Donald M. Nielsen

Whether planning a new office, looking at investment property, or searching for a dream home, it is important to remember that nearly every property has some sort of environmental risk. Most people understand that gas stations, dry cleaners and older industrial properties have environmental issues. It’s not immediately obvious that the former farmland one wants for an exurban office was sprayed with chemicals for a hundred years and had tractor repair shop by the old hog lagoon, or that rental property has underground storage tanks and lead paint, or that an office has asbestos and the latest bugaboo, "toxic mold."

Even if a property is "clean," that doesn’t mean one can actually develop it. Wetlands, watersheds, endangered species, and neighbors who believe that the only purpose of other people’s property is their own aesthetic enjoyment, are just a few concerns.

Environmental law is not "fair." It’s a patchwork of sometimes-inconsistent laws that often cause unintended results. The bottom line is that, regardless of fault, an owner, tenant or operator of a property can be liable for environmental problems, as can their successors. The government or a plaintiff may seek out the person who "caused" the problem, but can also press the current owner or a "deep pocket" with a connection to the property.

While environmental laws can discourage investors and developers from even looking at contaminated property—which serves to accelerate suburban sprawl as builders search for clean property—legislation in recent years has tried to change the calculus by alleviating or mitigating risks while still protecting public health and safety. Indeed, many developers are prospering by turning around contaminated properties, which, because of new attitudes and regulations, are now economically viable.

Not all contamination is the same and not all contamination is a threat. Some contamination can be left alone, perhaps with a deed restriction or notice. There is no reason that soil beneath a parking lot or an industrial facility must be as clean as a playground.

The first step in considering the purchase of property is to hire competent professionals to accurately identify and analyze environmental problems. Environmental consultants—and environmental lawyers—exist to help clients escape or confront environmental issues. Always remember, however, that most consultants do not have legal degrees, and most lawyers do not have technical degrees.

For a buyer, seller, lender or insurer, an Environmental Site Assessment (ESA) can identify potential problems and help assess the potential financial liability, the cost of cleanup, and the effect on property value. An appropriate ESA is a critical element of compliance with governmental regulations and establishing an "innocent landowner defense" or other defenses in the future.

The scope and extent of an ESA varies with each situation, but there are basically two kinds of investigations, Phase I and Phase II. A Phase I investigation is a preliminary site evaluation which reviews available documents, reports, and photographs, and includes a visual inspection and interviews with knowledgeable parties. A Phase I investigation by a competent professional is relatively inexpensive and may be all that is necessary. If the potential for contamination exists, a Phase II investigation will be recommended, which may include sampling, testing and analysis of soil, water, air and suspect building materials. How the resulting reports are written, and a careful review of all reports, is crucial in negotiating with other parties and the regulatory authorities.

Every property is different and each buyer and seller will have his or her own needs, desires and bottom lines. The seller will want the buyer to not only take the property "as is" but assume all liability for contamination. The buyer will want to leave all unknown liabilities to the seller and/or obtain an indemnity or price reduction. There are countless permutations between these positions, including "Brownfields" agreements where the state grants limited liability protection to the prospective developer. Environmental insurance and escrow accounts can be useful tools. The key is to make contract language clear; so that there is no ambiguity with regard to who is responsible should environmental issues arise in the future.

Most property has environmental risks, but informed buyers and sellers know that it can be managed and sometimes even turned into an advantage.

Donald M. Nielsen is a director with Bell, Davis & Pitt, P.A., which has offices in Winston-Salem and Charlotte, NC. His practice concentrates in the areas of environmental and land use law, local government law, and general civil litigation. He can be contacted at (336) 714-4116 or dnielsen@belldavispitt.com.