Environmental Issues in Real Estate Transactions
Every real estate transaction includes a potential environmental question. Even in a residential sale, not only is there a prospect for an abandoned oil tank in the crawl space, there could be issues that include the use or spill of hazardous substances on the property. There could also be asbestos on pipes, lead paint on walls, or mold or other irritants or hazards present. Occasionally, a site history indicates contamination from historic operations at or near a residence that could present a risk.

In a business or commercial transaction, the list of potential concerns includes not only present conditions, but also past practices, contractual or tort liability and offsite disposal liability. Due diligence is required to protect our clients, even where the party on the other side assumes certain liabilities.

The drafting, negotiation and due diligence elements of any significant real estate transaction need attention and require experience with multi-state and multi-national due diligence and contract negotiations on complex environmental, health and safety issues. The leasing of property is just as needful of an environmental review as a sale or purchase; in fact, in some cases it is more critical in lease situations than in purchase situations. (Some courts have held tenants to be operators of facilities that have a hazardous substance release problem, even if the tenant did not cause the release.)

New Federal Law Affects "Brownfields" Development and Amends Superfund Liabilities
Just as Congress adjourned in December, it passed the "Small Business Liability Relief and Brownfields Revitalizations Act" (HR2869)("The Act").

The President signed this Act into law on January 11, 2002. The Act has several key elements:

• The Act creates a de micromis exemption from Superfund liability for small generators of hazardous substances at a site (total disposal of less than 110 gallons of liquids or 200 pounds of solid materials), provided the shipment or disposal occurred prior to April 1, 2001. An exemption is also created for municipalities and small employers that send only municipal solid waste to a facility that is subject to response activity. Both exemptions can be administratively revoked on a case-by-case basis where the particular circumstances are environmentally significant.
• The Act expands the kind of property eligible for "brownfields" grant and tax credits, and it will greatly increase grant funds available once appropriation occurs. Brownfields grants are available to help analyze and remediate environmental issues at sites deemed important to local economies, and private developers may seek to have local government entities apply for a given site that they propose to develop. The Act's definition of "brownfield" property is now quite broad. Generally, a property is eligible for consideration as a "brownfield" if it is real property "the expansion, redevelopment, or reuse of which may be complicated by the presence of a hazardous substance, pollutant or contaminant."
• Complimenting the expansion of brownfields eligible for grants is a very important provision whereby the Federal government adopts a "hands off" Superfund enforcement posture toward any site at which clean-up is being conducted under a recognized state voluntary or involuntary remediation program (provided there are not exceptional circumstances or a prior history of Federal response). This provision should give meaningful comfort to owners and developers who enroll a site in a State voluntary response program.
• The Act creates a special status for contiguous properties, i.e. property next to a facility where there has been a release of hazardous substances threatening the environment. Contiguous property owners can escape liability if they accept an obligation to "take reasonable steps" to stop or inhibit the release and to prevent danger to people, the environment or natural resources. (In a curious way, the contiguous owner's liability under Superfund may actually be made more problematic by this change of law.)
• The Act changes and clarifies the CERCLA (Superfund) exemptions from liability for so-called "innocent purchasers" and adds conditions for "Prospective Purchaser Agreements" (i.e. agreements whereby a purchaser gets an advance waiver of liability from the government). "Innocent landowners" are persons who had no connection with contamination of a property, that were diligent in determining its status prior to purchase and who had no reason to know of the contamination. To an extent, the categories are narrowed, and burdened by some follow up "take reasonable step" type duties as conditions to maintaining "innocent purchaser" status or as a condition of entering into a "prospective purchaser" agreement.

Contact for more information: Harvey M. Sheldon

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.