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Updated on January 02, 2008
October 2003
Volume 20, Number 1
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Legal Matters

  Best of the Legal Hotline - Environmental Issues

by Debbi Conrad & Tracy Rucka

The following questions concerning methamphetamine labs, radon, asbestos and other environmental testing issues were recently asked of the Legal Hotline.

Methamphetamine Labs

Q. What disclosures are necessary for properties that have been used as methamphetamine labs? What are the proper clean up procedures?
A.  Methamphetamine (meth) is a man-made amphetamine, produced and sold illegally in the form of pills, powder or chunks. Meth, like cocaine and other amphetamines, has affects on the central nervous system like those of adrenaline, and is extremely addictive. Common street names for methamphetamine include: speed, crank, ice, glass and crystal. Possession of methamphetamine is a felony offense in Wisconsin.

According to the Wisconsin Department of Justice, the incidence of meth production in meth labs is relatively low in Wisconsin when compared to other states, but it is on the rise. Homemade meth is produced in makeshift labs set up in homes, apartments, hotel rooms, mobile homes or other buildings. Although the ingredients used to produce meth are readily available products, the chemical "cooking" process to make meth may release toxic gases and residual hazardous waste materials in the lab and throughout the building.

There have been reported cases of illness resulting from lab residue and some reports of structural property damage have been documented. The health effect resulting from chemical exposure depends on the quantity and nature of chemicals, the length of exposure, and the personal health of the person exposed. Exposure to meth chemicals and the residues remaining in a meth lab may cause health problems such as nose and throat irritation, headaches, dizziness, nausea, vomiting, decreased mental function, lung damage, severe eye damage, anemia and kidney damage. Children are generally at higher risk than adults.

Because of the potential health implications, REALTORS generally should disclose the current or prior presence of a meth lab on the premises as information suggesting the possibility of a material adverse fact. Wis. Admin. Code § RL 24.07(3) states that a licensee is practicing competently if he or she makes timely written disclosure of the information suggesting the material adverse fact to all parties to the transaction. This rule also recommends that the parties obtain expert assistance to inspect or investigate for the possible material adverse fact, and, if directed by the parties, the licensee should draft appropriate inspection or investigation contingencies.

The Wisconsin Department of Public Health (DPH) is developing guidelines and regulations for meth lab clean ups. In the meantime, the DPH recommends the "Cleaning Up Hazardous Chemicals at Former Meth Labs" fact sheet at www.dhfs.state.wi.us/eh/ChemFS/fs/MethClnUp.htm as a useful resource. The DPH recommends that any meth lab remediation be undertaken by environmental companies that specialize in hazardous material cleanup.

Additional information concerning methamphetamine and meth lab clean up may be found at www.kci.org/meth_info/meth_cleanup.htm. The Minnesota Department of Health also has extensive materials concerning methamphetamine and meth labs at www.health.state.mn.us/divs/eh/meth/.

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Phase I and Phase II Environmental Assessments

A Phase I Environmental Assessment is an audit of a site to identify all potential or known areas of environmental contamination. A Phase I is an "above ground" assessment, with no intrusive investigation into subsurface soils or groundwater. A Phase I assessment may include, but is not limited to, reviewing records, interviewing persons, and conducting inspections of the site. See Legal Update 95.10 for further discussion of Phase I Environmental Assessments. The American Society of Testing and Materials ("ASTM") has developed guidelines in an attempt to standardize the elements of a Phase I.

By comparison, a Phase II Environmental Assessment consists of a "below ground" investigation using techniques such as soil borings and monitoring wells. A Phase II assessment is conducted to physically confirm the presence or absence of environmental contamination in all potential or known areas identified in a Phase I Assessment. A Phase II assessment, however, does not necessarily determine the nature and extent of contamination. This assessment may include a field sampling of media, laboratory analysis of samples and visual confirmation of environmental contamination of the site.

Q.  Re: Phase I & II environmental assessments on a commercial property. There is no testing contingency in the offer to have the assessments done. The environmental assessments are required for final loan approval. Must the seller allow this?
A. Phase II environmental audits of real estate are performed if a Phase I audit shows the presence or likely presence of a hazardous substance or pesticide. Phase II environmental site assessments are primarily employed after evaluation of the Phase I audit results to acquire and measure contaminant levels at the site and to help define the cost and extent of possible future clean-up.

Although the buyer may not be able to obtain this financing, the seller is not required to allow the testing that would likely be needed to complete a Phase II environmental audit. The offer to purchase dictates the agreement between the buyer and seller, so the buyer would have to ask for an amendment to the offer to authorize the assessments.

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Q.  Re: Phase II Environmental Assessment where formaldehyde is found in the soil. The property was previously used for research on frogs and the researchers apparently used the floor drains of the outbuildings to pour out formaldehyde. What liability do the buyers take on if they buy the property?
A. The parties should be referred to environmental experts specializing in environmental spills and remediation to analyze the Phase II reports and advise the buyer on remediation options and funding. This is a legally complex area because both state and federal law regulate environmental contamination. The parties should confer with environmental attorneys for a complete analysis of the potential liability involved and for a determination of whether an acceptable allocation of risk can be arrived at by negotiation.

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QRe: Phase I environmental assessment on a commercial building. Is this something that is automatically given upon an accepted offer, or is it something the buyer is allowed to review prior to writing an offer?
A. There are no laws as to when a Phase I Environmental Assessment report must, or even will be, furnished. The seller is not required to provide a Phase I before or after the offer is accepted. The buyer may want to address this issue as a review contingency in the offer.

An agent is writing an offer on vacant land that was originally a junkyard and wants to put a Phase II environmental assessment provision into the offer. Where would the agent put this?

Such a provision would have to be written in as an additional provision or on an addendum. No specific standards have been established for Phase II audits - the nature and extent of the audit will be determined by the specific facts related to the site. Accordingly, it is prudent for the buyer to consult with an environmental attorney who can help develop the appropriate parameters for the assessment and properly draft a contingency for the Phase II, including the standards that will be acceptable. 

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Radon

QThe buyer did a radon test and the radon level was found to be 6.2 picocuries per liter of air (pCi/L), which is higher than the EPA standard of 4.0 pCi/L. The seller does not want to put a mitigation system in. The buyer has a bid of $800 for mitigation. If the buyer does not purchase the home, does the seller or broker have to disclose that there was a high radon reading? Does the seller have to mitigate if the buyer does not purchase the property?
A. Wis. Stat. § 709.035 requires sellers to amend the real estate condition report (RECR) prior to the acceptance of a contract when they obtain information or become aware of any condition that would change a response on the RECR. Provided that the seller amends the RECR and any new prospective buyer receives that report, the broker would not need to make additional disclosures about the test showing the elevated radon level. The seller would not be required to mitigate, unless a subsequent offer to purchase is accepted which requires mitigation.

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QA broker who was working with the buyer was at the inspection when the inspector convinced the buyer to test for radon. There was no radon testing contingency in the offer. The seller was there and signed a letter promising to not open the doors and windows to the basement more often than normal. Now the inspector says the test result is 5.9 pCi/L and the buyer is demanding that the seller do remediation, which will cost about $800. The deadline for the contingency has expired. How should the broker proceed?
A. Unless a testing contingency was included, the offer to purchase does not grant the buyer, or his home inspector, authority to test for radon. Because the test was conducted without a radon testing contingency, and tests are not within the scope of the home inspection, the results would arguably not be the basis for a notice of defects. The parties should consult with legal counsel for advice regarding their rights under the terms of the offer.
The elevated radon level might be treated

s a mutual mistake of fact. When both parties are mistaken as to a basic factual assumption on which the contract was made and the mistake has a material effect on their performances, the contract is voidable by the party adversely affected. Under this theory, both parties must have been mistaken about a present or past fact. A mistake by only one of the parties makes a contract voidable only if the party who causes the mistake has reason to know the other party is proceeding based on that mistake.

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QA new construction home in a new subdivision registered positive for radon in excess of an allowable 4.0 pCi/L. Is a REALTOR then obligated on any other new construction homes to disclose to prospective buyers that other homes in that area have tested positive? 
A. Pursuant to EPA booklet "Home Buyer's and Seller's Guide to Radon" [online at www.epa.gov/iaq/radon/pubs/hmbyguid.html], radon levels vary from home to home. A radon myth is that the neighbor's test results are an indication that your home will also have radon. Each home should be independently tested for radon. Radon information may be found at www.epa.gov/iaq/radon/index.html and in Legal Update 01.04.

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Asbestos

QSome small pipes in the basement are wrapped in a material that an agent believes may contain asbestos. How should this be addressed when selling the property?
A. If this issue is not addressed by the seller in the RECR, the agent arguably should disclose any features potentially containing asbestos, like pipe insulation, as potential material adverse facts. The agent may direct the parties to the appropriate experts for further information and investigation, as required by § RL 24.07(3). Asbestos cannot be identified simply by looking at it, unless it is labeled, so the only way to know for sure is to get a sample analyzed. Generally only asbestos material that is damaged or will be disturbed need be tested. If the buyer wants to test for asbestos, a testing contingency will be needed in the offer to purchase.

Generally, undisturbed asbestos which is in good condition will not release asbestos fibers and may best be handled by leaving it alone. Problems with friable or damaged asbestos may be treated by either repair or removal. Repair usually consists of sealing or covering the asbestos material. See Legal Update 92.08 and Legal Update 01.04 or contact the local health department (see directory at www.dhfs.state.wi.us/dph_ops/lhdl.htm) for further information about asbestos.

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QThere are asbestos-wrapped heating pipes in basement of a two-unit. Can the seller remove these himself or must it be professionally done?
A. Certified workers are required for asbestos abatement or asbestos management activities in a school building and several other types of public or private buildings. In an owned or leased residential building of fewer than 10 units, the owner, the owner's employees, the lessee or lessee's employees may be used to abate or manage asbestos. For a list of state-certified contractors, consultants and labs, call the DHFS Asbestos and Lead section, (608) 261-6876, or go to www.dhfs.state.wi.us/dph_boh/Asbestos/CompanyList/index.htm.

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QRe: Asbestos removal. There is a small amount of asbestos in a home. The buyer wants it removed. The broker is trying to explain that part of this can be either be encapsulated or enclosed. What are the resources on asbestos remediation?
A. The EPA's "Asbestos in Your Home" brochure at www.epa.gov/asbestos/ashome.html is a helpful resource for REALTORS and consumers. Additional asbestos resources are available online at www.dhfs.state.wi.us/dph_boh/Asbestos/index.htm (Wisconsin Department of Health and Family Services); www.epa.gov/asbestos (EPA); and www.atsdr.gov (Agency for Toxic Substances & Disease Registry). Asbestos inquiries from homeowners, apartment residents, and other real estate professionals should be directed to the EPA's Toxic Substances Control Act Hotline, at 202-554-1404. Homeowners can obtain a copy of the pamphlet "Asbestos in the Home" from this source.

The broker may direct the buyer to one or more of these resources, and should not give legal advice or an opinion on asbestos.

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 Selling Co-op Units

by Debbi Conrad

Ownership of a unit in a cooperative community is not an interest in real estate. Instead, a consumer who buys a cooperative unit actually purchases a share in the housing cooperative (typically a corporation), similar to a share of stock. The