Importance of Environmental Site Assessments in Real Estate Transactions

Thinking about purchasing real estate that could be contaminated?  Evaluate your liability under CERCLA before you sign on the dotted line.

CERCLA, or the Superfund Law, is the Comprehensive Environmental Response, Compensation, and Liability Act, a federal law that imposes strict liability for the release of hazardous waste.  42 U.S.C. § 9601 et. seq.  CERCLA imposes strict liability on property owners, operators, transporters, and arrangers, so-called potentially responsible parties or PRPs. All PRPs are jointly and severally liable for the costs of cleaning up contamination under § 9607(B)(3).  And, PRPs may sue other parties for contribution to the cost of clean-up under a separate provision.  § 9713(f).

CERCLA liability is not air-tight, however.  Amendments in 2002 created the bona fide prospective purchaser (BFPP) defense. § 9601(40); § 9607(r).  BFPP status protects owners and operators from a §9607(B)(3) cause of action and reduces the possibility for contribution under §9713(f).  A BFPP is one who acquires property after 2002 and can establish by a preponderance of the evidence that all disposal of the hazardous substance occurred before the person bought the property, that the person made all appropriate inquiry, complied with all notice provisions regarding a release, exercised appropriate care with respect to hazardous substances found on-site, cooperated with and assisted in any response action, completed all institutional controls like land use restrictions or not impeding the effectiveness of response actions, complied with all information requests and subpoenas, is not a PRP, and does not have an affiliation with a PRP, including a contractual relationship.  § 9601(40)(A-H).

All appropriate inquiry is key.  Under the Environmental Protection Agency’s Final Rule adopted in 2005, “all appropriate inquiry” is when a buyer investigated the property via an adequate Phase I Environmental Site Assessment (“ESA”), and as a result, has no reason to know of a threatened release, took reasonable steps to stop any continuing release or to prevent a future release, and prevented any human, natural, or environmental exposure to previously released substances.  See § 9601(40); 40 C.F.R. 312.21.  A Phase I ESA has a lot of requirements.  For example, the ESA must be completed by an environmental professional, must review historical sources including chain of title and land use records, interview past and present owners or operators, search for environmental clean-up liens, complete a visual inspection of the property, and review all federal, state, and local records regarding waste disposal, hazardous wastes, underground storage tanks, and spills or contaminations in the region.

Phase I ESAs do not include sampling. If the Phase I ESA reveals any recognized environmental conditions that indicate a likelihood of contamination, then the Buyer may choose to complete a Phase II ESA, which involves actual sampling of soil, air, or water.  All ESAs are usually completed at the Buyer’s expense unless negotiated otherwise.  If there is a history of contamination on the property, a Phase II is a good idea.

Redevelopment funding may also be available from the state or federal government if the property qualifies as a brownfield.  A brownfield is any “real property, the expansion, redevelopment or use of complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant . . .” § 9601(39).

Lastly, make sure to check for state law that may also govern clean-up of the property.  Many states have laws that mirror CERCLA, and state agencies could take the lead on enforcement.

In sum, just because property is contaminated doesn’t mean that you shouldn’t sign on the dotted line.  Just make sure to do your homework first.

About the Author: Laura Hartz

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