Value Assurance Plan Protects Canadian Property Owners

By on June 25, 2012

We have written in the past concerning Value Assurance Plans (or “VAPs”), which should be considered as a significant component of a corporate response to homeowner concerns over property values due to environmental issues. Mass tort diminution of property value litigation often results when panic selling by homeowners drives down property values across an entire community due to the emergence of a perceived environmental risk. The liability exposure in these cases can be enormous.

In essence, a VAP is a contractual promise made to assure homeowners that the equity in their homes will be protected if they sell their homes and realize less than full value from the sale due to an environmental concern. The VAP is designed to reduce panic selling by assuring homeowners that their home equity will be protected if they stay in the community during an extensive remediation.  The world’s largest VAP has been operating successfully for several years in Port Hope, Ontario, which is located on the north shore of Lake Ontario. 

In the 1930’s, a radium manufacturing facility opened in Port Hope, Ontario, which generated uranium as a waste byproduct. After uranium’s critical role in the development of nuclear weapons became understood, the Port Hope operation was purchased by the Canadian government in 1942. Consistent with waste disposal practices at the time, waste from the uranium operation, which contained Radium-226, uranium, arsenic and other contaminants resulting from the refining process, was discarded around the former plant site; swept into Port Hope harbor; disposed of in local dump sites; or distributed throughout the community as fill.

On October 1, 2001, the Canadian government introduced the Port Hope Area Initiative  to address the remediation and long-term management of low-level radioactive waste in the Port Hope area. Because thousands of homeowners reside in and around the proposed waste management facilities, or along the route that would transport waste to the facilities, the Canadian government had the foresight to protect home values by establishing a VAP, which Canada refers to as a Property Value Protection Program or “PVP” The PVP was offered as part of the Port Hope Area Initiative to compensate property owners who suffered financial loss on the sale of their property, loss of rental income or mortgage renewal difficulties as a result of the plans or activities of the Initiative.

Under the PVP, eligible property owners may apply for compensation if they have realized any of three types of financial loss: (1) their property sold for less than its fair market value because of activities relating to the Initiative; (2) their rental property was unable to rent units for fair market value because of the Initiative; or (3) they had difficulty renewing a mortgage at fair market value as a result of the Initiative. The purpose of the PVP is to ensure that anyone selling a property in a defined area would not be financially disadvantaged by the activities of the Port Hope Area Initiative.

As a result of the PVP, real estate within the Port Hope Area Initiative has remained remarkably stable. There was no panic selling by homeowners rushing to get out the door before property values fell precipitously. During the first ten years of the program, some 83 claims were filed, resulting in payments of approximately $2,500,000. Given that some 5,800 properties could potentially be affected by the projects, the Program appears to have been very successful at reasonable cost

Studies have shown that Port Hope and environs is a safe place to live. The radiation levels in Port Hope are reportedly lower than in the average Ontario community and about the same as in Toronto. Nine years of independent public attitude surveys have shown that residents feel well informed and support the project. These surveys show that 80 per cent of residents are confident that the project can be done safely.

According to Judy Herod, who authored an Abstract titled, “Evolution of the Property Value Protection Program – A Study of How a Compensation Plan to Address Project – Related Diminution has Evolved to Meeting Changing Needs,”  since  inception, the PVP Program has continued to build stakeholder confidence by mitigating the risk of economic vulnerability of current and prospective property owners, thereby contributing to stability in the local real estate market. Ms. Herod is the highly regarded Acting Manager, Communications & Stakeholder Relations, for the Port Hope Area Initiative Management Office. 

To be successful, it is vital that a VAP (or PVP) does not take place in a vacuum. At Port Hope, some important early decisions defined the "zone of influence" that was key to establishing homeowner eligibility for the program; determined the scope of benefits that could be applied for; and devised conservative predictions for potential nuisance effects, such as increased noise, dust or traffic within zones established for each, specific remediation activity.  For example, it was estimated that approximately 80,000 to 90,000 trucks transporting waste would travel over the life of the project. 

Increasing awareness of the PVP Program and communicating its requirements to potential claimants were primary communications objections.  Key stakeholders include all owners with the PVP zone and professionals working in the real estate sector. To be successful, all VAPs must incorporate a strong communications component that serves to keep homeowners informed and maintains the transparency of the remediation process. 

 

Filed under Diminution of Property Value, Evolution of the Property Value Protection Program - A Study of How a Compensation Plan to Address P, Judy Herod, Port Hope Area Initiative, Property Value Protection Program, PVP, Value Assurance Plan, VAP Tagged with

Value Assurance and Diminution of Property Value Claims

By on November 18, 2008

People living near manufacturing plants increasingly seek judicial solutions to environmental issues.  In the wake of an environmental incident (such as a release of contaminants into the air or groundwater), fear and suspicion hinder constructive dialog and problem solving by manufacturers and their communities.  Environmental issues, as much as any other corporate concern, tend to have a ripple effect, often causing repercussions with far-reaching impact on company business.  An accidental release may result in adverse public relations, worker safety disputes, boycott of company products in the market place, adverse regulatory consequences and bad feeling in the community.  How a company responds to media attention at the outset has an important effect on how the community, including elected officials, health authorities, regulatory agencies and prospective jurors, react to the issues presented.  Accordingly, a company must plan in advance how it will respond to an environmental crisis and what steps it will take to minimize the fallout from such a crisis. 

A Value Assurance Plan should be considered as one significant component of a corporate response to homeowner concerns over property values.  A Value Assurance Plan, sometimes referred to as a "VAP", is a contractual promise to assure  homeowners that the equity in their homes will be protected if they sell their homes and realize less than full value from the sale due to an environmental concern in the community.  A VAP promises to compensate those homeowners who sell (or have sold) their homes by paying them the difference between the property’s sale price and its fair market value prior to the discovery of possible contamination.  As part of the arrangement, the company may also offer to reimburse the closing costs and the moving expenses of residents who leave the community.  Often, the reassurance that a VAP provides is successful in preventing the panic selling (the rush to the door) that often strikes communities shortly after public disclosure of an environmental problem. 

To implement a Value Assurance Plan, a company needs  creative lawyering and a consultant who has a strong understanding of the economic dynamics driving the property diminution claims and who can accurately assess the potential exposure to the company of taking alternative courses of action, including taking no action at all.  Two such high qualified consultants are Jerry Dent  at Alvarez & Marsal in Birmingham, Alabama, and  Dwight Duncan at EconLit in Phoenix, Arizona. 

Filed under Alvarez & Marsal, contamination, Diminution of Property Value, Dwight Duncan, EconLit, environmental release, Jerry Dent, Value Assurance Plan, VAP Tagged with