Environmental contamination on a commercial property can create liability that follows the property regardless of who caused it — meaning a buyer can inherit costly cleanup obligations for contamination they had nothing to do with. Environmental due diligence exists specifically to identify this risk before it becomes the buyer’s problem.
Why This Liability Follows the Property
Under federal environmental law (primarily CERCLA, the Comprehensive Environmental Response, Compensation, and Liability Act), current property owners can be held liable for contamination cleanup regardless of who caused it or when it occurred — a principle that surprises many first-time commercial buyers. This liability exposure is exactly why environmental due diligence is standard practice, not an optional precaution.
Phase I Environmental Site Assessment
A Phase I ESA is a non-invasive review conducted by a qualified environmental professional, involving:
- Historical review of the property’s prior uses (through historical records, aerial photographs, and city directories)
- Review of regulatory databases for known contamination on the property or neighboring properties
- A physical site visit to identify visual signs of potential contamination
- Interviews with current and past owners or occupants, where available
A Phase I ESA typically concludes with a determination of whether “Recognized Environmental Conditions” (RECs) are present — indicators suggesting a release or threat of release of hazardous substances.
Phase II Environmental Site Assessment
If a Phase I ESA identifies RECs, a Phase II ESA may be warranted — this involves actual physical testing (soil borings, groundwater sampling) to determine whether contamination is actually present, and if so, its extent. Phase II assessments are more expensive and time-consuming, but provide the concrete data needed to assess actual risk and potential remediation costs.
The “Innocent Landowner” Defense
Conducting a Phase I ESA before acquiring a property, in accordance with the EPA’s “All Appropriate Inquiries” standard, is what allows a buyer to potentially qualify for the “innocent landowner” defense under CERCLA — protecting a buyer from liability for pre-existing contamination they neither caused nor knew about. Skipping this diligence step, even on a property that appears clean, forfeits this protection entirely.
Common Contamination Sources in Commercial Properties
- Underground storage tanks (former gas stations, older industrial sites)
- Dry cleaning operations (a historically common source of soil and groundwater contamination)
- Auto repair and industrial facilities
- Properties near or on former agricultural land (pesticide residue)
- Properties adjacent to known contaminated sites, even without direct historical use on the subject property
Negotiating Environmental Risk Into the Deal
When environmental concerns are identified, buyers have several options: negotiating a reduced purchase price to account for remediation costs, requiring the seller to remediate before closing, obtaining environmental insurance, or in some cases, walking away from the transaction. Structuring this properly requires environmental findings to be integrated into the broader due diligence and purchase agreement process.
Acquiring commercial property and need environmental due diligence guidance? Brent A. Levison, P.A. helps commercial buyers navigate environmental risk as part of a comprehensive due diligence process. Contact the firm today for a consultation.
The information in this article is provided for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.