Q. My company is purchasing real estate, and we are concerned there may be existing environmental contamination on the property. What steps can we take to protect ourselves from liability?
A. Conducting environmental due diligence correctly is essential to protect purchasers of potentially contaminated commercial properties from possible liability far exceeding the value of the property. Strict hazardous waste regulation exists at the federal, state and, sometimes, even the municipal level.
Under both the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, and corresponding state law, owners of contaminated properties are liable, without regard to fault, for environmental conditions on the property, whether or not the owner was involved in any way in the initial release of the contamination. There are, however, steps prospective purchasers can take to limit this liability.
Hazardous waste laws allow purchasers of potentially contaminated property to conduct the necessary level of investigation, and, if performed correctly, limit their liability.
For example, the Superfund All Appropriate Inquiry (AAI) rule provides for certain limitations on liability of a so-called “innocent purchaser” if such an investigation is completed before the acquisition.
The innocent purchaser provision allows a purchaser who, under certain circumstances, did not know and “had no reason to know” that the property was contaminated to avoid later Superfund liability. Similar rules apply to state hazardous waste liability. Importantly, to avoid that liability, the purchaser must be able to establish it “carried out all appropriate inquiries … into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices.”
Careful compliance with AAI requirements can be used later to support the “innocent landowner” defense to liability of the new owner. The burden of proof is on the purchaser to establish it is entitled to this and other such landowner liability defenses.
The key element of proof is the Environmental Site Assessment (ESA). Buyers of commercial property typically conduct a Phase I ESA to evaluate the potential for contamination in accordance with ASTM Standard E1527-13.
Following the ASTM Standard demonstrates compliance with the EPA’s AAI rule, that protects prospective purchasers of property from liability under CERCLA. This area of the law is unusually complicated, and it is therefore usually necessary to have the advice and assistance of qualified environmental consultants and environmental legal counsel to assure that the legal and financial protections against hazardous waste liability will actually be available, if needed in the future.