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Today the specter raised by environmental contamination of real property is far less of a barrier to the sale, purchase and redevelopment of such property (often referred to as brownfields) than it seemed to be even five years ago. The adoption of risk-based cleanup standards by many state environmental agencies, the availability of grants, low-interest loans, tax credits and other financial incentives for brownfield redevelopment, and the increasing recognition that environmental problems often can be readily identified and addressed for a reasonable cost, have all spurred interest in recycling contaminated properties to beneficial use. Frequently there are bargains to be had from sellers who may overestimate the costs of remediation, lack the financial means to remediate the property properly or simply desire to walk away from contaminated property without ever being troubled by it again. A largely overlooked aspect of brownfield redevelopment, however, is the risk and liability that the seller of such contaminated property continues to bear after the sale. Recent legislation at the national and state levels has largely concentrated on expanding the defenses available to purchasers of contaminated property, but the continuing liability of the seller has not yet been a focus of concern. Because of the strict liability scheme imposed by most state and federal environmental statutes, it is critical that those who wish to sell contaminated property obtain competent legal advice on structuring their transactions to reduce such potential future liability to the greatest extent possible. Unfortunately, some property owners believe that simply selling their property pursuant to an “as-is, where-is” clause in the sale contract will insulate them from future environmental claims, i.e., cost recovery or injunctive remediation claims asserted by a subsequent purchaser, the government or even other third parties unrelated to the transaction (such as adjacent landowners). It is often this mistaken understanding that entices sellers to sell property “as-is, where-is,” thinking that such terms will absolve the seller from any and all future environmental liability associated with the property. Many such sellers are shocked to learn later that an “as-is, where-is” clause, standing alone, provides little or no protection from most environmental claims. While most courts agree that an “as-is, where-is” clause is an effective defense to breach-of-implied-warranty claims, such protection is of little or no consequence in the realm of statutory or common law environmental liability. See, e.g., HM Holdings Inc. v. Rankin, 70 F.3d 933 (7th Cir. 1995); Ganton Technologies Inc. v. Quadion Co., No. 89 C 6869, 1992 WL 71658 (N.D. Ill. 1992); Southland Corp. v. Ashland Oil Inc., 696 F. Supp. 991 (D.N.J. 1988). Subsequent purchasers are by no means limited to breach-of-warranty claims to recover for environmental damages, and, in fact, they, as well as unrelated third parties, have many more powerful statutory causes of action. Two of the most important statutory causes of action are private cost-recovery lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. 9601 et. seq., often referred to as Superfund, and citizen suits under the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. 6901, et seq. RCRA citizens suits provide for injunctive relief that can force even a former owner to clean up contaminated property that has since been sold to another owner. A minority of courts have reached the same result (sometimes with reference to state environmental laws) based on the notion that a simple “as-is, where-is” clause cannot transfer environmental liability absent clear intent to assume such liabilities. These courts hold that in order to transfer environmental liability, an “as-is, where-is” clause must also clearly state that environmental liabilities are expressly and knowingly assumed by the buyer. See, e.g., New West Urban Renewal Co. v. Westinghouse Elec. Corp., 909 F. Supp. 219 (D.N.J. 1995). State common law Sellers of contaminated property may also be sued under a variety of state common law claims, none of which is pre-empted by federal environmental statutes. For example, some courts have held that an “as-is, where-is” clause cannot protect a seller of property from suits brought by a subsequent purchaser under common law tort theories such as strict liability for ultrahazardous activity. See, e.g., Allied Corp. v. Frola, 730 F. Supp. 626, 630 (D.N.J. 1990). Other common law causes of action such as negligence, trespass and nuisance may be available to neighboring landowners and other injured parties not in the chain of title. These claims must not be overlooked; the criteria for proving them are often less onerous than one encounters proving a CERCLA or a RCRA claim, and the remedies can be more expansive. In most jurisdictions, therefore, simply deeming a property sale to be “as-is, where-is” usually does not protect a seller from being sued the very next day by the purchaser under environmental statutory law. While it is true that many courts will take into consideration the knowledge of the purchaser as to the existence of environmental contamination that is obvious or was disclosed prior to the sale in order to determine proper allocation of responsibility among the parties, even extensive knowledge of such problems is generally not a bar to suits under most environmental statutes and many common law tort theories. Such disclosure does not affect the standing of strangers to the transaction to sue the prior landowner in any regard under statutory causes of action or common law. Therefore, depending on the circumstances, some sellers may choose not to sell contaminated property once they realize that they cannot necessarily achieve a complete “walkaway” from the environmental problems on the property. Owners of contaminated property should not despair, however, as there are effective legal strategies that can be used to achieve a fair measure of protection in the context of a property transaction. A seller needs to be fully informed of the risks inherent in the nature of passing contaminated property to another party, in order to factor these realities into the cost/benefit analysis of doing the deal. Unique properties, problems Just as every parcel of real property is unique, each set of environmental facts and each transaction poses its own special set of problems and challenges, and experienced counsel should be consulted when such issues arise. Generally speaking, it can be stated that the most proactive solution to possible future liability based on environmental contamination that exists on property to be sold is to clean it up prior to sale, or to mandate such remediation post-closing as part of the sale agreement. Even this is not without risks. The potential exists for neighboring landowners or other third parties to file claims for damages caused prior to the cleanup. Relying on the purchaser to conduct a post-closing cleanup as part of the sale agreement is also risky, as the purchaser may not have the financial ability to complete the cleanup or may simply refuse, in which case the seller’s recourse is probably limited to a suit for breach of contract. Environmental escrows can also be used effectively if this issue appears to be a concern, but such an arrangement obviously must be negotiated and integrated into the transaction. Assuming that a cleanup will not be performed prior to or after the property transfer, a seller may diminish future liability by obtaining from the buyer an express indemnity, a release/covenant not to sue and an assumption of environmental liabilities. Coupled with an “as-is, where-is” clause and a disclosure from the seller of as many specifics regarding the nature of the contamination as are known, this approach is generally the most advantageous to the seller (though every situation requires legal analysis). Courts have generally upheld the effectiveness of a properly worded indemnity clause and/or an express assumption of environmental liabilities. See, e.g., Niecko v. Ermo Marketing Co., 973 F.2d 1296 (6th Cir. 1992). It is advisable to state specifically that the indemnity and the assumption are intended to address all potential environmental liabilities under CERCLA, RCRA and all common law theories or other statutory causes of action related to environmental contamination. One may also want to indicate that the prospective purchaser has had the opportunity to investigate the property and perform whatever investigation it deemed necessary. Specific environmental problems that are known by the seller should be specifically disclosed in order to gain the greatest protection from the assumption, and to avoid claims of nondisclosure of known environmental defects. Finally, a properly worded release/covenant not to sue should be used to foreclose any lawsuits from the purchaser under any strict liability environmental statutes or other causes of action. A few caveats are appropriate. First, an indemnity or assumption is only as good as the party that stands behind it. Those given by a purchaser that has insufficient financial means to meet its responsibilities under the agreements are essentially useless. Second, such indemnities and assumptions generally do not protect a party from actually being sued by a third party or the government. It is black-letter law that an assumption of liabilities merely creates liability in another party; it does not exculpate the originally liable party unless the creditors or claimants consent to extinguish the original party’s liability. See 15 William Meade Fletcher, Cyclopedia of the Law of Private Corporations, � 7123, at 262, � 7348, at 737 (1973). In other words, an indemnity or assumption can usually ensure only that the costs of such litigation, remediation and related costs will be borne by the indemnitor/assignee, and cannot guarantee that a seller will be completely freed from future involvement to some degree with the property. See, generally, Tretter v. Rapid American Corp., 514 F. Supp. 1344 (E.D. Mo. 1981). Finally, it is also important to consider the transaction in light of the seller’s goals and concerns on a broad basis, not just as it may pertain to this one transaction. For example, disclosing environmental liabilities in detail may help to define the scope of an express assumption with as little ambiguity as possible, and also protect against later claims that an indemnity is ineffective due to the seller’s failure to disclose known environmental issues. While it is almost always inadvisable to fail to disclose known environmental issues to a purchaser, one must recognize that a detailed disclosure may also be used as evidence of the seller’s knowledge of, and admission to, environmental problems. Such a document might become exhibit one in a toxic tort suit brought against the seller years later for personal injuries claimed by neighbors as a result of the contamination. Confidentiality provisions in the sale agreement may help to reduce the probability of public dissemination of such information, but most likely would not prevent such disclosure in the context of future litigation. A seller’s more immediate concern may be fear that if he or she fully discloses the risk of contamination to the buyer, insists that the buyer indemnify and release the seller from all future claims related to environmental contamination on the property and requires that the buyer knowingly and specifically assumes the risks of contamination on the property, the prospect of finding a buyer who will agree to such terms is extremely slim. A less clear disclosure and a less strongly worded agreement, however, increases the chance that the seller will face future liability. Other strategies, such as environmental insurance, may also be helpful to decrease some of the risk; however, cost considerations, the frequent lack of data regarding the environmental condition of the property and the relatively short effective life of such policies (typically 10 years, sometimes with a limited option to extend), tend to reduce their usefulness. An “as-is, where-is” clause, standing alone, will provide a seller of contaminated property with little or no protection from statutory claims under CERCLA, RCRA, other environmental laws or common law causes of action. The best way to protect the seller from a contractual standpoint is to negotiate an indemnity, a release/covenant not to sue and an express assumption of environmental liability, in addition to an “as-is, where-is” clause. However, even these extensive legal measures cannot ensure that a seller of property will never face possible liability in the future, as any indemnity or assumption can only serve contractually to shift liability between the parties to the agreement, and cannot completely insulate a party from suit from the government or private parties that are strangers to the transaction. Lawrence W. Falbe ([email protected]) is a partner at Chicago’s Wildman, Harrold, Allen & Dixon, where he focuses his practice on toxic tort, environmental and land-use matters, including brownfield redevelopment.

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