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Reining in water risks before mold takes hold
May 08, 2019
When water gets in, mold often takes hold. Water intrusion is a primary source of mold and can quickly develop into a toxic situation for building inhabitants, and a costly remediation problem for property owners and managers. For those reasons and more, property managers are tasked with understanding mold from all angles.
When in the market
Having a due diligence process in place allows property buyers to carefully identify and address any water intrusion and mold risks at properties that are being acquired. In a number of states and jurisdictions, real estate transactions require disclosure of any mold contamination, water intrusion, or both. In those jurisdictions, sellers must disclose any known issues. Property inspections may or may not be required to identify problems or potential issues.
These requirements become particularly important because regulatory requirements make it the employer’s general duty to protect workers from serious and recognized workplace hazards such as mold. Similarly, it is the legal obligation for property owners and managers to provide tenants with leased space free of environmental and health hazards.
Yet what methods provide enough due diligence? Should property managers be relying on the perceived due diligence of others? What steps should be taken during the property acquisition process to alleviate risks or address them before the sale is finalized?
Currently, no federal regulations or standards exist that assist property managers with setting up due diligence and remediation practices to deal with water intrusion, airborne mold and surfaces containing mold. Yet there are several documents available publicly to help property owners and managers develop their own best practices. (See AXA XL’s Environmental Risk Bulletins - Water intrusion and mold: Property acquisition due diligence guidance and Mold and water intrusion prevention for building owners and property managers. links below)
Guidance for buyers
Having a formal water intrusion and mold review process for acquisitions gives property owners and managers a line of defense that can help reduce risks both pre- and post-property acquisition. Best practice suggestions should include:
– Environmental site assessment that includes a mold review. Depending on the standard utilized, consultants enaged to perform acquisition due diligence do not always include a mold assessment in their reports. Property managers should develop the practice of requiring a visual moisture intrusion/mold growth inspection or limited microbial survey for all properties considered for acquisition. Buyers should ensure that environmental site assessments and/or property condition assessment include water intrusion and mold review in the scope of work.
– Document review: When acquiring new property, property managers should ask for historical reports, including any previous water intrusion or mold remediation projects or issues. Enlist the help of qualified experts to assess the findings. This review should focus on confirming that the root cause of the water intrusion and mold growth has been addressed. Sites with a history of mold/water intrusion may require additional inquiry and inspections and should have a more aggressive management program of preventative measures and inspections.
– Site-specific water intrusion/mold prevention plan: A written plan should already be implemented, particularly for a property that has had a history of water intrusion/mold growth, and property buyers should be asking for details of the seller’s prevention plan. How long have the plan and/or other program controls been in place? How closely has the plan been followed? Look for documentation patterns – are the inspections regular? Have issues been addressed quickly in the past?
Once a property has been acquired, on-going due diligence is just as important, if not more so. Property managers should have in place their own oversight programs to prevent and respond quickly to any potential issues.
That plan should include the following best practices:
– Company expectations: There should be a clear set of expectations and responsibilities for preventing and responding to water intrusion and mold exposures. Once the company policy expectations are set, the company should communicate them to the key stakeholders in the communication chain. Formal training is recommended to assist with program implementation and communication.
– An organizational communication process: Appoint a program coordinator who will oversee the water intrusion and mold prevention program. The communications structure should include a list of key in-house staff, who will communicate with outside parties, and what protocols are to be used when engaging with subcontractors, insurance companies, and tenants.
– A preventative maintenance program: Prevention should be a top priority for all property managers. Establish maintenance processes for HVAC systems, plumbing, and the internal and external structure (roof, windows, doors, and other openings). A prevention process should include attention to building drainage and indoor temperature and humidity control. A routine maintenance work order system should be utilized to address minor issues before they become major problems.
– Inspection and prevention: Property managers should establish regular, documented inspection processes. Ideally, inspections should be set quarterly at a minimum, but also inspections should be part of post-storm events, including power outages. Interior inspections should cover: visual signs, any unusual odors, and inspections of attics, crawl spaces, and basements. Exterior inspections should include visual inspections to evaluate drainage systems, HVAC units, and plumbing systems; signs of water intrusion or mold on the exterior, or; any damage to roofing, windows or siding. Deficiencies should be thoroughly investigated and appropriate corrective actions implemented.
– Report, response, and claims documentation: Property managers should create incident reporting forms and use them for every report or observation of water intrusion or mold. All complaints and claims should be responded to within 24 to 48 hours, and each instance should be documented clearly with time reported, time responded, personnel or third parties who responded, and actions taken. A routine system for tenant complaint resolution and follow-up should be established.
– Risk transfer protocols: Contract language should set forth responsibilities and expectations for tenants, including maintaining temperature and humidity controls, performing regular visual inspections, and reporting problems promptly to property management. Also, property managers should make sure contracts with third party contractors includes language that transfers liability to those parties for acts or omissions that lead to mold problems. While working with subcontractors that have liability policies that include mold coverage is preferred, property managers should also have an evaluation process to make sure vendors are qualified for the job.
– Insurance coverage: Both during and after a property acquisition, property managers should make sure to have pollution liability coverage in place. This alleviates any concerns that may exist beyond the due diligence and any abatement programs. Talk with a trusted insurance partner to understand what product will fit with your company’s unique risks.
– Program review and improvement: Once established, these best practices should be reviewed at least annually. Were the controls effective? Where did they fall short? What should be changed going forward? Is refresher training needed? Review all documents and interview key personnel for how the program has worked and where improvements can be made.
Water intrusion and mold can be devastating events that quickly spiral out of control, causing expensive claims and potential litigation. While water intrusion and mold do occur even with the best control measures in place, the impact on the company’s bottom line can be reduced with a strong due diligence program and an active prevention and response plan.
Having these risk management practices in place gives property managers a reliable and effective way to identify, defend against, and respond to water and mold events. To understand more about how to develop your own best practices, download AXA XL’s latest Environmental Risk Bulletins:
- About The Author
- Gregg Shields
- Vice President – Risk Consulting, Environmental, AXA XL