Real Estate Transactions may have “buried” Environmental Liability
Marty Jones, Attorney with Waterfall, Economidis, Caldwell, Hanshaw and Villamana addressed the State Bar of Arizona on the EPA’s Superfund Law Wednesday in Tucson
TUCSON, Arizona — Buying and selling commercial properties and land fall under many environmental and regulatory laws that must be addressed before the transaction closes.
Do it right and all parties involved avoid liability. Do it wrong, by glossing over the regulations, can be costly. Not only may the deal fall apart but the owner may be responsible for remediation of any hazardous materials on the property. This can be the case even though the owner did not cause the environmental damage.
“The tendency is to overlook the due diligence process because it is complicated and can be expensive. That’s a bad idea,” according to attorney Marty Jones, who addressed the State Bar of Arizona on the EPA’s Superfund Law this week. “Environmental regulations trump all other land use regulations.”
If a spill, leak, buried hazardous waste, or any “incidental toxic materials event” is suspected or found, “this is the most onerous law you’ll ever run into,” said Jones, a real estate, land use and environmental law expert with the Tucson firm of Waterfall, Economidis, Caldwell, Hanshaw and Villamana.
Known officially as CERCLA — the Comprehensive Environmental Response, Compensation, and Liability Act — the Superfund law was enacted in 1980. Its genesis was the Love Canal site, an “environmental disaster” from the 1950s in New York. Some 21,000 tons of toxic waste was buried beneath the land where a subdivision was later built.
In real estate transactions, Jones explained the “vulnerability” criteria that determines who are the responsible parties for identifying and disposing of and/or treating hazardous waste. He explained the two types of liability defenses: the Innocent Owner Defense and the Bona Fide Prospective Purchaser Defense.
“To establish either defense, you must conduct All Appropriate Inquiries (AAI) prior to acquiring the property,” he said. This process must be done by a professional environmental consultant who will get a Phase I Environmental Site Assessment (ESA) on the property. It is important to get multiple bids as costs vary widely and “if you know the property is contaminated, use a large environmental firm. They will have the know-how to do a Phase II assessment,” he added.
At a minimum, the Phase I ESA must include:
- Interview with present owner(s) regarding the potential for contamination. If they have not owned it long enough to have adequate knowledge, interview past owners.
- Interview current occupant(s); must include major occupants and any likely to use, store, or handle hazardous materials.
- Interview current and past managers, and current and former employees, if necessary to achieve the AAI.
- Review historical sources back to 1940 or the first use of the property for residential, agricultural, commercial, industrial, or government purposes, whichever is earlier. (Regulations make some allowance for the availability of records).
- Review federal, state, tribal and local records.
- Site reconnaissance including: a) Limitations must be documented (heavy weeds, snow cover, etc.) b) Walk the site to define current use; look for solid waste, staining, sources of contamination; and c) View adjacent properties from best vantage point
- Investigate environmental liens and use restrictions.
- Information the prospective purchaser should provide to the environmental professional: a) Specialized knowledge or experience of purchaser; b) Relationship of purchase price to value of property if not contaminated; c) Environmental liens and use restrictions; and d) Commonly known or reasonably ascertainable information about the property
“At this point, I can’t emphasize enough the importance of having an environmental attorney, knowledgeable about AAI requirements, review the Phase I ESA,” said Jones. “Some 75 to 80 percent of all Phase I reports I review do not meet AAI requirements.”
Common shortfalls and errors include an expired Phase I report; the purchaser is not authorized to use the report; the property owner(s) was not interviewed; the consultant failed to inspect the inside of buildings; and there is no opinion on the possible impact to groundwater from the presence of wells (dry, irrigation, production).
“My personal pet peeve is that the consultant failed to talk to a local governmental bureaucrat, someone in the building department, someone who knows permits. They must have a discussion,” said Jones.
If the Phase I ESA determines that the property has a REC – Recognized Environmental Conditions – Jones said it is important “to get your environmental attorney involved to help you decide how to proceed.”
Jones can be reached at (520) 202-7835 or mjones@waterfallattorneys.com