Understanding Environmental Risks

Under federal laws, property owners are responsible for cleaning up contamination at real property they own. This is true even if the problem was caused by a previous occupant or resulted from an action that was legal when the contamination occurred.  Since the responsibility for cleanup is transferred along with the property title, cleanup costs can directly affect the value of real estate, and can amount to more than the affected property is worth. 

In addition to impacts on property value and direct liability for cleanup costs, the presence of contamination can:

  • Result in health threats to occupants,
  • Affect the property owner’s ability to meet other obligations, such as repayment of a mortgage loan,
  • Limit activities which can be conducted on the property,
  • Disrupt operations at the property,
  • Provide tenants with an argument for termination of a lease,
  • Impact the reputation of the property owner
  • Inhibit lenders from enforcing loan provisions,
  • Increase the time required to market the property, and
  • Increase redevelopment costs and extend schedules.

The potential for third-party damages, defense costs, natural resource damage, etc., can also be of significant concern.

Under certain conditions, a property buyer may be able to qualify for defenses against direct liability for cleanup costs, but these indirect liabilities can also significantly affect property owners.

Unfortunately, it can be impossible to recognize contamination from past operations simply by observing current conditions at a property. Property buyers can defend against both direct and indirect impacts of contamination by completing appropriate due diligence before acquiring property. Phase I Environmental Site Assessments (ESAs) are a common tool for evaluating the risk of contamination, but these reports are designed expressly to satisfy some of the federal requirements to allow users to qualify for defenses to liability. The intent of this sort of assessment is to identify activities and conditions that are likely to have resulted in contamination, not to rule out all possibility of contamination.  Depending on your situation, more, or less, certainty may desirable.

Before engaging an ESA, always discuss your objectives and risk tolerance with the consultant to assure that the work performed will meet your needs.

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