By Beau Ruff

When a person endeavors to buy a piece of real property

(i.e. land and any associated buildings), the buyer would be wise to study up

on the potential liability he or she may be taking on.

Notably, the buyer should beware of liability for the

existence of hazardous materials on the land.

Most people know or can imagine that a landowner cannot

simply dump hazardous materials onto the ground without facing environmental

disaster and liability for improper disposal. This wasn’t always necessarily

the case.

A few decades back, it would have been much more common for

a property owner to, for example, throw out used motor oil on the ground

without proper disposal. In response to reckless environmental behavior, and to

a larger extent commercial and industrial ground, water, and air pollution,

Congress enacted various laws to curb the behavior and encourage cleanup

efforts, including CERCLA, the Comprehensive Environmental Response,

Compensation, and Liability Act (1980).

CERCLA addresses the release of

pollutants and contaminants and gives the Environmental Protection Agency the

power over cleanup. Various Washington state laws also control the release and

cleanup of hazardous substances, including the Washington Environmental Policy

Act, the Washington Water Pollution Control Act, the Washington Hazardous Waste

Management Act, the Washington Model Toxics Control Act, as well as various

regulations promulgated thereunder. As evidenced by the litany of laws in this

area, the broad concept of hazardous waste is a highly-regulated area.

Problematically for the land owner is the breadth of

liability for the hazardous materials. Any current land owner can be held

liable for hazardous substances on the property, even if the current land owner

did not know of the hazardous substances and even if the current land owner

didn’t cause the hazardous substances to be deposited thereon.

So, a land owner is not only responsible for what he or she

does to the land and water, but the current land owner may be responsible for

what past owners did to the ground and the water.

It becomes imperative to take action to ensure when buying

property that you won’t be forced to foot the bill for past owners’

environmental transgressions.

The first action item is to ensure that any purchase and

sale agreement includes certain protective provisions such as: broad promises

that the sellers have never disposed of any hazardous materials on the subject

property; broad promises that the sellers know of no hazardous materials on the

property (whether caused by the seller or not); broad promises that the sellers

have complied, in all terms, with the various state and federal hazardous

materials laws; broad promises that, if the sellers have misrepresented any of

their promises, that they will pay to make it right (indemnification for

cleanup); and an investigative period to inspect the property and sample the

ground for detecting the presence of any hazardous materials (the Phase 1 environmental

site assessment).

The second action item is to perform the Phase 1

environmental site assessment, or ESA. Though the law provides that current

landowners are responsible for defined pollutants on the land, it also provides

a defense if the current landowner did not cause the pollution and can

demonstrate that he or she made “all appropriate inquiries” into the land prior

to purchase. The Phase 1 ESA can be used to satisfy the innocent land owner

defense under the “all appropriate inquiries” requirement.

In the event a Phase 1 ESA identifies a recognized

environmental condition, then it will likely recommend a more robust Phase 2

ESA. 

The third action item is to consult your insurer and

consider whether environmental liability insurance is appropriate. The standard

general liability insurance policy usually specifically exempts environmental

liability from coverage. Accordingly, a separate type of policy, the

environmental liability insurance policy is available to assist in paying the

costs associated with the presence of environmental pollutant and paying

related settlements or judgements associated with enforcement actions.

Be sure to work with a good real estate attorney to ensure

you are protected.

Attorney Beau Ruff works for Cornerstone Wealth Strategies, a full-service independent investment management and financial planning firm in Kennewick.