GROUND RULES FOR BUYING AND SELLING BROWNFIELDS: DON’T BUY LIABILITY WHEN BUYING PROPERTY


by Casey Gray

When my wife and I purchased our first home, my father-in-law congratulated me, then, with a friendly chuckle, joked about all of the maintenance that was now my sole responsibility. At the time, I thought that I was prepared for the responsibility and cost that came with ownership, but after a few headaches dealing with unanticipated issues, I began to understand what my father-in-law meant.

I think most people can accept that owning property means they have to deal with problems that arise during their tenure, but what about the problems that manifest due to the actions of previous owners or neighbors? I have seen how gasoline from old filling stations and chemicals from dry cleaners migrate underground and onto neighboring properties. I have observed the years it takes and cost of cleaning these sites. I have seen the burdensome process and cost of removing asbestos from an old apartment building. I have found houses built on top of abandoned well sites. Are we responsible for paying for those? When it comes to hazardous substances, the answer may be ‘yes.’

Believe it or not, you could be responsible for the cost of cleaning up contamination that is present on your property, even if it came from your neighbor’s property or if it is there as a result of the actions of someone who owned the property 50 years ago. No matter the source, if contamination is found on or below your property, not only are you likely responsible for the cleanup costs, but you may also be unable to sell your property until the problems are fully addressed.

Fortunately, you can take steps to ensure that the responsibility of paying for the cleanup of hazardous substances on your property is not yours to bear. In other words, the law provides a pathway for you to buy the property of your dreams without buying the liability associated with hazardous substances.

In order to benefit from the protection of liability under the federal environmental laws, you will need to conduct environmental due diligence after you go under contract and prior to closing. You will need to contact an attorney to ensure that your purchase and sale contract contains language to 1) give you enough time to perform environmental due diligence; 2) allow you, the buyer, the choice to back out and have your earnest money returned if contamination is found; 3) describe who is responsible for the release of any contamination during the due diligence process; and 4) indemnify the purchasing property from liability, including civil liability. These provisions are not standard in the purchase and sale agreement forms commonly used in Oklahoma for the purchase of vacant land, residential or commercial property, so you will need to have an attorney incorporate them into your contract.

The amount of due diligence required to obtain this liability protection varies from site to site, depending on the history of the property as well as the history of the neighboring properties. In some instances, where there is no reason to believe that contamination is present, you may be able to satisfy your environmental due diligence requirements by having an environmental professional perform a Phase I Site Assessment. If the Phase I Site Assessment report identifies environmental contamination or you have reason to believe that there is contamination on your property, you will likely need to perform more environmental due diligence by performing a Phase II Site Assessment.

If contamination is found during the environmental due diligence process and you still want to purchase the property, you will need the help of a lawyer to navigate the cleanup process. If you are buying raw land or commercial property you should consider performing a Phase I Site Assessment and having an attorney modify your purchase and sale contract to include protection from environmental liability. The same goes for residential property located on or near a gas station or dry cleaner. You don’t have to buy the liability when you buy property, so don’t. 

For more information or for help buying or selling contaminated property, contact W. Casey Gray at wcgray@andrewsdavis.com or (405) 235-8731. Read more about Mr. Gray here.

 


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