyone owning properties should carefully consider to what extent old and new insurance coverage may be available to offset such liabilities.

Asbestos is another area of concern. Asbestos may be found in numerous places, including as an insulating material in pipes and boiler rooms, in flooring and in roof shingles. Although it tends to be more problematic in commercial and industrial buildings, asbestos issues also may arise in older residential properties. The cost to abate asbestos problems, or to properly dispose of materials containing asbestos, could be substantial. Therefore, as with all environmental issues, it is always wise to ensure that any potential asbestos problems are identified, and liability for dealing with such problems is carefully allocated, prior to the real estate closing.

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Radon, another potential contaminant, is an issue of special concern in New Hampshire because of the State's geology. Radon is a colorless, odorless, radioactive gas which can enter structures both through the water and the air. It is becoming increasingly common in residential real estate transactions to have the air and water tested for the presence of radon. Although there are still no uniform standards governing the "safe" level of radon in water and air, there are some guidelines that may be useful for evaluating the extent of a problem. In either case, at a minimum, sampling should be done to confirm the presence or absence of radon and to at least provide prospective purchasers with some baseline for determining whether they want some abatement action to occur prior to closing on the property.

Similarly, lead paint is another issue of concern, particularly in residential transactions involving older properties. Young children are especially susceptible to lead-related injuries, usually from ingesting lead paint chips. Lead paint chipping from the outside of residential structures can also contaminate the surrounding soil. Most people with vegetable gardens are aware of the problems associated with such soil contamination. Before purchasing any older structure, it may be wise to have it evaluated for the presence of lead contamination. Informed decisions can then be made about the extent to which abatement, if any, is necessary.

Numerous tools exist for managing all of the environmental problems discussed above. However, before any of these problems can be managed, they must be identified. Frequently, environmental consultants are best suited for that task. Basic environmental assessments have become a standard component of most real estate transactions. Moreover, in many cases such consultants are retained through environmental attorneys so that the work product they generate will be subject to the attorney/client privilege. This can be especially beneficial if substantial problems are identified that trigger regulatory requirements. Ultimately, the key to addressing these issues is obtaining reliable information about the property, understanding the implications of that information and managing the issues correctly and efficiently.

Attorney Needleman is a director who works in the Concord office of McLane, Graf, Raulerson & Middleton. As a member of the firm's Environmental Group, he frequently conducts on-site environmental audits for business clients. His practice spans all areas of environmental law with a focus on the Clean Air Act and representing policy holders in environmental insurance coverage litigation. He can be reached at (603) 226-0400, or by e-mail at [email protected].

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