May 15, 2005
Asbestos!! Kill the Messenger!!
A CASE STUDY IN ENVIRONMENTAL LIABILITY
In the late 1980s and continuing into the mid 1990s, the presence of asbestos in a
subject property building was tantamount to "the kiss of death" to a real estate
transaction. Whether or not the asbestos containing materials were in sound and
solid condition or friable did not seem to matter, lenders wanted no part of it.
As time passed, asbestos materials became an accepted and routine matter of environmental
liability management. After all, asbestos was a sound product of its time that
accomplished its purposes. The material remains an effective insulation and fire
retardant today. Nonetheless, if asbestos materials become friable, emitting asbestos
particulates into the air, the health concern becomes a very serious environmental
liability. Not much is said regarding this liability these days, but let's take a
look at a recent case study.
The consulting firm was contacted by a long standing and loyal client. The lender was
considering a loan on an older multi-family apartment building that was, in turn,
being brokered by a real estate firm that had provided her and the consultant with a
continuing flow of business. They had all worked together well on various properties
to make the deals happen. This one would prove different and would represent past,
present, and future liability concerns.
Perhaps the number one source of litigation begins with a time frame that is simply too
short to do a thorough job. Nothing is ever gained by allowing time to needlessly pass
during the inspection period of the purchase contract. However, the buying and selling
parties involved in the transaction had less than 10 days remaining in the original
45 day inspection period when the bank and the consultant was contacted. The consultant
responded immediately and was on site within two hours of the first call from his client.
Still, the consultant was on his guard as to why such valuable time had been allowed
As the site inspection activities began, the consultant observed an immediate concern.
The old boiler and the associated pipes were covered with asbestos wrap. The asbestos
covered pipes traversed the ceiling areas throughout the basement and was observed to
be friable throughout the area. The pipe wrap throughout the basement was friable to
the touch. The client was notified immediately and in turn notified the broker. The
lender was concerned, the broker was not. Undaunted, the broker requested that a meeting
be scheduled with an abatement professional to ascertain the seriousness and associated
costs relating to the issue.
The opinion of the abatement consultant was in agreement with the bank's consultant,
the subject property building had significant asbestos issues regarding both friable
asbestos and health hazard issues. The asbestos containing pipe wrap was in fact friable
in a number of accessible areas and was shedding asbestos debris throughout the basement
including the storage locker areas and hallways. Of particular note was a cut pipe wrap
end in the hallway to the locker areas that was visibly shedding asbestos fibers into
the hallway area and onto the hallway floor directly in the primary route of pedestrian
traffic. It was the opinion and recommendation of both environmental professionals that
the entire basement and contents should in all reality be immediately sealed off from
public access and declared a spill response. Although the pipe wrap itself did not extend
into the laundry area, that area was also readily open to the occurring asbestos
In the opinion of the asbestos professional, the entire basement area and contents was
contaminated with asbestos and that the contents of the basement should be appropriately
disposed of or cleaned and the asbestos containing pipe wrap abated. Costs for these
activities were estimated at approximately $50,000.
"THE LIABILITY ISSUES"
In this case, the liability issues are particularly intriguing as they extend beyond the
present exposure issues and associated monetary costs relating to the asbestos
contamination of the basement area. The present and past residents of the building had
been exposed to
these areas for an indeterminate time. Additionally, repair and/or renovation work in
the basement or elsewhere in the building did not appear to have included any precautions
in managing potentially asbestos containing materials. Renovation work had no indications
of having ever been permitted.
At the conclusion of site inspection activities, the banker, the brokers, the consultants,
the buyer and seller, as well as the tenants of the building (both past and present) had
all been exposed to friable asbestos. In theory (if not fact), all of these parties
including the past residents had a potential case against the previous, present and
future owners of the building.
The banker wisely listened to the advice of her consultant and withdrew from the
transaction and the liability loop. Not surprisingly, the broker did not like the news.
He managed to convince the buyer that there was no problem and that the consultants had
merely overblown an "easy fix." With the seller carrying back a significant part of the
purchase price, the buyer assumed title to the past and present liabilities. And so,
the time bomb ticks on!
The moral of all of this is that liabilities can encompass the past, present, and future.
Even if in this case the appropriate abatement measures are handled by the book, it does
not close outstanding prior liabilities. With an inadequate understanding of the issues,
the new owner will in all probability effect only superficial repairs and the exposure to
the residents will continue.
As an aside, the messenger was summarily executed. The banker was forced by the real
estate firm to withdraw another one of their projects that had already been assigned.
One can only wonder where the broker will be when the time bomb goes off?