Buying Contaminated Property Without Liability
To avoid liability, perform thorough due diligence and develop a post-acquisition environmental plan.
Buyers of real estate and their professional advisors are all too familiar with the Phase I Environmental Site Assessment (ESA). Born out of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §§ 9601, et seq. (commonly known as the Superfund law), the Phase I ESA is a report prepared during a potential buyer’s due diligence.
For years, potential buyers would often walk away from contaminated properties because of CERCLA’s harsh liability—liability is strict (without fault) and joint and several (any one party can be liable for all). Mere ownership of contaminated property is a basis for liability under CERCLA. For many years, an owner’s best chance to escape liability was the “innocent landowner” defense, which requires an owner to show a lack of knowledge of the contamination after a diligent, pre-acquisition inquiry into the environmental condition of the property. If a potential buyer is presented with a Phase I ESA report identifying contamination, the potential buyer would obviously have knowledge, and thus would be unable to assert an “innocent landowner” defense. Such was the story of CERCLA for over two decades.