By now, everyone is well aware
of the enormous liabilities that can result from owning or
operating contaminated real property. It does not matter who
caused the problem--if you owned or operated the property
while it was in a contaminated condition, you can be fully
liable for the cost of the cleanup. Lessees can also be liable
for the cleanup of property then occupy as a tenant, unless
they are physically excluded from the area of the contamination.
This is especially true of long-term lessees.
Cleanup costs can easily run to the tens or hundreds of thousands
of dollars, and sometimes into the millions. Do not think
the government will not pursue you if you are not the guilty
party--because it will. The government is not interested in
fairness; it is interested in getting the money from somebody--anybody--to
clean up the contamination.
There is a defense to this potential liability that many
purchasers of real property have relied upon. It is called
the "innocent purchaser" defense, and it provides
that if a purchaser is "innocent," he is not liable
for contamination he did not cause. To be innocent under the
law, it is not enough to be innocent of causing the contamination.
One must also have made a reasonable investigation of the
property before purchasing it, and the investigation must
have indicated that the property was clean. This, of course,
is one of the reasons everyone has a phase one environmental
assessment done when purchasing property.
So, what's wrong with this defense? Plenty.
First, it only applies as a defense against
the Federal Superfund law and some state counterparts. There
are many other laws where the "innocent purchaser"
defense does not apply at all, and many of these laws can
impose liabilities as great as Superfund. The innocent purchaser
defense is also no defense against tort claims by private
Second, even if you do establish a good
innocent purchaser defense, others cannot utilize the defense
once the problem becomes known. Therefore, you will probably
never be able to sell the property or borrow money against
Third, the defense is limited. For example,
if your investigation turned up only a small trace of a contaminant
which could be easily removed, and it later turns out there
was a lot more that was missed, the defense is of no benefit.
Fourth, if the company doing the environmental
assessment misses something it should have found, you lose
your innocent purchaser status. In other words, the negligence
of the company performing the assessment can be attributed
to the owner.
What this means is that a buyer or lessee should never assume
he is protected just because his environmental assessment
comes up clean. He can still have catastrophic legal exposure
if contamination is later found on or under the property.
To minimize that exposure the buyer or lessee must have a
thorough phase one assessment done by a competent firm, and
must follow up with a phase two assessment if there are any
indications at all of potential contamination. If there is
a problem, have the seller cure it before you buy or lease
the property. Even then, there is always the risk of liability
if contamination should later be discovered.
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