United States: Proposed Mold Legislation: A New Ambiguous Burden on Illinios Real Estate

In this article:

• Proposed Mold Legislation: A New Ambiguous Burden on Illinois Real Estate
• What Condemnation Takes Away, Damages to the Remainder May Give Back

Important new legislation that would significantly impact the real estate industry has been introduced in the Illinois General Assembly. Entitled the "Toxic and Pathogenic Mold Protection Act" (H.B. 4593), the proposed Act attempts to address the effects of indoor mold on human health as well as property interests. The provisions of the Act fall into two key areas: (1) establishment of various standards and guidelines; and (2) disclosure requirements for sellers, landlords, and tenants. Consequences of various ambiguities under the Act, as currently proposed, could impose significant hardships on some parties that are not in a position to address the requirements of the Act.

Designated as the lead agency under the Act, the Illinois Department of Public Health is empowered to establish permissible exposure limits to mold, standards for reduction and inhibition of mold growth, mold identification guidelines, mold abatement standards, and guidelines for enforcement of the standards and disclosure requirements. The Department, as well as local health authorities and other appropriate governmental entities, are authorized to enforce the standards and disclosure obligations of the Act.

The Act imposes disclosure obligations on sellers and landlords of residential, commercial, and industrial property and commercial and industrial tenants. Written disclosure to a purchaser, transferee, or existing or potential tenant is required if a seller, transferor, or landlord "knows or reasonably should know of the existence of mold" that either exceeds the standards set by the Department or that poses a significant health risk. Disclosure can be avoided only if mold abatement was performed according to the standards set by the Department. A commercial or industrial tenant is also required to notify the landlord if it is aware that mold is present or that chronic water or moisture intrusion is occurring. Further, both landlords and commercial and industrial tenants who are obligated under a lease to make repairs to or maintain the premises are obligated to perform mold abatement under the Act if they are aware of the presence of mold.

While all real estate is potentially affected, certain indoor environments, in particular within the health care industry, may be subject to more stringent standards. When evaluating and formulating exposure limits and other standards, the Department is required to consider specific identified groups that could be at a higher risk such as infants and children under age 7, the elderly, pregnant women, asthmatics, and people with allergies. In turn, the Act allows for the establishment of alternative exposure limits for certain settings where the above groups would most likely be found, for instance, in hospitals, nursing homes, child care centers, and schools.

If the Act passes, the immediate impact, after promulgation of the various standards by the Department of Public Health, would be the potential for government enforcement for failing to meet the standards of the Act. Although the Act as proposed does not provide any recourse to a buyer for failure to disclose, the Act could logically provide impetus for subsequent amendment of the Residential Real Property Disclosure Act, 765 ILCS 77/1 et seq., to include mold on the disclosure report form, thus providing a purchaser of residential property with grounds to sue a seller for failing to disclose the known presence of mold. Further, potential tort claimants such as purchasers, tenants, employees, or other parties claiming injury due to mold could attempt to base a tort or personal injury lawsuit on exposure limits set by the Department of Public Health under the Act.

In addition to evaluating possible liability risks, if the Act passes, any landlord, tenant, buyer or seller of real property should also consider participating in the process that the Department of Public Health will undertake to establish exposure limits, standards for reduction and inhibition of mold growth, mold identification guidelines, and mold abatement standards. The Department’s Internet website will provide notice that it has initiated developing the regulations to implement the various provisions of the Act. The notices are to include a summary or bibliography of the technical documents the Department is using to develop the required standards, along with the contact information of the person in the Department to whom information may be sent and a due date by which such information must be received. Therefore, the key to having any input or influence over the final standards lies in monitoring the Department’s website and actively participating in providing relevant information to the Department for its consideration in developing the standards. The Department’s website address is http:// www.idph.state.il.us.

This legislative effort in Illinois is part of a larger trend affecting real estate transactions nationwide; some states have already enacted similar legislation and many other states are currently considering the issue. Although the Illinois bill has not yet become a law, the proposed Toxic and Pathogenic Mold Protection Act could affect not only human health but also the way business is conducted in the Illinois real estate industry, and similar legislative and regulatory activity will likely continue to spread in other states as well.

It is common practice for municipalities or other governmental authorities with condemnation authority to condemn land for purposes of widening roads, extending utility lines and the like. While seemingly innocuous, such takings can have a significant adverse effect on the property owner’s remaining land. For example, if a portion of the frontage of a parcel is taken for purposes of widening a road, the building on the parcel may not be directly affected, but the effect could be significant where the taking involves the elimination of improvements (parking, for example) that benefit the building and its users. On occasion, such takings can even render the remainder property virtually unusable. Accordingly, property owners who are notified that their property is being subjected to a partial taking should be aware of the fact that the value of the land taken may include damages to their remainder property. This concept goes beyond the traditional scenario where a portion or strip of property is taken, and can include situations where non-adjacent property is taken as well. This article discusses such partial takings, and in particular, takings of non-contiguous property, and whether damages to the remainder may be considered in valuing the property taken for condemnation purposes.

The Illinois common law standard is that, in the case of a taking of a portion of property, where the property not taken suffers necessary and permanent damages as a result, the property owner can be awarded damages for the remainder property, even where the remainder property is not physically contiguous to the property taken. Lake County Building Commission v. La Salle National Bank, 176 Ill.App.3d 237, 531 N.E.2d 110 (1988). The facts of the case involved the condemnation of a parking lot located diagonally across an intersection from an office building that used the lot for its day-to-day parking needs. The owner of the two parcels sought damages to the remainder property, alleging that the taking of the parking lot would necessarily cause permanent injury to the office building parcel.

To succeed in an action for remainder damages, Illinois law requires an owner to prove the unity of use, unity of title or interest and contiguity of the property taken and the remainder. Where the properties are not physically contiguous, however, the rule is that the property taken and the remainder must be shown to be "either physically joined as a single unit or so inseparably connected in use that the taking of one will necessarily and permanently injure the other." The condemnation must effectively damage the principal use for which the remainder was designed.

While reported cases in Illinois have not yet found an owner entitled to damages to remainder property where the remainder is not physically contiguous to the property taken, the legal principle is clear: if a property owner could demonstrate that two non-contiguous properties were so inseparably connected in use that the taking of one will necessarily and permanently injure the other, damages could be sustained. The issue, to date, has failed as property owners have not adequately proven the interrelatedness of the use of the taken parcel and the remainder. Federal courts, as well as courts in other jurisdictions, have indicated that such damages are proper in certain cases.

The Seventh Circuit, interpreting federal law, has held that noncontiguous parcels used as an integrated operation should be considered together when assessing damages to a remainder parcel. United States v. 105.40 Acres of Land, 471 F. Supp. 201, 211 (1972). The New Jersey Supreme Court has also indicated that the remainder and the property taken must be "constituent parts of a single economic unit", regardless of whether they share a common boundary, such that "functional unity and not spatial unity is the relevant consideration." Housing Authority of the City of Newark v. Norfolk Realty Company, 71 N.J. 314, 364 A.2d 1052.

Similarly, in a Minnesota case, the City of Minneapolis condemned a parcel owned by a religiously-affiliated association located a few blocks from the remaining "campus" of the association. Minneapolis v. Yale, 269 N.W.2d 754, 1978 Minn. LEXIS 1130 (Minn. 1978). The campus included other parcels containing buildings and parking lots. The parcel taken contained the association’s mail facility, where 100 employees worked. The Minnesota Supreme Court set forth a similar common law rule in Minnesota that noncontiguous tracts of land may be considered as a unit for the purpose of the assessment of damages for a taking from only one of such tracts, provided that the use to which the tracts are applied is so connected, that the taking from one in fact damages the other.

The significance of this case stems from the detailed analysis of the factors to be considered, including that the buildings had "close functional relationships," including: the buildings were served by a single security system, telephone system, janitorial service, equipment repair facility and maintenance department; the employees from all of the buildings shared daily fifteen-minute devotional periods together in two central chapels; all employees shared one cafeteria; all employees went to one building to cash their checks; the buildings shared a common supply area, receiving department, interoffice mail system, purchasing system, employee parking lots, computer system, personnel department and transportation office; employees transferred to other departments in other buildings when the need arose; the parcel taken coordinated all of the mail services for the association’s other buildings; and the other buildings designed and printed materials such as books, bibles, film catalogs and daily devotional books and sent them to the parcel taken for preparation for mailing and actual mailing. These factors "overwhelmingly" demonstrated the unity of use among the owner’s buildings. The court cited the proposition that "[t]he question is not whether the remaining tract can continue to be used if different property is substituted for the condemned parcel, but solely whether there is in fact an integrated use of both at the time of the taking. Thus, the mere fact that the remaining property is still adaptable for its present use will not render the noncontiguous tract separate for purposes of severance damage."

Finally, it is worthwhile to note that damages to the remainder in an amount greater than damages for property taken are not unusual in condemnation cases. A disproportionate valuation between the property taken and the damages to the remainder does not, standing alone, render a damage award suspect.

In short, Illinois courts have not yet found in favor of including damages to the remainder in the valuation of a non-contiguous parcel taken by eminent domain. The legal principle, however, is clear and well supported that such valuation may be warranted. A property owner should be aware of its rights in this regard and be prepared to argue in favor of higher valuation if property is taken and the remainder property is damaged as a result. Equally, a property owner has a plethora of issues that must be satisfied before a "close functional relationship" is established that would justify damages to the remainder.

Copyright 2004 Gardner Carton & Douglas

This article is not intended as legal advice, which may often turn on specific facts. Readers should seek specific legal advice before acting with regard to the subjects mentioned here.