Given the current demand for downtown properties, borrowers are acquiring contaminated properties like never before. Against this backdrop, lenders should become familiar with the basics of environmental laws imposing liability, how to safely buy or lease properties for their own use, how to avoid liability at properties serving as collateral, and how to safely dispose of properties taken in foreclosure or by deed in lieu.
The Basics of Federal Environmental Liability
The most important federal law imposing environmental liability is the Comprehensive Environmental Response, Compensation & Liability Act (“CERCLA” or “Superfund”), 42 U.S.C. §§ 9601 et seq. CERCLA operates differently from most laws in that it imposes liability based solely on a party’s status or relationship, either with respect to the involved real estate or to the contaminants, as opposed to liability incurred in a more traditional sense based on a party’s actions or failure to act, like negligence. Absent a defense, CERCLA imposes liability on: (i) a contaminated property’s current owners and operators (typically tenants), even if they did not cause the contamination in question, (ii) a contaminated property’s owners and operators at the time contaminants were disposed of, even if the owners and operators did not cause the contamination in question, (iii) those arranging for disposal of contaminants at a property, and (iv) those transporting contaminants to a property, if they selected the property as a disposal site.
Liability under CERCLA is strict, joint and several, such that any one party can be left to pay for the entire cleanup. Liability is not limited to the value of the r eal estate, and it is not unusual even for “raw,” undeveloped land to be contaminated. Further, given how claims accrue under CERCLA, there is essentially no time limit on claims; it is common for CERCLA cases to involve contamination dating from the 1930s, or earlier. Accordingly, liability can arise from past uses of the property that are not obvious today.