Real Estate Transactions and Environmental Liability

For buyers and sellers alike, commercial and industrial real estate transactions can pose significant problems even years after the transfer of ownership. In the case of environmental contamination to the land, ground water or surface waterways, both parties could be held liable for the cleanup costs not only of the property in question but of adjacent properties as well.

Regardless of how completely a property is inspected, or how many soil borings are tested, there is always the risk that a serious problem may go undetected. Still, the surest way to protect against potential liability is with a professional site analysis by a qualified environmental engineering firm before the real estate transaction is concluded.

Determine the Site's History
The first step in determining not only potential problems but also a fair market value for the property is to establish the history of the property's use. How far back in time such inquiries need to go is a subjective matter, but it's best to have as complete a record as possible.

Knowing the uses of the property will help direct the site analysis. Was it once used as a gas station where underground storage tanks and piping or disposal of waste oil could contribute to ground water problems? Was it used as a manufacturing site where hazardous or toxic substances were involved in processing raw materials? Did the use of the property involve laboratory facilities, landfills, underground drilling or railroad beds?

Help at Hand
Answers to these and other questions can be facilitated with a thorough review of public documents, including zoning and tax records and deeds as well as gas, water and sewer utility records. Any site use which may have involved the storage, use and disposal of hazardous materials, especially solvents, should invite close scrutiny.

The types of building materials used in the property's structures, including asbestos and PCBS, should also be taken into account. The EPNs Appendix VIII list of potentially hazardous constituents (40 CFR, Part 261) identifies materials that deserve particular attention.

Aerial photographs, especially from years past, can be invaluable in revealing a property's history. Besides showing changes over time, photos can be used to construct an inventory of buildings and other potential sources of surface or subsurface contamination. These might include storage tanks and sheds, trenches, effluent discharge pipes, holding ponds or stockpiles, to name a few.

Additional Information Sources
Public agencies, including OSHA, EPA, and local zoning, health and building inspection departments can further assist the process of site use documentation. Not only can they provide records of geological and ground water surveys, inspections and code violations but also of corrective measures, such as installation of pollution controls.

Local fire and safety departments, as well as the local press, can help answer whether there were any fires, explosions, chemical spills or other accidents or disasters that may pose residual problems.

Insurance records can divulge whether a previous owner has applied for Environmental Impairment Liability insurance. If such an application has been filed or a policy issued, all pertinent documents should be obtained and reviewed.

Beware the Drive-By Survey
Mike Noel, a vice president with the environmental consulting firm Hydro-Search, Inc. in Brookfield, cautions against the "driveby" or "windshield" site survey. This is the type of survey in which an individual "Inspects" a site without ever leaving the car.

Drive-by surveys are not much of an issue as long as the consultant or environmental specialist that's doing the work is competent. As Noel explains, "It's probably more of an issue if the owner or buyer does the survey on his own. If he drives by and doesn't see anything suspicious, he may decide that he doesn't have to worry about an environmental assessment."

Noel says you really have to walk the site to get a sense for potential problems, as indicated by stained soil, stressed vegetation and other clues. What might appear harmless to the untrained eye may really be a smoking gun that needs to be investigated further.

While certification is required for certain types of environmental work, such as asbestos inspection, no such certification or licensing is required for general environmental assessments. To check on a firm's credentials, Noel suggests contacting the Department of Natural Resources.

Weighing the Evidence
Once all the assessment information has been compiled, evaluate it in terms of potential concerns. If any kind of environmental contamination seems possible, proceed with testing and sampling. Geophysical surveys can help locate suspected underground problems and are relatively inexpensive. Soil and water tests may also be recommended.

Even if problems are found, most often they need not terminate the real estate transaction. The selling price can be adjusted to reflect the costs of corrective action. The important thing is that if there are environmental problems, it's best for the buyer and seller to know about them before the sale is concluded.