Preventive Law Approaches to Mold Issues in Commercial or Multifamily Buildings

Jonathan P. Scoll
Lindquist & Vennum, P.L.L.P.
Minneapolis, Minnesota

Legal liability for mold remediation, or for damages from mold infestation, becomes complex and uncertain when multiple parties or interests are involved. This article focuses on "preventive law" measures in the commercial and multifamily context, in particular, lease and common interest community (CIC) drafting. Since the topic is comparatively novel, what is offered here is necessarily tentative; the object is to encourage similar - and hopefully better - practices by the environmental practitioner.

Commercial/Office Leases

The starting point in the landlord-tenant situation will typically be the common law, which may still be relevant to the overall scope of the client's duty. While state statutes have largely done away with common law standards in the residential landlord-tenant context, common law rules may yet apply in the commercial landlord-tenant relationship. (See, e.g., Soltis vs. Hovey, 1998 Minn. App. LEXIS 1177 (no landlord implied covenant of suitability where water leaked through roof).) Thus, the parties often go to great lengths to negotiate "estoppel certificates," or the like, whereby the tenant accepts certain conditions of the premises at the inception of the leasehold. The nature of mold, however, is such that in some instances more may be required: a formal investigation carried out by an environmental engineering firm, in much the same manner as a Phase II environmental investigation. The investigation may include - in addition to inspection of heating, ventilating and air conditioning (HVAC) systems and plumbing - destructive testing of walls or other surfaces where leaking conditions or incipient mold growth may be concealed. Such a report, whether obtained by landlord or tenant, will provide a valuable baseline should mold problems later develop.

The lease drafter should also consider, in crafting or negotiating the repair clause, the fact that preventing water infiltration (e.g., by roof or HVAC repair) may not be sufficient. The landlord's drafter may want a broadly-framed ongoing right to inspect the entire premises for visible signs of mold. If mold indications appear, the document should then spell out the parties' responsibilities. For example, if the repair obligation is on the tenant in the first instance, the landlord will want a right of entry, to proactively address and remedy the mold condition, before it spreads.

Since mold does not respect property boundaries or demising walls, issues may also arise as to responsibility of the parties for mold which emanates from "next door," that is, an adjoining tenant or occupant. Tenant will want landlord to "police" adjoining uses, and even agree in advance to address conditions before they spread to its property; landlord will want to limit such exposure, and remit the tenant to its rights, e.g., common law nuisance, negligence or trespass, directly against the offending neighbor. Regardless of the outcome, the parties should discuss the issue, in the larger context of responsibilities for detrimental offsite conditions generally, and resolve it in drafting, rather than leave it to litigation.

Hotels

Hotels and hospitality facilities present unique issues, on account of the higher standard of care owed, at common law (and by statute) by innkeepers to guests, and the potential economic loss to the owner should the facility be forced to shut down or curtail operations during a mold remediation. Preclosing due diligence in a hotel acquisition should, as a matter of course, include the engineering investigation described above. Management contracts should detail periodic mold inspections and preventive maintenance responsibilities with some particularity; the specifications for these should be developed by an environmental engineering firm familiar with mold and mold remediation.

When a mold outbreak occurs in a hotel, management's first reaction may be to prevent the bad news from "stigmatizing" the facility and reducing traffic. The practitioner, however, should focus on clear and truthful communication to, and protection of, not only the public, but, equally important, to facility employees and staff, who may have greater exposure. This may involve a delicate but necessary "balancing act" between the owner's economic interest and the health and welfare of the employees. As a practical matter, the facility will want to engage not only a reputable and experienced mold remediation contractor, but also an environmental engineering firm capable of conducting project oversight and air monitoring as the work progresses. The engineer will prepare a work plan, including periodic air sampling, site safety standards, engineering controls, decontamination procedures, and "clearance" or sign-off procedures for rooms or floors as the job progresses. The mold "team" - contractor, engineer and lawyer - should meet frequently to review progress, discuss sampling results, contractor work practices, and employee and public communications, and make "course corrections" as necessary.

Common Interest Communities

Much the same procedures would be followed in a multifamily building, such as a condominium, townhouse or cooperative ("common interest community," or "CIC"). The situation here, however, is complicated by the multiple ownerships involved, and the division of maintenance and repair responsibilities between owners (for their units) and the owners' association (for the common elements or common areas). The first legal issue to surface will typically be: whose mold is it, anyhow? The maintenance responsibility of the association typically "ends" at the unit boundary; unfortunately, the mold growth doesn't. The association may indeed be liable to an owner for mold growth in a unit, which originates in common elements, such as plumbing risers. (See, e.g., Ziesche vs. Brentwood Sunset Management Inc., No. SC053952, Calif. Super. Los Angeles Co., in which a condo owner settled with her association for $295,000; she claimed the association's negligent failure to repair a leaking water pipe caused her damages.)

On the other hand, where the mold originates from a condition in the unit clearly attributable to the unit owner's negligent maintenance of interior items which are the owner's responsibility, under the organizing documents of the particular housing complex, the association will not be liable and may in fact have a claim over against the unit owner for resulting damage to common areas or elements. (Busby vs. Groves Homeowners Association, Inc., 2000 Minn. App. LEXIS 949 (Sept. 5, 2000) (housing cooperative corporation not liable where mold in unit attributable tenant's failure to maintain her own plumbing).)

While standard CIC documents, following state statute, create a clear separation between the maintenance and repair obligations of individual unit owners, and those of the association, consideration should be given to allowing the association a flexible "police power" to require or conduct periodic mold inspection in units, to require owner preventive measures or remediation and even to enter units and undertake such actions, and assess the unit owner for the cost, should the owner fail or refuse to do so. (Cf. Uniform Common Interest Ownership Act (National Conference of Commissioners on Uniform State Laws, 1994) ("UCIOA"), Section 3-107 (Upkeep of Common Interest Community): Except to the extent provided in a CIC "declaration," the association is responsible for maintenance and repair of "common elements" and the unit owner is responsible for maintenance and repair of the "unit," as well as any damage "inflicted" by such unit owner on "common elements.")

Since few CIC organizing documents (declaration, articles of incorporation of association, and bylaws) are drafted with such broad "police powers" in mind, the association may have to adopt such policies and procedures as administration regulations or "house rules." Whether it has the power, in a given instance, to do so, may depend on how the CIC organizing documents themselves are drawn, or state law. (Cf. UCIOA Section 3-102 (Powers of Unit Owners Association): Subject to provisions in declaration, the owners association has power to adopt and amend bylaws and rules and regulations.)

One senior citizen condominium with which the author is familiar requires, by a house rule, as a precondition to its issuance of a "resale certificate," that the unit seller furnish to it, and the buyer, the results of a current mold inspection. (UCIOA Section 4-109 (Resales of Units): The owners association, upon request of a selling unit owner, must furnish a certificate as to certain matters pertaining to the unit and the operation of the association, enumerated in that section.)

If mold is discovered in more than one unit, or in a combination of units and common elements, the association, and its lawyer, will face the issue of potential conflicts between the interests of individual unit owners in avoiding liability and expense, and the association's interest in a comprehensive solution, and the collection of remedial costs from unit owners affected, as opposed to the levy of assessments on owners as a whole. Likewise, the association will usually want to approve and hire a single contractor and a single environmental consultant. Unit owners may want their own contractor and may wish to avoid hiring a consultant. If, as the author believes, mold growth and remediation represents a unique problem as a public health issue in the CIC context, the association should be able to find a source of authority, either by inference from its documents or by analogy to the public's "police power," to address remediation comprehensively, and without regard to ownership issues. Liability claims and defenses may be preserved, for example, by comprehensive inspection and testing by the association's consultant as work progresses, with unit owners (and their counsel) entitled to receive inspection data and reports. In short, the nature of the problem requires that it be addressed swiftly, with liability issues, if any, thrashed out later.

Again, clean and accurate communication to residents is essential. Formal or informal unit owner meetings should be scheduled, with informational material furnished to residents; the association's consultant, contractor and counsel should participate in such sessions. The counsel needs to clarify his/her role as the association's advocate, and advise members with severely affected units or potential liability, and of the need to obtain separate representation. Here, as in the other examples described, the lawyer's ability to articulate and communicate issues, and formulate solutions - the core skill of the environmental lawyer - will be central to the process.