October 8, 2008
Realty Buyer Fears Pollution Liability
Q. I am buying a piece of commercial real estate. How can I protect myself from liability for pre-existing contamination?
Owners of real property can be held responsible for cleanup costs even though they acquire the property after the contamination occurred and did not know about, or contribute to, the contamination. However, both the New Jersey Spill Act and the federal Superfund law contain defenses for owners of land who are considered "innocent purchasers."
In order to avail oneself of the liability protections that exist, one must at least conduct pre-purchase environmental due diligence. By doing so, one may qualify for the innocent purchaser defense, tailor the transaction to limit environmental risk, or pull out of the transaction.
To qualify as an "innocent purchaser," one must conduct specific environmental due diligence. The law defines this due diligence as conducting "all appropriate inquiry." To conduct all appropriate inquiry, one must hire a qualified environmental consultant to prepare a report called a Phase I Environmental Site Assessment (ESA) in accordance with specific standards.
Under the New Jersey Spill Act, the standard is more stringent and requires a consultant to conduct a Preliminary Assessment.
The Phase I ESA and Preliminary Assessment are non-invasive studies that include a site visit, interviews of facility personnel, review of historical and governmental records, and preparation of a written report.
Either assessment may reveal environmental issues that warrant what is called a Phase II Environmental Site Assessment, which typically involves invasive soil and possibly groundwater sampling biased toward the areas of concern revealed in the Phase I ESA. If the investigations do not reveal contamination, one can assert the innocent purchaser defense for any issues not identified in the due diligence.
If pre-purchase due diligence reveals contamination, one will not be eligible to assert the innocent purchaser defense. However, if one still wants to go through with the transaction, there are many legal tools available to tailor the transaction and its documents in order to limit the scope and nature of the possible liability arising from pre-existing contamination.
Dorothy Mello Laguzza is an attorney in the environmental law department of Cole, Schotz, Meisel, Forman & Leonard PA, the largest law firm in Bergen County. She can be reached at [email protected], or 201-525-6212. This column is not intended to offer legal advice, which can only be given after the attorney understands the facts of a particular matter and the goals of a client.
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