Failure to identify and address such issues may result in parties unknowingly assuming substantial liabilities.

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.

RADON GAS

Radon is a radioactive gas produced by the decay of uranium found in rocks and soil. As it is invisible, odourless, and tasteless, testing is required to identify its presence. Outdoors, radon is diluted and is not a health concern. Indoors, radon is in an enclosed area and can accumulate to high levels where it can be a health risk. Current guidelines for radon in indoor air for dwellings is 200 Becquerels per cubic metre (200Bq/m3 ).

Radon gas has the potential to cause lung cancer, with approximately 16% of lung cancer deaths in Canada related to radon exposure.

The presence of radon in soil and rocks is not the only factor affecting the level of radon gas in dwellings. Certain housing factors relating to style and homes being more airtight can also lead to higher levels:

• Larger square footage.
• High ceilings.
• House style (a bungalow will have higher levels than a 3-storey).
• Newer windows.
• Roof insulation with high R-value.
• Homes with heat recovery ventilators (HRV).
• Age (newer properties are more likely).

Under Tarion’s New Home Warranty, homeowners are provided up to $50,000 of coverage for radon levels that are above the guideline set by Health Canada.

The Government of Canada has produced two resources to assist in understanding radon and how it can enter a home: Radon Gas – It’s In Your Home and Radon in Real Estate.

A survey was completed between 2009 and 2013 showing the three Ontario public health units that had the highest percentage of homes with radon concentration of 100 Bq/m3 or more:

• Windsor-Essex County: 44.1%
• Chatham-Kent: 39.8%
• Leeds, Grenville and Lanark District: 41.7%

The Canadian – National Radon Proficiency Program’s website allows users to insert a postal code and see the statistics for the number of properties tested and the number/percentage that were above the guidelines.

Owners can test the radon levels in their home with a DIY kit. Owners can also hire a radon measurement professional.

UREA FORMALDEHYDE FOAM INSULATION

Urea Formaldehyde Foam Insulation (UFFI) is a type of insulation that was used in the 1970’s to retrofit older buildings. It is a low-density foam that looks like shaving cream but becomes hard when it is dried/cured. UFFI can be white, cream, or blue in colour.

The concerns with UFFI are that once installed, formaldehyde gas could be released during the drying/curing process. If UFFI gets wet or is installed incorrectly, it can release increased amounts of formaldehyde gas. Once wet, the growth of mold or fungus could occur. If there are signs of these conditions, UFFI should be removed. Homes built after 1980 will not have UFFI. When inspecting a home, REALTORS® can take the following steps as an initial investigation into the possibility of its presence:

• Homes with UFFI can show injection holes in the exterior siding. This does not guarantee that UFFI was injected, but it does indicate something was injected.
• Look in the basement to see if the foam is visible where the floor joists meet the outside wall.
• Check behind outlets and switches.

VERMICULITE INSULATION

Vermiculate insulation is a silver-gold/gray-brown pebbly substance. It is a lightweight, fire-resistant, chemical-resistant, and odourless product. It was often used in insulation between the 1950’s and the mid-1980’s because it is fire-resistant.

The concern with vermiculite insulation is that some vermiculite can contain asbestos fibres, which can be connected to health issues if inhaled. The health issues include asbestosis, mesothelioma, and lung cancer. If the insulation does not become airborne, remains enclosed, and is not disturbed, there may not be cause for concern. Testing should be done by a specialist in asbestos abatement.

KITEC PLUMBING

Kitec plumbing is plastic pipe reinforced with aluminum that was commonly used in homes built, or repairs made, between 1995 and 2007. It was sold under a variety of brands. It was used for hot- and cold-water supply lines, along radiant heating systems, and under-floor heating systems. Rather than copper supply lines, Kitec plumbing is either blue or orange/red. The blue pipes carry cold water while orange/red pipes carry hot water.

The concerns with Kitec plumbing are:

• It is vulnerable to premature failure.
• The pipes/fittings tend to corrode quickly and can fail entirely.
• It can lead to water damage and costly repairs.
• Insurance can be costly, or it can be excluded from coverage.
• The high costs of retrofitting and replacements.

LAND CONTAMINATION

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.

FUEL OIL TANKS

Fuel oil tanks are used to hold the oil to heat a home. The tanks can be aboveground (either outside or in the basement of a home) or underground (buried). Improper fuel storage and handling can cause environmental damage as it is difficult to identify leaks in an underground oil tank.

The Technical Standards and Safety Authority (TSSA) is Ontario’s public safety regulator which enforces consumer protection and public safety laws. Fuel oil tanks fall under their authority, which includes regulating the transportation, storage, handling and use of fuel oil, and investigating violations. Leaks must be inspected by a TSSA-registered contractor and any required clean-up must be completed.

Persons repairing, installing, removing, or servicing underground fuel oil tanks must be trained and certified. Aboveground tanks do not need to be replaced unless they are leaking. Underground tanks must be registered with the TSSA, and any unused underground tanks must be removed.

MOLD CONTAMINATION

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. 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.

GROWTH/MANUFACTURE OF ILLEGAL SUBSTANCES

There can be a substantial impact on the sale of real estate when a property is/was a marihuana grow operation. This includes:

• A loss in the property’s value.
• A stigma can exist for years after it has ceased.
• This would likely be considered a material fact for a buyer.
• There can be tampering with the electrical system.
• Mold and fungus can be present due to the high amount of humidity.
• Poisonous gas and chemicals are used in the production.
• The property can experience increased violence.
• The property could have booby traps for unexpected visitors.

There are also several indicators that a home is/was a marihuana grow operation that a REALTOR® should be aware of:

• Rental properties are commonly used.
• Access is only through the garage.
• Windows are covered.
• Unusual garbage.
• Hydro meter is tampered with.
• Props are used to imitate residential use.

Information and photos of marihuana grow operations can be found on the Royal Canadian Mounted Police website.

ASBESTOS CONTAMINATION

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.

LEAD PAINT

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.

REPRESENTATIONS AND WARRANTIES

Sellers ARE REQUIRED BY LAW to disclose material latent defects. They are also required to disclose hidden defects that would be expensive to fix, government and local authority notices, and lack of development permits. Latent defects or Hidden Damage are defects to a property that are not generally discoverable by a prospective purchaser on a reasonable inspection and ordinary vigilance.

Failing to disclose a latent defect might be considered misrepresenting the state of the property and lead to litigation. Even if a seller does not have direct knowledge of a latent defect, they may still be liable if they were willfully blind about the existence of the defect. A seller who attempts to hide or cover up a defect faces additional liability.

A representation is an assertion as to a fact, true on the date the representation is made, that is given to induce another party to enter into a contract or take some other action. A warranty is a promise of indemnity if the assertion is false. A material latent defect is a physical defect that is not discernible through a reasonable inspection, and makes a property: dangerous or potentially dangerous to the occupants, unfit to live in, unfit for a buyer’s purpose, should that purpose be known to the sellers or by the industry professional.

SUMMARY

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.

The Code of Ethics contains several sections relating to the conduct of a registrant and their obligations to treat everyone with honesty, good faith, and integrity, and to promote a client’s best interests. General regulation section 22.1 requires a registrant to take reasonable steps to determine and disclose the material facts relating to a client’s acquisition or disposition of an interest in real estate.

OREA RESOURCES

• OREA Form 200 – Seller Property Information Statement, 299 – Seller Disclosure Latent Defects and Form 820 – Residential Information Checklist can be used to obtain information from a seller about their property’s potential environmental concerns and many other aspects of their property.
• OREA Standard Clauses can be included in an Agreement of Purchase and Sale to address these environmental concerns. Members can access the Standard Clause Booklet here: https://www.orea.com/standard-forms-clauses.
•  The REALTOR® In Residence hosted a Radon Gas and Other Environmental Concerns webinar as part of the REALTOR® Is In series. Watch the recording here: https://www.orea.com/realtorisin

Published with exerts from an Ontario Real Estate Association (OREA) publication.