Environmental Due Diligence Boot Camp
Lesson 5:   Risks, Liabilities, and Consequences
Part 2

Property Owners:


Owners of contaminated property face the greatest level of risk and liability. 


First and foremost, there is the statutory liability:  Being held responsible by a governmental agency (state of federal) for the costs associated with investigating and remediating the contamination (discussed in Lesson 1).


A property owner can potentially be held financially responsible for cleanup costs for contamination that occurred before they acquired the property.


If an owner does not document the condition of their property at the time that they sell it, they can potentially be held responsible for adverse environmental impacts that occur after they have relinquished ownership of the site. 


But even if an owner can avoid statutory liability, an environmentally-distressed property might still expose the owner to: 
  • Civil Liability:   
The potential to be sued for failing to disclose the presence of an adverse environmental condition, or for the migration of contaminants onto a neighboring property (Lesson 1). 
  • Practical Liability:
Potential loss of value, or limitiations or restrictions on the use, of the subject property; costs associated with development / re-development delays and necessary site investigation and cleanup activities (Lesson 1).
Case Study 1: 
An individual bought an old gasoline service station site; no cleanup of the property had ever been completed, and the buyer did not commission an environmental assessment. 
The new owner leased out the property for use as a car repair shop and used car sales lot.  A few years later, the city started excavating a deep (25 - 35 feet) trench down the street adjacent to the property for installation of new sewer lines.  They encountered gasoline contamination next to the former service station site, and contacted the owner to find out where he wanted them to put his contaminated soil.  The property owner informed the city that the contamination wasn’t his, and pretty much told them where they could “stick” their smelly dirt. 
So the city hired a contractor with the special training and equipment needed to work with contaminated media, and completed the project activities in front of the old gasoline station.  The property owner soon thereafter received a bill from the city:  $ 15,000 for contaminated soil management and disposal; $ 12,000 for contaminated groundwater collection, storage, and disposal; $ 12,000 to have a hazardous materials contractor on-site for the better part of week. 
The property owner responded by informing the city that he didn’t have $ 40,000 to give them, and refused to pay the bill.  The city filed a lien on the property, and eventually filed a lawsuit to enforced the lien by foreclosure.  Of course the city won, and the owner lost the property, the equity he had paid into the property, and the value of all the improvements he had made to the property.
[Side note:  The city then invested $ 90,000 to remediate contamination on the property, and subsequently sold the now "clean" property for $ 160,000]


This is just one example of the kind of civil liability you can face if you get involved with a contaminated property.
Case Study 2:
An individual bought a property that had been an active gasoline station right up until just before the purchase.  All of the underground tanks, product lines, and fuel dispensing systems had been removed, and remediation of gasoline and diesel contamination had been completed.  A letter of "no further action" (NFA) had been issued for the property by the state environmental agency.
The new owner began site re-development work on the property, and almost immediately encountered an area of significant petroleum contamination (diesel and gasoline).  All construction work stopped while sampling to delineate the extent and magnitude of the contamination was conducted. 
The level of contamination in one area was high enough to preclude placing a building over it without first completing additional remediation.  The levels of contaminants in all other areas were not high enough to warrant remediation, but any sub-surface work in these areas was required to be carried out by a contractor with employees trained and equipped to work with hazardous materials.   It was also required that any contaminated media that was disturbed or removed, irrespective of concentration of contaminants, had to be managed and disposed of as petroleum-contaminated waste.
Dealing with this unanticipated contamination resulted in:
  • the construction schedule being delayed almost 8 weeks
  • additional costs of approximately $ 8,000 for sampling, sample analysis, and a supervising environmental consultant
  • additional costs of approximately $ 10,000 for a hazardous materials contractor
  • an expenditure of close to $ 30,000 for management and disposal of contaminated media.
The property had been purchased relying upon the conclusions of a Phase 1 ESA which assumed that the letter of "no further action" meant that there was no "recognized environmental condition" still associated with the property.  But unfortunately, the people who conducted the site remediation when the tanks were removed never bothered to evaluate conditions along the vent pipes for the tanks.  Apparently, at some time in the operating history of the service station, the underground tanks had been grossly overfilled, resulting in a large quantity of fuel being pushed into, and subsequently leaking out of, the vent pipes. 
Prudent environmental due diligence would have indicated that a comprehensive Phase 2 ESA needed to be conducted, prior to the purchase of the property, to verify the overall environmental quality of the property.  The failure to conduct this additional level of assessment turned out to be a costly mistake for the buyer of the property.
This is an example of the kind of practical liability that can result from inadequate or inaccurate environmental due diligence.
PART 1  
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POSTED:  23 December 2010        UPDATED:  3 March 2011