05 Sep Legally, What Do I Have to Do?
This is a question I am often asked. It’s one that’s difficult to answer and, to be honest, it’s the wrong one to ask. Imagine this: you’re thinking about buying a used car from a from some guy you never met. There’s no law requiring you to have a mechanic look it over; but isn’t it a good idea? Let’s take this a step further. A day of two later you are driving the car and are approaching a red light. You press the brake pedal and, to your surprise, nothing happens. You dive through your neighbors prized petunias before coming to a stop in their bird bath. You can blame the guy who sold you the car but, legally, the driver is responsible for the condition of the vehicle. You’re responsible. Buying property is similar. In general, there is nothing that legally requires you to investigate a property before buying or selling it. (I suspect some of my attorney friends will dispute this.) The legal questions may arise later, however, after the sale of the property. Documenting the environmental condition of the Site at the time of sale protects both the buyer and the seller.
An environmental investigation may prevent the buyer from ending up with someone else’s problem. At a minimum, a Phase I environmental site assessment should be conducted to document the industrial history of the property and to evaluate potential chemical use and waste generation. But that may not be enough. The Phase I only tells us what may be present on the property. Collection of and analysis of environmental samples is the only way to determine if contamination is or is not present. Now, this is important: proper environmental Due Diligence will help support an “innocent landowner” defense should historic contamination be discovered later. This may be critical if a property later classified as a Brownfield or “Superfund” site, or ends up in a State environmental program. In order to qualify for the “innocent landowner” defense, it must be shown that the landowner “did not know and had no reason to know” that contamination existed on the property at the time of purchase. Put simply, you can’t say you had no way of knowing contamination was present if you never looked for it.
Due diligence can also protect the seller from future liability. Federal and State environmental laws often hold Responsible Parties (those believed to have caused the contamination) “jointly and severally liable”. In other words, both the current owner and any or all the former owners can be held liable for contamination. The government is very happy to let the Responsible Parties fight it out in court. It may be difficult to determine if contamination discovered after the sale of the property is the result of historic operations or post-sale operations. Without hard data to demonstrate the property was clean prior to sale, the seller could be found partially or fully responsible for environmental problems they didn’t cause.
In Connecticut, there is one other important legal issue associated with the sale of commercial and industrial properties. The Property Transfer Program requires the disclosure of environmental conditions when ownership of certain real properties and/or businesses (“Establishments”) are transferred. An Establishment is any real property at which or any business operation from which (A) on or after November 19, 1980, there was generated, except as a result of remediation of polluted soil, groundwater or sediment, more than 100 kilograms of hazardous waste in any one month, (B) hazardous waste generated at a different location was recycled, reclaimed, reused, stored, handled, treated, transported or disposed of, (C) the process of dry cleaning was conducted on or after May 1, 1967, (D) furniture stripping was conducted on or after May 1, 1967, or (E) a vehicle body repair facility was located on or after May 1, 1967. When an establishment is transferred, an Environmental Condition Assessment Form (ECAF) and one of four Property Transfer Forms must be executed and a copy of the form must be filed with the Department of Energy & Environmental Protection. Now this is critical: one of the parties involved in the transfer of ownership must sign as the “Certifying Party” and agrees to investigate and remediate the property in accordance with State requirements. Failure to submit a Property Transfer filing could result in lawsuits between the current and past owners, and could even bring legal action by the State. The Phase I investigation provides the information needed to determine if the property is an “Establishment” and if a Property Transfer filing is required. Further environmental investigation, which includes collection and analysis of soil, groundwater, or other samples may be required to confirm the presence or absence of contamination (Phase II) and/or the degree and extent of contamination (Phase III). An environmental professional and a qualified attorney should be involved in the transfer of ownership of any commercial/industrial property.