Saturday, November 8, 2008

Prospective Buyers Liability - Is a Contaminated Property Ever “Clean”?

A prospective Buyer is reviewing an environmental disclosure form from the Seller to evaluate potential liabilities. The form indicates that the property has had contamination issues in the past; however, the Seller indicates that the property was remediated and “the State has said the property is clean”.

At this point, an astute Buyer will have some additional questions and will be seeking some assurances. Understanding why this is a concern requires some background on how site cleanups are conducted. Generally, a “risk-based” approach to remediate sites is used. This means that sites are typically cleaned up to reduce risks to an acceptable level –not to remove all contamination.

Because of this, approvals given by regulatory agencies for past cleanups should be considered “AS-IS, WHERE-IS” approvals. The risk-based approach used in cleaning up contamination is a rational, scientific approach that reduces risks to acceptable levels, but may allow some contaminants to remain on the property. Numerous factors may be considered in determining how much and where contaminates can be left. Properties used for industrial sites may be allowed to leave higher levels of contaminates compared to office or retail sites. Likewise, higher concentrations of contaminants may be left if they are located several feet below the ground, compared to the same chemical in surface soils.

So what does this have to do with the Buyer’s risks?
The “AS-IS, WHERE-IS” nature of agency approvals for past cleanups means that future changes at the property may reopen the contamination issue, and potentially require further cleanup. For example, if the new property owner plans to expand buildings, change drives and parking, or otherwise move soils around the site, deeper contamination can be encountered and moved, changing the opportunities for exposure to contaminants. Even changing the type of business conducted on the property could change the basis for the earlier risk-based cleanup. Anything done at the property that could result in additional remediation will increase the new Owner’s risk.

So what’s a Buyer to do?
Just because a property has had contamination issues in the past should not necessarily mean it represents an unacceptable risk for the prospective Buyer. However, the Buyer needs to:

  • Understand the nature of the contamination left in place, if any.
  • Consider any future changes the planned for the property, and how these relate to past contamination.
  • Understand the use-limitations, pre-notification and other agency requirements that go along with previous cleanup approvals.

For further information contact Caltha LLP at
Caltha LLP Website

No comments: