Casualty and Condemnation Provisions in Loan Agreements

Every mortgage loan agreement contains provisions that address casualty and condemnation (i.e., eminent domain) affecting the property.  All such provisions give the lender some degree of control over the proceeds and identifies what happens to the proceeds, and are usually given scant attention. However, these provisions often can be negotiated, at least with respect to how the proceeds are handled for any restoration of the property.

As a borrower, a property owner doesn’t want to be hamstring with red tape if the proceeds are not material, and a lender shouldn’t want that either. However, a lender needs to protect its security interest in the property.  The trick is to determine where to draw the line.

Typically, the loan agreement includes casualty and condemnation provisions that simply provide all proceeds from such events go to the lender, which may be applied to paying down principal on the loan.

Consider the following scenario, a new storm sewer is scheduled for construction along the road where mortgaged property is located. Eminent domain is being utilized to take a tiny sliver of the properties adjacent to the road. The amount of property to be taken has no material impact on the value of the mortgaged property and accounts for maybe 1-2% of the property.  However, if the loan agreement’s condemnation provision does not include a materiality threshold then the borrower will need to notify the lender, pay a few thousand in fees to the lender to cover its legal fees and contend with red tape over the use of the proceeds.

Typical approaches to identifying what condemnation or casualty events are material include a dollar threshold and a percentage of the property that is affected. When such an event does not trigger these thresholds then the borrower will retain all or some level of control over how the insurance or condemnation proceeds are spent.

For example, a restoration threshold will typically be set at around 5% of the outstanding principal balance on the mortgage loan. Therefore, if the proceeds the result from the casualty or condemnation event do not exceed that threshold then the lender is more likely to permit borrower to keep the proceeds.

Additionally, a lender will want to look at how the property is functionally affected by such events. For example, if the land taken by eminent domain is less than 10%, the percentage of leases that remain in full force and effect after a casualty event exceeds 75% or the less than 35% of the improvements were destroyed, then the lender will be more likely to permit the borrower to restore the property and, depending on other criteria, receive the proceeds for restoration.

When negotiating loan agreements, borrowers should give some attention to the casualty and condemnation (eminent domain) provisions, with the goal of obtaining as much flexibility as possible.

When in Doubt, Take the Notary Route-(Don’t be Left at the Alter with an Unenforceable Commercial Lease)

Commercial leases in Ohio must be in writing and signed (See Ohio’s “Statute of Frauds”- ORC Section 1335.04), and, they must be acknowledged (e.g., notarized) when their terms (duration) exceed three (3) years (See ORC Section 5301.08; ORC Section 5301.01). If these “technicalities” are not followed, is there real harm as a result of the foul? Absolutely. The general law in Ohio is such that when a tenant takes possession under a defectively executed lease (and pays rent…), only a periodic (e.g., month to month) tenancy will be implied to exist, in spite of the lease’s stated duration. In other words, in Ohio, if a commercial real estate lease with a ten (10) year stated term is not notarized, and payments are made monthly, only a month-to-month tenancy legally exists. This result is markedly different from the effect of improperly executed/acknowledged deeds. With regards to such “improper” deeds, the Ohio Supreme Court has held that a deed is still valid despite a defective acknowledgment, but only as between the grantor and grantee.

There is (as with most case law) an exception to the aforesaid general rule with respect to improperly executed/acknowledged leases; the equitable doctrine of “part performance”. This contract law doctrine basically dictates (based upon fairness/equity) that a lease (or other contract) should not be rendered unenforceable due to technical failures when much of the contract has been performed, and other equitable factors are present such as “detrimental reliance” (changing of a party’s position to its detriment, in reliance upon an act [e.g., making substantial improvements to a premises in reliance upon what a tenant thought was a validly executed/acknowledged, 20 year lease]).

What about an improperly executed/acknowledged lease whose term is longer than three years, only if you count the optional renewal term? Or, an “improper” lease whose term has just started? Would such a lease violate the statute? If so, would the doctrine of part performance apply?                                                                           

The recent decision of Chen v. Hwang, 2014-Ohio-5863 (10thDistrict Court of Appeals, Franklin County) answers both of these questions. The Chen case involved a lease agreement executed on August 3, 2012 between Dr. Chen, the tenant-appellee, and Dr. Hwang, the landlord-appellant. The lease provided for a three-year term with an option to renew for an additional three years.  According to the lease, the term was to commence on October 1, 2012, and certain remodeling work was to be completed by the landlord by such date. The lease was executed, but was not notarized.    

On November 30, 2012, the tenant rescinded the lease agreement and filed a complaint, seeking a declaration that its recession was justified because the lease agreement was in effect, a six year lease (including the option) and therefore not acknowledged in accordance with the Ohio Revised Code (and thus, unenforceable), and alternatively, that the appellant did not deliver the premises with the remodeling work completed as and when required by the lease.  In addition, the tenant sought repayment of approximately $24,000, which was comprised of payment for the first month's rent, payment of the security deposit, and money loaned to the appellant for purposes of remodeling the premises.

The landlord claimed (1) it was the tenant who breached the lease, by not securing certain permits required for the work, (2) that accordingly, the option would not be exercisable (with tenant in default), and (3) therefore, the lease was only three years and complied with the lease-execution requirements set forth in R.C. 5301.01.

The trial court concluded that as a three-year lease with an option to renew, the lease was subject to the execution requirements of R.C. 5301.01(A).  Because the lease failed to comply with R.C. 5301.01(A), the trial court decided that tenant was entitled to damages for the amounts paid to the landlord.  
The landlord appealed, but the Tenth District Court of Appeals upheld the ruling of the trial court.
In justifying its ruling, the appellate court simply applied the law to the facts. To accomplish the same, it looked first to the applicable statutes.

“As is relevant here, R.C. 5301.01(A) provides: A deed, mortgage, land contract …. or lease of any interest in real property … shall be signed by the grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or lease or shall be signed by the trustee in the case of a memorandum of trust. The signing shall be acknowledged by the grantor, mortgagor, vendor, or lessor, or by the trustee, before a judge or clerk of a court of record in this state, or a county auditor, county engineer, notary public, or mayor, who shall certify the acknowledgement and subscribe the official's name to the certificate of the acknowledgement.”

The so called “3+ year rule” exception to R.C. 5301.01(A), which only applies to leases is found in R.C. 5301.08, which provides: "Sections 5301.01 to 5301.45 of the Revised Code do not affect the validity of any lease * * * of any other lands for any term not exceeding three years or require that lease to be acknowledged or recorded."

The appellant did not dispute that its lease did not comply with R.C. 5301.01, but argued that the formalities of R.C. 5301.08 exempts the lease from the formal execution requirements.  Appellant polished its original trial court argument and claimed to the court of appeals that the lease did not exceed three years, because its original term was for three years, and its option term was nullified by not only the tenant’s default, but tenant’s declaration that it would not move into the premises. The court of appeals was not swayed by the “pro se” appellant’s “good college try argument.” According to the court, “Appellant  has  not  provided,  nor  has  this  court's  research  revealed,  any  authority  to support such a position.”

To the contrary, the court cited “precedent” (i.e., prior decisions of 380 E. Town Assoc. v. Mangus, 10th Dist. No. 91AP-92 (June 20, 1991) and Gelman v. Holland Furnace, 59 Ohio Law Abs.539 (1948)) that established "[u]nder Ohio law, option periods are added to the initial term of the lease in order to determine the length of the lease for the purposes of complying with R.C. 5301.01 and 5301.08."

Does the doctrine of part performance apply? Should the appellant be entitled to one month’s rent? The easy answers here are no, and no. First of all, while the landlord did come up with a cogent argument regarding R.C. 5301.01 and 5301.08, it did not file a counterclaim, nor did it allege any equitable defenses. And second, it is hard to argue “part performance” unless much of the contract or lease in question has been performed. This lease did not even get “out of the gate.”

What is the moral of this story? When in doubt, take the notary route. Notarization, when not required will result in “no harm, no foul”. On the other hand, odds are that failing to notarize when required will cause, at the least, time and attorneys fees, and at most, it can render your lease unenforceable.

Any commercial lease of three years or more (including option terms) must be in writing, signed and notarized.   While performance under a lease may remove it from the requirements of R.C. 5301.01(a), it will not protect a landlord who seeks to enforce an improperly executed lease when performance has not commenced.

Mortgage Releases: New Ohio Law Expands Requirement of Mortgage Lenders to Timely File Releases to Cover Commercial Mortgages

Under prior Ohio law, the requirement that a lender holding a mortgage lien had to timely file a release evidencing its satisfaction or face penalties only applied to residential mortgages and the penalty was paltry. Anyone who has refinanced commercial mortgages or has represented a lender or borrower on commercial mortgage refinancing, knows how often a prior mortgage that was paid off still shows up in the title report because the mortgage release wasn't filed.  This drives up the legal costs and can delay closing while the borrower and counsel are chasing down that lender to obtain the release that already should have been recorded.

Upon passage of Am. Sub. H.B. 201 (HB 201) earlier in 2015, the rules have changed.  HB 201 was effective March 23, 2015 and does several things with respect to mortgage satisfactions:

  • It expands the statute to cover commercial mortgages as well as residential.
  • A current property owner can pursue the mortgage lender of a prior owner for damages (This is critical when a property transfer is involved and the new owner financed the purchase with a new loan. The fact that the prior owner's lender failed to file its mortgage release may not be discovered until after closing.). The current owner's right to seek civil damages of $250 remains but does not bar the current owner from seeking other legal damages and remedies.
  • The mortgagee (i.e., the lender holding the mortgage) included the original lender/mortgagee and any successor or assignee of the original mortgagee.
  • If a mortgage is not released upon 90 days of having been satisfied, the currently owner must provide written notice to the mortgagee of its failure to release the mortgage of records.
  • The owner's notice must notify the mortgagee of the following: (1)  the duty to record a release, (2) the identify of the satisfied mortgage, (3) the mortgagee's failure to record the release, (4) the consequences of failing to record the release within 15 days of receiving the notice (i.e., actions for damages, costs, and reasonable attorney fees, as provided in HB 201).
  • If the mortgagee fails to record the mortgage satisfaction within the 15 days, the current owner will be entitled to seek recovery in a civil court action of reasonable attorney fees and costs that are incurred as a result of having to bring such action or otherwise obtain compliance by the mortgagee, plus damages of $100 per day for each day of noncompliance, up to a cap of $5,000. This does not preclude the current property owner from seeking other legal damages or remedies that might be available to the owner depending on the facts and circumstances of each individual situation.
  • The property owner can seek both the initial $250 in damages plus the additional damages that become available after having provided the required notice.
  • Mortgagees that timely file a release will not be held in violation of HB 201 just because a county recorder's office or division fails to timely process the mortgage release.

While not perfect (I think the $5,000 cap is too low with respect to larger lenders for whom that amount is pocket change.), this is a huge step in the right direction.

Oil and Gas Leases Are Title Transactions Under Ohio Dormant Mineral Act

By Kathleen Maloney - Courtesy of

A lease that grants oil and gas rights to another party and was recorded with the county recorder is a title transaction under the state’s Dormant Mineral Act, the Ohio Supreme Court ruled today. However, the Court concluded, the unrecorded expiration of an oil and gas lease does not qualify as a title transaction.

In mineral-rich areas, such as Marcellus and Utica Shale regions of eastern Ohio, rights to the surface property and the minerals below are often owned separately. However, the mineral interests can be considered abandoned if 20 years pass without a title transaction or the occurrence of another event described in the statute.

The Court’s decision, written by Chief Justice Maureen O’Connor, was unanimous in ruling that the unrecorded expiration of an oil and gas lease is not a title transaction. The Court divided, though, on whether the leases themselves are title transactions – with one justice concurring in the judgment but not the reasoning, and two justices dissenting.

The holding answers questions submitted by a federal court considering a dispute between the owners of 90-plus acres in Harrison County and the various companies that have leased the property’s mineral interests. The case now returns to the federal court for additional proceedings.

Land and Mineral Rights Changed Multiple Times
A mining company split the surface and mineral rights on this Harrison County land in 1958. Clarence and Anna Bell Sedoris became owners of the land, while the mining company kept the oil and gas interests.

Throughout the years, the surface property and mineral rights changed hands many times. The landowners now are Dennis Elias, Jeffrey and Janice Elias, and Arieh and Sunni Ordronneau. (Kenneth Buell was dismissed from the case.) North American Coal Royalty Company owns the mineral rights, and multiple companies, including Chesapeake Exploration, lease parts of those rights.

In October 2012, some of the lessees of the oil and gas rights sued the property owners, Coal Royalty, and one of the other lessees in federal court to “quiet” any claims to those resources. Eventually, Coal Royalty and all the mineral rights’ lessees were realigned on one side as the plaintiffs in this case.

Elements of State Law
Ohio’s Dormant Mineral Act, R.C. 5301.56, is part of the Marketable Title Act and creates a method to rejoin a surface property with abandoned mineral interests. The act’s purpose is “to clear title and promote the use of the mineral rights for development and production,” today’s Supreme Court opinion noted. The original act became law in 1989 and was amended in 2006.

Chief Justice O’Connor explained that while the parties disagree about which version of the law applies in this case, that question was not one submitted by the federal court for review. The questions before the Court involved the meaning of “title transaction,” and the analysis of the issues was the same under either version of the law.

Oil and Gas Leases Are Title Transactions
The first question was whether an oil and gas lease is a title transaction within the meaning of the state law. Severed minerals interests can be considered abandoned and return to the surface property owner unless an event that saves the mineral interests occurs in a 20-year window.

The law lists six possible “saving events,” including situations in which the mineral interests have been subject to a title transaction that has been filed or recorded with the appropriate county recorder.

The Marketable Title Act, which includes the Dormant Mineral Act, defines a “title transaction” as “any transaction affecting title to any interest in land, including title by will or descent, title by tax deed, or by trustee’s, assignee’s, guardian’s, executor’s, administrator’s, or sheriff’s deed, or decree of any court, as well as warranty deed, quit claim deed, or mortgage.”

Because the law uses the words “any” and “including,” the meaning of “title transaction” is not limited to only those examples listed, the chief justice reasoned. The justices dissenting on this issue would limit the definition to transactions that “alter who owns the property at issue.” However, the Court’s majority concluded that “is an overly restrictive reading of the statutory definition.”

“We find that by [the terms of this lease] or substantially similar terms, the mineral interest has been the subject of a title transaction because the oil and gas lease affects title to the surface and mineral interests in land in a number of ways,” Chief Justice O’Connor explained. “As discussed above, a ‘title transaction’ as defined in R.C. 5301.47(F) is not limited to a transaction that alters an ownership interest. Transactions creating interests like easements or use restrictions are also title transactions. This is consistent with the meaning of the word ‘title,’ which, as a concept rather than a legal instrument, is defined as ‘[t]he union of all elements (as ownership, possession, and custody) constituting the legal right to control and dispose of property.’”

“The lease in this case grants the lessee an unequivocal and exclusive right to the mineral estate for a fixed term plus an indefinite extended term upon the happening of certain conditions, such as actual production of oil and gas or a prescribed payment to the lessor,” she continued. “Based on the vested nature of this grant, the oil and gas lease has been construed as transferring to the lessee a fee simple determinable in the mineral estate with a reversionary interest retained by the lessor that can be triggered by events or conditions specified in the lease. … Even if the lessor conveys title to the surface or mineral estates during the lifetime of the lease to a third party, the lease is binding on those successors and is therefore an encumbrance that remains with the realty.”

“Additionally, a recorded lease in the chain of title notifies all others with a potential interest in the surface or the mineral estate that the land is encumbered. An oil and gas company searching land records for potential leasable mineral estates would find an estate already encumbered by a lease. In this way, the lease resembles more of an encumbrance than an easement or a mortgage. The lease forecloses the ability of the lessor or any third party to freely access the property for exploration, development, and extraction of mineral resources.”

Expiration of Oil and Gas Lease, Though, Is Not Title Transaction
On the federal court’s second question, the Court concluded that a lease’s expiration that is not recorded does not qualify as a title transaction affecting the 20-year window.

“[T]he terms of a recorded oil and gas lease cannot provide sufficient notice of activity under the lease to toll the 20-year clock during the life of the lease, nor can the expiration of such a lease be considered a ‘title transaction that has been recorded or filed’ within the meaning of R.C. 5301.56(B)(3)(a) when the expiration is unrecorded,” the chief justice wrote. “Accordingly, we conclude that the unrecorded expiration of an oil and gas lease does not constitute a saving event under R.C. 5301.56(B)(3)(a) that would restart the 20-year clock.”

Joining the chief justice’s opinion were Justices Judith Ann Lanzinger, Judith L. French, and William O’Neill.

Justice Sharon L. Kennedy concurred with the Court’s answers to the federal court’s questions and with the legal reasoning related to the lease expiration issue. However, she disagreed with the Court’s analysis of the first question regarding the meaning of “title transaction.”

Justice Paul E. Pfeifer concurred in part and dissented in part in an opinion joined by Justice Terrence O’Donnell.

Justice Presents Different Reasons Why Leases Are Title Transactions
While Justice Kennedy agreed that a recorded oil and gas lease is a title transaction, she disagreed with the majority’s analysis on the issue.

She first noted that contrary to Justice Pfeifer’s dissent, the General Assembly’s replacement of the language “conveyed, leased, transferred, or mortgaged” in R.C. 5301.56 with the more general term “title transaction” indicated an attempt to broaden, rather than narrow, the types of transactions that qualify as a saving event.

In her view, however, the Court’s majority did not need to address whether oil and gas leases create a specific property interest. Instead, the answer could be determined by reviewing the relevant statutes alone. She examined the Marketable Title Act and also the related laws requiring that certain documents be recorded.

“Harmonizing the provisions of the [Marketable Title Act] with the recording statutes contained in R.C. Chapters 2113, 5301, and 5309 reveals a commonality with the examples of title transactions listed in R.C. 5301.47(F),” she wrote. “The examples are claims or interests against, or in, land that must be recorded pursuant to the Revised Code. Therefore, construing the recording statutes and R.C. 5301.47(F) in pari materia, I would hold that any transaction that must be recorded must be a ‘title transaction’ within R.C. 5301.47(F) because the purpose of a recording requirement is to ‘provide a public record of transactions affecting title to land.’”

Two Justices Conclude Leases Are Not Title Transactions
Justice Pfeifer concurs with the Court’s opinion on the lease expiration issue. However, he concluded that a recorded oil and gas lease is not a title transaction. He emphasized that the “title transaction” definition does not include anything similar to a lease.

“Granted, R.C. 5301.47(F) does not state that its list of transactions that affect title is exhaustive, but every transaction mentioned in the statute either actually or potentially affects an ownership interest in the property,” he wrote. “Since all of the examples listed in R.C. 5301.47(F) bear on the ownership of property, it follows that a transaction like a lease, which does not alter who owns the property at issue, falls outside the scope of the statute.”

He added that the initial Dormant Mineral Act legislation included the lease of a property as a saving event, but that language was removed before the bill was enacted.

“This is not to say that leases have no role in the [Dormant Mineral Act],” he wrote. “A saving event occurs when ‘[t]here has been actual production or withdrawal of minerals by the holder … from lands covered by a lease to which the mineral interest is subject ….’ Simply put, a lease plays a part in a saving event when production begins pursuant to the lease’s terms, but not while the minerals to which it is attached remain unexploited.”

A recorded lease does not affect the owner’s title to the property and therefore is not a title transaction, Justice Pfeifer concluded.

2014-0067. Chesapeake Exploration, L.L.C. v. Buell, Slip Opinion No. 2015-Ohio-4551.

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion, but only for noteworthy cases. Opinion summaries are not to be considered as official headnotes or syllabi of court opinions. The full text of this and other court opinions are available online.

When a Mortgage Covers More Than One Property

When packaging several properties into one mortgage loan, the lender often files one mortgage that covers all the properties. Add to this the fact that in Ohio, the mortgage is often structured as an open-end mortgage with the maximum total indebtedness identified on the first page.

This has occasionally caused problems for property owners in Ohio due to aggressive attorneys acting on behalf of local school systems. The maximum total indebtedness is used as the basis of a challenge against the current property valuation in hopes of increasing the property values and therefore the real estate taxes on the property.  Although the property owner will ultimately win against this faulty logic on the part of the school system and its counsel, its time and expense from the fight cannot be recouped. 

When negotiating the mortgage document, the property owner/borrower’s preferred solution would be a separate mortgage document for each property identifying only the amount of the loan allocated to that property. This solution doesn’t work for a lender as the properties are intended to be cross-collateralized, each property securing the whole loan amount not just the ‘allocated’ amount.

One compromise that lenders have accepted is to identify the allocated value per property on the first page along with the maximum principal indebtedness.  To protect the lender’s position, additional language can be added acknowledging that the properties are cross collateralized. For example, the following language can be included as a new provision:

"Mortgagor acknowledges that Mortgagee has made the loan to Mortgagor upon the security of its collective interest in the real property and in reliance upon the aggregate of the projects constituting the real property taken together being of greater value as the collateral security than the allocated value of each individual property taken separately.  Mortgagor agrees that such cross-collateralization shall in no event be deemed to constitute a fraudulent conveyance."

While the foregoing solution may not be perfect, it is a workable solution. Property owners who have this concern should communicate the issue to their lenders early in the loan process to allow time for the loan documentation to be properly drafted.


Typically, sellers of real property want quick sales with no contingencies; want to sell “as, is”; and want no liability after the sale. Buyers, of course, usually desire the opposite: they want long diligence periods, and accordingly later closing dates; a host of warranties that survive the sale; and a number of contingencies (conditions to their obligation to purchase).

Custom (and positional negotiation) usually dictates closing dates with 30-60 day closings typical in residential deals, and 60-120 day closings typical in most commercial deals. Warranties are much more customary in commercial vs. residential deals, and contingencies are often found in all real estate deals.

Typical buyer contingencies in a residential deal include:

  • Financing (the right to terminate if buyer does not receive a commitment from a lender to loan required funds to make the purchase possible);

  • Sale of  Existing Property (the right to terminate if buyer’s existing residence or commercial property does not sell prior to the scheduled closing date for their purchase [many buyers of a new home/other property will not be able to qualify for a loan if they still own and owe money on their existing home/property]); and

  • Delivery of Good Title.

In addition to the aforementioned, typical contingencies in a commercial real estate contract include: 1) formal approval of the purchase/sale by a governing body; 2) confirmation of zoning conformance or receipt of a zoning variance; 3) all representations and warranties being true and correct in all material respects, as of the date of signing, and the closing date; and 4) there being no material change in the condition or status of the property between the contract date and the closing date.

Many sellers are reluctant to accept offers with contingencies. More often than not, however, sellers take such a hard line risk holding on to their property a lot longer than desired.

Why? Contingencies are easily qualified. In general, contingencies should provide: 1) a specific date or time period (for the occurrence or non-occurrence of the conditional event); and 2) an obligation to use good faith to pursue action likely to lead to satisfaction of the conditional event.  With financing contingencies, for example, the risk of buyers having unreasonable expectations of qualifying for a loan can be minimized by specifying a reasonable percentage of purchase price to be financed (e.g., 80% or less), and maximum interest rate sought by Buyer.

To qualify the “Sale of Existing Property Contingency”, or really, any contingency, consider the following “Right to Market/72 Hour Put” clause:

Seller and/or its agents may continue to market the Property during the contingency period. If, however, Seller and/or its agent receives a bona fide offer for the purchase of the property (without  a _____________contingency) which Seller is willing to accept, Seller shall give Buyer notice within twenty-four (24) hours of such offer, together with a copy of such offer (“Seller’s Notice”). Within three (3) days of Buyer’s receipt of Seller’s Notice, Buyer may notify Seller in writing of Buyer’s willingness to purchase the property for the price and on the terms set forth in Buyer’s purchase agreement with Seller, except for the ___ contingency (“Buyer’s Notice”). If Buyer issues such Buyer’s Notice to Seller, as and when required, such Buyer’s Notice shall act to nullify the _____ contingency and the parties hereto shall be required to perform their obligations under this Agreement as though the contingency had not been contained therein. If Buyer notifies Seller that it is unwilling to purchase the property without the ____contingency, or fails to respond as and when required herein, Seller may accept such bona fide offer, in which case the earnest money deposit shall be returned to Buyer, and thereafter neither party shall have any liability to the other.”

With the above provision, buyers won’t be locked into a deal without their contingency. Their worst case scenario would be having to walk away from the deal, without penalty. Sellers, on the other hand, won’t need to feel obligated to take a “hard line approach” and refuse a deal with contingencies. A seller’s worst case scenario in this example would be having to wait three (3) days before knowing if it can terminate its contingent deal with its original buyer (if the original buyer does not agree to remove its contingency), and accept a better deal, without contingencies.

What is the moral of this story? Instead of walking away from a contingent deal, if the contingency clause doesn’t fit; simply alter it.

Before Renovating or Demolishing Your Building, Don't Forget To Investigate The Presence Of Asbestos

When you mention the word ‘asbestos’ many people think of the late night commercials run by law firms regarding mesothelioma.  That dreaded disease is typically contracted by a person having breathed a significant amount of asbestos fibers or airborne asbestos dust. Washing a family members’ dirty clothes covered in such fibers or dust can also cause development of this rare form of cancer, lung cancer or other diseases.

Besides all the litigation, which has spawned many headlines over the years, a regulatory environment has developed to address the issue. Anyone who is thinking about construction, particularly renovation or demolition of a structure, whether a home or commercial building, needs to consider whether there is a need to address the abatement of asbestos or not.  This is not just an issue for old buildings and homes, but also, to some degree, new construction, as roofing, ceiling tile and flooring may still contain asbestos, even today, depending on the country from which the material is sourced.

Of bigger concern are renovation and demolition projects where the presence of asbestos needs to be determined by the project commences. This is because of the likely potential that asbestos could be disturbed. In the course of demolishing or renovating a home or commercial building, it is wise to first determine whether any ACM are present, what type and how much.  There are many competent environmental consultants in Ohio that are licensed to conduct a review and test for the presence of asbestos.

[Note: For the sake of space, I’m over-simplifying this, so to any environmental consultant reading this who is cringing about all the nuances I’m glossing over, please feel free to submit an article to me covering the issue in more detail.]

Two factors that can affect what property owners and their contractors must do are the amount of asbestos that is present and the type of asbestos, i.e., whether the ACM is friable or non-friable. When dry, ACM will be categorized as “friable” if it can be easily crumbled, pulverized or otherwise reduced to powder. If the material cannot, then it is considered “non-friable.”  Non-friable ACM can be turned into friable under certain conditions such as removing it during demolition or renovation, or by fire. Non-friable ACM are also placed into two categories based upon how resistant the materials are to crumbled or pulverized.

Left undisturbed, asbestos-containing materials  (ACM) are not a risk. However, anyone considering the renovation or demolition of a building should first hire an appropriately licensed asbestos contractor who can test for the presence of asbestos in the building, or portion of building, that is being demolished or renovated.

Depending on the type and category of ACM found, if any, and the amount of ACM present, the removal or encapsulation of ACM may be necessary.

Two Ohio agencies/departments are significantly involved in the regulation and oversight of this process: The Ohio Environmental Protection Agency and the Ohio Department of Health. Data regarding their respective roles in oversight, regulations and licensure  and other useful information can be found on their web sites.

Environmental consultants are worth their weight in gold when addressing what to do and how prior to commencing and during construction or demolition. A good consultant can advise on an approach that minimizes the costs of abatement and help convince the appropriate regulators to permit it.  Should the asbestos regulations be ignored and the state regulators get initiate an adversarial process, then retaining specialized environmental legal counsel will also become necessary. .

Property owners considering renovation or demolition would be wise to consult real estate counsel ahead of time. Most real estate attorneys have worked with  environmental consultants and attorneys that are environmental law specialists and can advise on who to call and when.