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WHAT PROPERTY OWNERS SHOULD KNOW ABOUT ENVIRONMENTAL LIABILITY

Introduction

Property purchasers may be buying into more than a new parcel of land. If the purchaser's attorney is not careful, the new property owner could run afoul of environmental laws, placing the property owner at risk of suffering substantial civil and criminal penalties, as well as liability for common law tort claims. An attorney for a property-owning client should become familiar with federal, state, and local environmental statutes and regulations. The following article is not an exhaustive review of the many bases for environmental liability. Rather, it focuses on the most common statutory causes of liability.

Bases for Environmental Liability

Although environmental problems often are not readily apparent to a property purchaser, the prior use of the land, as well as its physical features, may provide clues about environmental liability. One commentator's list of property with environmental hazards includes land used for the following purposes: a dry cleaning facility; a hunting club or outdoor shooting facility; a landfill or recycling plant; a gas station; a paint manufacturing facility; a welding operation; and a wood refinishing facility. Physical characteristics of the land that signal potential environmental problems are as follows: dead or distressed vegetation; depressions; disturbed soil; drums or other storage containers; high tension power wires; pipelines; and railroad tracks. Even when these characteristics are not present, the attorney and the purchaser should always remain wary of hidden environmental problems.

Because the costs for environmental clean up and litigation are tremendous, attorneys or property buyers should not only physically inspect the land being purchased, but also should be familiar with the web of state and federal laws governing this area. Under federal law, the most commonly encountered environmental statutes are the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Air Act, and the Clean Water Act. Under Illinois law, the relevant statutes are the Illinois Environmental Protection Act and the Illinois Responsible Property Transfer Act.

Environmental Liability under Federal Statutes

Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 42 USC § 9601 et seq. CERCLA is the primary federal statute imposing liability for the clean-up of hazardous substances. Liability may be imposed upon the current owner or operator of a facility, former owners and operators, any person who arranged for the disposal, treatment, or transportation of hazardous substances at the facility, and/or any person who transported hazardous substances to the facility. 42 USC § 9607(a). CERCLA liability is strict, and parties may be held to be jointly and severally liable for all removal costs of hazardous substances or remedial action at the contaminated site, excluding petroleum product contamination. 42 USC § 9601(14).

Resource Conservation and Recovery Act (RCRA) 42 USC § 6901 et seq. RCRA regulates the handling of solid waste and hazardous waste from generation to final disposal. 42 USC § 6901. The U.S. Environmental Protection Agency (USEPA) is charged with promulgating and enforcing regulations and standards that require anyone generating, transporting, treating, storing, or disposing of hazardous waste to report to the USEPA and comply with regulations. Unlike CERCLA, RCRA's underground storage tank provision regulates the storage of petroleum products, as well as hazardous substances and hazardous wastes. 42 USC §§ 6991, 9003(h). A property owner must comply with USEPA regulations, and liability may also occur when the handling of hazardous waste represents an imminent and substantial threat to health or to the environment. 42 USC § 6973(a). It should be noted, too, that if there is a release of hazardous wastes or substances, or if such a release is threatened, CERCLA liability provisions are activated. 42 USC § 9601.

Toxic Substances Control Act (TSCA) 15 USC § 2601 et seq. TSCA gives the USEPA the authority to control the manufacture, processing, distribution, and use of chemical substances and mixtures for commercial purposes. It is illegal for an individual to fail to maintain records and submit reports pursuant to the Act. The Act provides for civil penalties for continued violations, and criminal penalties for willful and knowing violations. In addition to complying with the USEPA regulations pertaining to TSCA, property owners should also pay special attention to the additional regulations dealing with the marking, dating, storage, and disposal of polychlorinated biphenyls (PCBs). 40 CFR § 760.

The Clean Air Act (CAA) and the Clean Water Act (CWA) 42 USC § 7401 et seq.; 42 USC § 300f et seq. The most pertinent part of the CAA for property owners and real estate attorneys deals with asbestos. See also 40 CFR 61. It sets forth special notice, work practice, and disposal requirements where crumbly asbestos is present in buildings, and owners or operators plan to renovate or demolish buildings. The CAA also sets forth three national air standards with which stationary sources must comply. For example, a property owner must comply with the National Ambient Air Quality Standards, the New Source Performance Standards, and the National Emission Standards for Hazardous Air Pollutants. The property owner is responsible for reporting compliance with these standards.

Under the CWA, a property owner who is a direct discharger of water-borne pollutants must obtain and comply with a permit from the National Pollutant Discharge Elimination System (NPDES). If property owners are indirect dischargers, they must comply with § 307(b) of the CWA, which is incorporated into NPDES permits. Of particular importance to real estate attorneys is compliance with the § 404 of the CWA. This regulates the filling of wetlands with discharge of dredged or fill material and requires a permit from the Army Corp of Engineers. Enforcement of both the Clean Air Act and the Clean Water Act is through the Illinois Environmental Protection Agency and the U.S. Environmental Protection Agency.

Liability under Illinois Statutes

Illinois Environmental Protection Act (IEPA) 415 ILCS 5/1 et seq. The IEPA provides broad authority to the Illinois Environmental Protection Agency to regulate and monitor potential pollution problems in a variety of contexts, including but not limited to air, water, toxic substances, and petroleum underground storage tanks. Any person, including the state of Illinois itself, may bring an enforcement action before the Illinois Pollution Control Board if any person or company causes or threatens to cause any type of pollution or violates or threatens to violate any provision of the Act, any rule, or any regulation. The IEPA follows the federal CERCLA clean-up provisions, response costs, and remedies.

Illinois Responsible Property Transfer Act (IRPTA) 765 ILCS 90/1 et seq. IRPTA requires written disclosure of whether the real estate being transferred either (a) contains a facility whose owner or operator is required to report hazardous chemicals under § 312 of the federal Emergency Planning and Community Right-to-Know Act (42 USC § 11001), or (b) has an underground storage tank containing petroleum or CERCLA hazardous substances. 765 ILCS 90. Failure to file a disclosure document can void a transaction and can subject persons who failed to file the disclosure to joint and several liability for civil penalties.

Avoiding Environmental Liability

A property owner may avoid or minimize the risk of environmental liability through a variety of means, in addition to complying with various regulations. These include statutory defenses under CERCLA, environmental insurance, the Illinois Site Remediation Act, and environmental audits.

Statutory Defenses Under CERCLA There are several affirmative defenses available to a property owner under CERCLA. A defendant may escape liability if it can be proven that the release of pollutants occurred solely through "acts of God" or "acts of war." 42 USC § 9607(b)(1) and (2). Another defense is the third party defense. There, the defendant must show four elements. First, that the third party was the sole cause of the release. Second, the third party must have had no employment or agency relationship with the defendant during the release. Third, the third party must not have caused the release in connection with a direct or indirect contractual relationship with the defendant. Finally, the defendant must have exercised due care with respect to the hazardous substances by taking precautions against foreseeable acts and omissions of the third party. United States v Marisol, Inc, 725 F Supp 833, 838 (MD Pa 1989). A final defense under CERCLA is the "innocent purchaser" exception. Here, a subsequent purchaser of real property can claim he or she had no knowledge of, or reason to know of any contamination or potential contamination, and thus may limit potential liability despite a contractual relationship with the prior owner. 42 USC § 9601(35)(A). In order to qualify, the defendant must have undertaken all appropriate inquiry into the previous ownership and uses of the property. 42 USC § 9601(35)(B).

Environmental Insurance Former or subsequent property owners may purchase insurance for the costs incurred by environmental liability. Insurers, however, can write partial (standard) or absolute pollution exclusions into the environmental insurance policies so that they do not have to cover all or certain costs related to pollution. In case of partial pollution exclusions, a claimant needs to prove that the contamination was sudden or accidental. In the instance of absolute pollution exclusions, where the insurer will not cover any pollution liability, it is possible for property owners to make a successful claim if they can show that the definition of "pollution" used in the policy is ambiguous enough to require indemnification by the insurer. American States Insurance Co v Koloms, 177 Ill 2d 473, 687 NE2d 72 (Ill 1997).

The Illinois Site Remediation Act (SRA) 415 ILCS 5/58 et seq. Under the Illinois SRA, a property owner may reduce or eliminate environmental liability two ways, the Tiered Approach to Corrective Action Objectives (TACO) 35 Ill Adm Code 742 and the Site Remediation Program (SRP) 35 Ill Adm Code 740. TACO sets up a three-tiered approach, allowing users to determine, "How clean is clean." TACO standards are met by removing contaminants to achieve numeric remediation objectives, by revising the remedial objectives based on site conditions, or by legally or physically limiting the use of the property to reduce potential exposure. TACO may be considered at federal sites, such as those remedial activities at CERCLA and RCRA sites, because both of the federal laws look to state law in setting remedial standards. 42 USC § 9621(d)(2)(A)(ii).

The SRP allows a property owner to obtain a "No Further Remediation" (NFR) letter from the IEPA. The program eliminates joint and several liability after receipt of the NFR letter. The user must clean up the site according to the site's specified uses. For example, the remediation plan might call for more extensive clean up if the site is to be used for a school than if the site is to be used for an industrial plant. The Illinois Environmental Protection Agency issues an NFR letter after determining the problem has been remedied, and there are no further risks associated with the problem, provided the specified uses and controls are maintained. While there is no direct release from federal liability, the USEPA may issue comfort letters to property owners stating that the USEPA will not pursue an enforcement action against owners of a site cleaned under state authority. Also, the property owner may enter into a covenant not to sue with the USEPA. Note, however, that the SRP excludes certain types of property, like RCRA sites, solid waste landfills, and sites on the National Priority List.

Environmental Audits Finally, a property owner should consider an environmental audit of the property. The Illinois Site Remediation Act allows a buyer to escape liability through remediation, and thus minimizes the need for an environmental audit for liability under state laws. However, federal laws, such as CERCLA, allow for an exception to liability if the buyer is an "innocent purchaser." An environmental audit of the property, often called a Phase I environmental assessment, serves as evidence that the buyer exercised "due diligence" by making an effort to become familiar with the property's past or current association with hazardous substances. There are several reasons to request an environmental audit before purchasing property. First, a buyer may avoid liability if subsequent environmental problems with the property are discovered. Second, the audit allows the purchaser to be aware of the potential of being cited for environmental violations. Even though the purchaser ultimately may not be liable for the clean-up costs, the purchaser may still be required to spend time and money identifying the responsible party. Third, the lender for a real estate transaction may require the borrower to conduct a Phase I environmental assessment.

Conclusion

Property owners should be aware of their potential liability under state and federal environmental laws for acts or omissions that result in or threaten a release of pollutants. By analyzing the risks associated with a particular parcel of land, as well as the defenses available under state and federal law, real estate attorneys can save clients expensive litigation and clean-up costs.

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