Digging in the Dirt? Allocating Environmental Liability in Real Estate Transactions


While adverse environmental conditions may be unavoidable, appropriate due diligence can help both real estate buyers and sellers avoid a liability mess.

The conveyance of commercial or industrial real estate often involves allocation of liability for environmental matters. Traces of the industrial age in the form of chemicals in soil and groundwater are unfortunately found in most industrial and commercial districts. In some cases, the history of industrial or commercial activities at a particular parcel can span decades or even centuries. Historic activities, both on-­ and off-­site, can result in contamination that is undocumented and undiscovered. In many cases, the party who caused the contamination filed for bankruptcy or no longer exists. For the unwary and unsuspecting purchaser of industrial or commercial property, historic contamination can result in significant liability.

Do the Due Diligence -

Environmental due diligence takes on greater importance where the real estate has a commercial or industrial past, because liability for environmental contamination can be strict (i.e., liability for the contamination, regardless of fault) against the owner of the property. Under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA), 42 U.S.C. §§ 9601 et. seq., liability attaches strictly to owners of contaminated parcels, among others. During the 1980s when CERCLA was first enacted, numerous accounts of draconian outcomes against “innocent” landowners (those who did not cause contamination) elevated the importance of environmental due diligence in real estate transactions. Ultimately, Congress and EPA realized that without amendment, CERCLA was resulting in outcomes that were arguably unfair and that discouraged beneficial reuse of urban industrial properties. The documented phenomenon of urban sprawl (the expansion of “developed” land outward from a central urban area) and a glut of decaying urban industrial areas, particularly in the eastern half of the United States, highlighted the need for statutory changes under CERCLA.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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