Environmental Hazards: Lead Based Paint
Published by OAR’s Legal Services Group Summary: FAQs: Lead based paint hazards and the law. Includes Lead based paint disclosure form (.pdf).
Environmental Hazards: Urea Formaldehyde Insulation
Published by OAR’s Legal Services Group
Summary: FAQs: What agents should do if UFIs are discovered in a property.
Environmental Hazards…Electro-Magnetic Fields
Published by OAR’s Legal Services Group
Summary: FAQs: Dealing with Electro-Magnetic Fields and why REALTORS should be concerned.
Environmental Hazards: Wetlands
Published by OAR’s Legal Services Group
Summary: FAQs: What the law requires with regard to wetlands and real estate.
Environmental Hazards…Brownfields
Published by OAR’s Legal Services Group
Summary: FAQs: How to handle previously developed properties (brownfields).
Environmental Hazards…Asbestos
Published by OAR’s Legal Services Group
Summary: FAQs: Asbestos is a material fact that must be disclosed in any transaction. Learn the ins and outs of asbestos.
Environmental Hazards…Radon Gas
Published by OAR’s Legal Services Group
Summary: FAQs: Radon gas and disclosure issues.
Environmental Hazards…Underground Storage Tanks
Published by OAR’s Legal Services Group
Summary: FAQs: REALTORS should be concerned about USTs because they can be a hidden source of costly environmental liability for the purchaser and seller of the subject property and maybe even the REALTOR.
Environmental Hazards…Environmental Assessments
Published by OAR’s Legal Services Group
Summary: FAQs: Superfund and dealing with properties that contain environmental hazards
Environmental Hazards…Superfund and RCRA
Published by OAR’s Legal Services Group
Summary: FAQs: The Superfund program is designed to clean up contaminated property where releases of hazardous substances have occurred in the past or are threatening to occur due to past practice. Learn the legal ramifications of these types of properties.
Lead Based Paint
Lead Based Paint Disclosure form (.pdf)
1: What hazards are associated with lead in general?
A: Lead poisoning has been called the “silent disease” because its effects occur gradually with no symptoms. At certain levels, lead is poisonous if inhaled or ingested. Young children, especially those under 6 years old, are most at risk for lead poisoning because their brains and nervous systems are still developing. Low levels of lead poisoning in children have been associated with low IQ levels, learning disabilities, impaired hearing, and hyperactivity. Large doses can cause brain damage, convulsions, and even death. Adults can also suffer harmful effects from lead poisoning including difficulties during pregnancy, nerve disorders, high blood pressure, and digestive problems. A simple blood test effectively detects high levels of lead.
2: What is the specific problem with lead-based paint?
A: Ingestion of household dust from deteriorating lead-based paint is the most common cause of lead poisoning in children. Although lead-based paint in good condition does not usually present a problem, peeling, cracking, or chipping paint may be dangerous. Lead-based paint on surfaces that children may chew or in soil outside can also be hazardous.
3: How can paint be tested for lead?
A: There are essentially three tests that may be performed to determine whether paint contains lead. First, a paint inspection will disclose the lead content of every painted surface, although it will not address possible hazards. Second, a risk assessment reveals sources of serious lead exposure, such as peeling paint or lead-based dust, and considers remediation actions. Finally, home testing kits are available but the federal government has warned consumers that these are not always accurate and should not be relied on to assure safety.
4: Are there any laws regulating the use of lead-based paint?
A: The Consumer Product Safety Commission banned the use of it from residential housing in 1978; however, it is estimated that approximately 75 percent of homes built before that date do contain lead-based paint. A federal law called the Residential Lead-Based Paint Hazard Reduction Act, 42 U.S.C.S. ¤¤ 4801 et seq., regulates lead-based paint in most residential housing. Section 1018 of this law requires sellers and lessors to provide certain information about lead-based paint to prospective buyers or lessees including any inspection reports or actual documentation of the use of lead-based paint and the results of risk assessments if any have been completed. If a property was constructed prior to 1978, buyers or lessees must be told that it may contain lead-based paint and be given an EPA-approved pamphlet about the hazards of lead-based paint. Sellers are not required to conduct an inspection or other actions to reduce possible exposures to lead, but buyers must be given a 10-day opportunity to test for the presence of lead.
The Ohio Revised Code ¤ 3742.01 prohibits the use of lead-based paint in any structure without prior approval. The law also prohibits any individual from performing a risk assessment or lead-based paint abatement without a valid license. Lists of licensed professionals are available from the Ohio Department of Health at 614-446-1540.
Local ordinances, such as Chapter 4527 of the Columbus City Code, also regulate the use of lead-based paint and the removal of it from dwellings.
5: Are disclosures required in all real estate sales and leases?
A: The federal law only applies to “target housing,” which means houses constructed prior to 1978 other than housing for the elderly, housing for persons with disabilities or housing where the living area and the sleeping area is not separated such as efficiencies, studios, dormitories or individual room rentals. In addition the federal law does not apply to foreclosures, short-term leases (less than 100 days), leases of housing which has been previously found to be lead-free by a certified inspector, and renewals of leases where disclosures have already been made.
6: How can sellers and lessors comply with these laws?
A: An EPA approved pamphlet, Protect Your Family From Lead in Your Home (EPA #747-K-94-001) is available from U.S. EPA, Ohio EPA, the Department of Health and on the Internet at U.S. EPA’s web page (http:\\www.epa.gov). In addition, a form documenting the disclosures and the opportunities to inspect required by the federal law has been developed for the sale of target housing. A similar form exists for the leases of such target housing which are not exempt. Sample copies of the forms are included with this Manual. No contract for the purchase or lease of target housing is binding until the form (or an equivalent document) is completed by the seller or lessor and by the purchaser and lessee. In addition, in a sale of target housing, the purchaser has 10 days in which to inspect before the contract is binding unless that inspection is waived.
7: Are there responsibilities for REALTORS?
A: Yes. Each REALTOR must ensure compliance with the disclosure requirements and the opportunity to inspect by the seller or lessor and the acknowledgement of the disclosure and the opportunity to inspect by the purchaser and lessee; otherwise, the REALTOR faces civil penalties and other possible liability. Proper use of the sample form will satisfy this requirement.
8: How does lead get into drinking water?
A: Typically lead gets into water after it leaves the local water plant. The sources of lead may include the connector pipes from the water lines to the house, interior piping and joint compound or solder on the pipes. The water corrodes the pipes and dissolves lead particles into the flowing water.
9: Is there a way to know if lead piping or solder is present?
A: Lead pipes are easily detected by inspection, although their use in the interior of homes was not common after 1900. Connector pipes are not readily visible and may be difficult to check. Lead-bearing solders or joint compounds are not usually identifiable by visual inspection. If there are concerns about lead in the drinking water, a test of the tap water would be a reliable way to alleviate that concern.
10: Are there laws concerning the use of lead pipes or other lead-containing plumbing products?
A: In 1986, the Safe Drinking Water Act, 42 U.S.C. ¤ 300(f), et seq., was amended to require the use of lead-free pipes, solder and flux in the installation or repair of public water systems or in any residence or non-residential facility connected to a public water system. Ohio’s Safe Drinking Water Act, R.C. Chapter 6109, was similarly amended. However, these amendments do not require the removal of existing lead pipes, solder or flux from homes or other facilities. Ohio rules do require public water supplies to test their water periodically, and if elevated lead levels are detected, the public water system can be required to remove or repair piping to reduce lead contamination.
11: Do these laws create additional responsibilities for REALTORS?
A: The duties for REALTORS regarding lead are similar to those for all items on the Property Disclosure From discussed in the initial sections of this Manual. As always, it is advisable for REALTORS to insure that their sellers or purchasers are informed of their responsibilities and rights regarding the potential for the existence of lead. It is only with regard to the lead-based paint disclosures and acknowledgements where governmental regulations impose specific duties on REALTORS making them responsible if a seller or lessor does not comply.
Urea-Formaldehyde Foam Insulation
1: Can a REALTOR determine if a property contains UFFI?
A: In the absence of expensive and sophisticated environmental testing, it is generally impossible to determine whether a particular property contains UFFI. Since UFFI is located between the interior and exterior walls, it cannot be identified by routine visual inspection. There are air sampling tests available that will identify the presence of formaldehyde in the air, but REALTORS would not be qualified to conduct such testing. Moreover, only experienced environmental consultants would be qualified to interpret the results should any such air testing be conducted.
2: What efforts should the REALTOR undertake to determine if UFFI is present in a property?
A: Ohio law requires a REALTOR to conduct a reasonable inspection of the property at the time of listing. Furthermore, a REALTOR is not generally permitted to rely exclusively on statements made by the owner, particularly when the REALTOR has some reason to believe that the statement may be incorrect. Nevertheless, UFFI cannot be identified through normal visual inspection and the REALTOR lacks the qualifications and expertise to conduct the kinds of inspections necessary to determine if UFFI is present. Therefore, the REALTOR would have no duty to conduct an elaborate inspection to determine the presence of UFFI. However, if the owner advises the REALTOR that UFFI has been identified in the property or the REALTOR has some other knowledge that UFFI is present, the REALTOR should convey this information to the prospective buyer for the buyer’s independent evaluation.
3: Is the presence of UFFI a material defect that should be disclosed by the REALTOR?
A: Although it is not yet known conclusively whether the presence of UFFI in the home constitutes an unreasonable health risk, the Residential Property Disclosure Form requires any knowledge of UFFI by a seller to be disclosed. Consequently, if a REALTOR knows that UFFI is present in a property, the REALTOR must disclose the presence to the buyer and recommend that the buyer consult an environmental expert if he has any questions about the significance that should be given to the presence of UFFI.
If the REALTOR has no knowledge of the presence of UFFI, then he should so respond to any inquiry by a prospective buyer and provide the prospective buyer with an opportunity to conduct a reasonable inspection with a qualified environmental expert to satisfy any concern the buyer may have.
Electro-Magnetic Fields
1: What are Electro-Magnetic Fields?
A: Electro-magnetic fields (EMFs) are invisible lines of force that surround any electrical device. EMF’s are present adjacent to various power sources such as power lines, lamps, and household appliances, and have been prevalent for decades. An electrical device that is plugged in but not turned on emits only an electric field; however, once the device is turned on, a magnetic field is produced as well, and it is called an electro-magnetic field. EMFs are strongest at the source and dissipate rapidly with increasing distance.
2: Why are EMFs a subject of concern?
A: Electric fields alone create electrical charges on or near a person’s body; EMFs, however, actually pass through the body and induce electrical currents within a person. Concern arose over the effects of EMFs after the publication of a 1979 study which reported that children living near power lines may have higher rates of cancer. Currently, no definitive scientific link has been established. Moreover, an intensive study published in the influential New England Journal of Medicine in July, 1997, strongly rejected any connection between EMFs and cancer.
3: Have any legal steps been taken regarding EMFs?
A: Most lawsuits over EMFs have involved plaintiffs who claimed that power lines on or near their property caused them to develop cancer. Some states have established limits on EMFs transmitted from power lines and California prohibits high voltage lines from being located within a specified distance of schools. In 1993, the Ohio Public Utilities Commission adopted regulations that require consideration of possible EMF effects when approving sites for high voltage power lines. A $65 million federally supported study on EMF’s is also currently being conducted and results should be forthcoming by early 1998.
4: Why should REALTORS be concerned about EMFs?
A: Buyers’ concerns over EMFs may have a depressing effect on the value of property located near power lines. If EMF measurements exist for a property, REALTORS should encourage disclosure of such information to prospective buyers. For property near high voltage power lines, REALTORS should inform prospective buyers that property values may be affected and that there are unproven public health concerns about long term exposure to EMFs.
Wetlands
1: How does one know if a wetland exists?
A: Wetlands are characterized by certain types of soils with high moisture content for certain portions of the year, the existence of hydrophytic vegetation such as cattails, and a lack of drainage at or immediately below the surface. However, wetlands are not necessarily swamps or bogs and they may not be visually identifiable to an untrained person. A wetland can be identified by trained environmental professionals or confirmed by soil and vegetation testing.
2: If wetlands exist, what must be done to be permitted to fill them?
A: First the extent of the wetlands must be delineated. Once the amount of wetland is identified, a permit can be sought from the local district office of the Corps. Depending upon the location of the wetland in Ohio, one must contact either the Buffalo District, the Huntington District, the Pittsburgh District, or the Louisville District of the Corps.
3: Does the number of acres of wetland make any difference in obtaining authorization to fill?
A: Different procedures exist depending upon the amount of wetlands on a property or project. If less than 1/3 acre of wetland exists, the applicable District of the Corps need only be notified after the wetland is filled, dredged or drained. If more than 1/3 acre but less than 3 acres exist, a preconstruction notification (PCN) must be filed which includes, along with other requirements, a formal delineation of the wetland and a plan to mitigate the damage by amending the project so as to avoid any impact on the wetland or, if there is no other alternative, by creating, enhancing or restoring additional wetlands to replace those being compromised. No activity impacting the wetland may commence until the Corps approves the PCN. If more than 3 acres of wetlands exist, a complete individual permit is required in advance of the activity. The permit will include obtaining a separate water quality certification from Ohio EPA. In addition the permit and certification must go through a public notice and comment period before it is finally issued.
4: What is a formal wetlands delineation and who can perform it?
A: A wetlands delineation is a formal inspection and testing process to determine the precise location, nature and amount of wetlands. An environmental professional must review published information, explore the site and identify soils, vegetation and drainage in accordance with the Corps’ Manual for Delineating Wetlands. The delineation must be approved by the Corps, or in the case of farmed areas, by the Soil Conservation Service.
5: If a developer wants to fill or compromise a site that includes more than 1/3 acres of wetland and the creation, enhancement or restoration of wetlands is required, how does the developer comply with the requirement?
A: The developer can identify a former or existing wetland of sufficient size and make his own arrangements to enhance or restore it. As an alternative, the developer can choose a site for the creation of a wetland. Both of these methods would require a plan for the initial work and the long term maintenance of the wetland, all of which must be approved by the Corps.
6: Is there another way to meet this requirement?
A: Yes. In Ohio, it is possible to purchase wetlands at a “mitigation bank” called the Ohio Wetland Foundation. In conjunction with the Ohio Department of Natural Resources, the Ohio Wetland Foundation maintains previously approved wetland sites, and a person seeking to compromise wetlands in Ohio can purchase wetlands at one of these locations, usually at a ratio of 1.5 acres of wetland for every acre to be compromised. The Corps accepts an agreement to purchase additional wetlands at the Ohio Wetland Foundation as satisfying the PCN or permit requirement to mitigate, create, enhance or restore wetlands.
7: Must a REALTOR disclose the presence of wetlands?
A: Wetlands are not an item on the Property Disclosure Form and no affirmative duty to disclose exists for the seller or the REALTOR. In addition, a REALTOR is probably not qualified to identify wetlands. However, as with the environmental hazards already discussed, the REALTOR should not make any representations to a purchaser about the existence of wetlands or the lack thereof.
Brownfields
1: What are Brownfields?
A: Brownfields are previously developed properties, usually commercial or industrial sites, that are available for redevelopment. However, due to past industrial practices, which were legal at the time, these properties often have soil and/or groundwater contamination. Greenfields, on the other hand, are lands that have been previously undisturbed by commercial or industrial activity. Obviously, most prospective developers prefer the unencumbered Greenfield space.
2: What is the Voluntary Action Program?
A: The Ohio Voluntary Action Program (V.A.P.) encourages the redevelopment of Brownfield sites. Adopted in 1994, the V.A.P. focuses attention on Brownfields since these are usually located in urban areas and redevelopment of the properties helps revitalize cities. Brownfields redevelopment also maximizes the billions of dollars already spent on urban infrastructure as opposed to building new roads and utilities to reach developing greenfields.
3: Why must owners be given incentives to develop Brownfields?
A: Developers are often reluctant to reuse Brownfields because of the Superfund risks involved. Since Superfund is a strict liability law, new owners risk incurring liability for contamination that prior owners caused. However, only severely contaminated sites are slated for Superfund clean-up while thousands of mildly contaminated sites, which are not bad enough for immediate federal action, remain idle. Developers fear such properties because they may not be immune from future environmental action.
Furthermore, a developer could not undertake a clean-up project on a contaminated property and obtain assurance or approval that such a cleanup was complete without direct oversight from the EPA. However, the EPA’s resources were often focused on the worst contaminated sites and these “in between” properties could not be made a priority for EPA review of a voluntary cleanup. In addition, even a voluntary investigation and cleanup of these properties to Superfund standards may be prohibitively expensive. Consequently, developers have been discouraged from trying to redevelop old industrial sites.
4: How does the Voluntary Action Program work?
A: Under the V.A.P., property owners are issued a “covenant not to sue” (CNS) which protects them from being liable to the state for further cleanup of hazardous substances. Before receiving a CNS, the owner must evaluate the site’s condition to determine if contamination exceeds environmental standards that are slightly less stringent than Superfund’s, and if so, formulate and execute remediation plans to meet the standards. As a part of the cleanup of the site is completed, the owner engages a certified professional (as defined by state law) to confirm that the standards are met. If so, the professional issues a “no further action” letter to the owner, which states that no further cleanup measures are necessary. The letter is forwarded to the Ohio EPA which issues a CNS if the standards are indeed met. Therefore, direct oversight by the EPA is eliminated, governmental red-tape is minimized, and resources are maximized.
5: Why is a covenant not to sue important?
A: The CNS lends a certain measure of finality to the investigation and remediation process. Although, as a state law document, it may not shield an owner from liability under Superfund or other federal laws, it is strong evidence that the site is environmentally acceptable. A CNS also runs with the land and thus, is transferred to subsequent owners. Moreover, a movement is currently underway to scale back Superfund’s reach and ultimately, the federal government may support such state action and honor these covenants. By March of 1997, seven Ohio Brownfield sites had received a CNS.
6: Are any sites excluded from the Voluntary Action Program?
A: Yes. Sites that have been identified for cleanup under Superfund, RCRA, or BUSTR, or by other hazardous waste corrective action programs are not eligible for the V.A.P.
7: Why should REALTORS care about Brownfields?
A: Because Brownfields and the V.A.P. provide a unique opportunity for industry, government, and community to foster growth in economically depressed urban areas while improving the quality of the local environment.
8: Are incentives for Brownfields redevelopment limited to Ohio?
A: No. Some other states also have Brownfield laws, and the federal EPA recently announced initiatives for 50 Brownfield pilot sites. The Brownfields Redevelopment Act of 1997 has also been introduced in Congress. The Act would provide a $2 billion tax incentive to help pay for more than 30,000 Brownfield sites in the United States. However, the federal Brownfield program is not as flexible as Ohio’s V.A.P.
9: How can a REALTOR get more information about Ohio’s Voluntary Action Program?
A: Statutory authority for the Program is codified in the Ohio Revised Code at Chapter 3746 and final rules are set forth in the Ohio Administrative Code at Chapter 3745-300. Rules of the Program are also available online at http://www.epa.ohio.gov or by contacting the Ohio EPA at (614) 644-2924. A free diskette of the rules is available by writing: Ohio EPA/DERR, P.O. Box 1049, Columbus, OH 43216-1049.
Asbestos
1. Is the presence of asbestos a material fact that should be disclosed to potential purchasers?
A: Yes. If the REALTOR is aware of the presence of asbestos in a home, its presence should be disclosed under Ohio’s residential disclosure law. Although non-friable asbestos does not present a significant health risk, the buyer should be aware of the presence of asbestos in the event that he is considering remodeling or other actions that may disturb the in-place asbestos. If we define materiality as something that impacts the value of property, the fact that additional expenses may be incurred when precautions are taken during remodeling will have some impact on the value of the property.
2. Is a REALTOR qualified to detect the presence of asbestos in a property?
A: No. REALTORS do not have sufficient expertise to determine the presence of asbestos upon visual inspection. Indeed, many experts in this area are unable to state conclusively whether asbestos is contained in a property solely upon visual inspection. A definitive conclusion concerning the presence of asbestos can only be made after sophisticated testing techniques requiring microscopic examination of the material are completed.
Radon Gas
1. If a REALTOR has knowledge of a high radon gas concentration level in a dwelling, is there a duty to disclose the radon gas concentration level to the buyer?
A: REALTORS who are aware of high radon gas levels in a building and fail to disclose the condition to buyers risk potential liability to buyers for nondisclosure. REALTORS as well as sellers have been held liable to buyers for non-disclosure of known hazardous defects and conditions in property in various contexts. Sellers and their REALTORS have been sued for failure to inform buyers of high radon gas test readings.
2. If a REALTOR has knowledge of a report indicating low radon gas level concentrations, care should be taken in representing this fact to a prospective buyer. Because radon gas levels can vary dramatically based on the type of test, the location the test is taken in the home, and the time of year the test is conducted, a subsequent test could indicate a substantially higher radon gas level. What approach should a REALTOR take when a potential buyer asks about radon gas?
A: A REALTOR should inform the potential purchaser that a level of radon gas may exist in any dwelling which exceeds the acceptable range recommended by the USEPA. The REALTOR should inform the purchaser that tests are available which can determine the level of radon gas with varying degrees of accuracy.
Underground Storage Tanks
1: Why should a REALTOR care about underground storage tanks (USTs)?
A: REALTORS should be concerned about USTs because they can be a hidden source of costly environmental liability for the purchaser and seller of the subject property and maybe even the REALTOR. Leaking underground storage tanks, known as “LUSTs,” are subject to state and federal regulations which require LUSTs to be cleaned up, upgraded, tested, and/or removed. LUST cleanups can cost anywhere from $10,000 to $1,000,000 or more.
Consider the following scenario. A REALTOR is the agent for a seller of a commercial property which has two abandoned USTs which contained diesel and gasoline fuel. Although no one knows for sure whether the USTs leaked, the USTs are over 30-years old and there is no vegetation in the area around the USTs. Does the Seller have an obligation to investigate the USTs before selling the property? Does the REALTOR have an obligation to inform any prospective buyer of the potential UST problem? Does the REALTOR have to notify any government authority? What happens if there is a leak from one of the USTs? These questions are addressed in the following section.
Furthermore, UST problems are often not obvious and therefore, a purchase agreement which contains a seller’s representation that the property is clean may be wrong and can become the focal point of future litigation which may extend to the REALTOR.
2: What laws and regulations apply to UST systems concerning their operation, repair, and closure?
A: The federal regulations appear at 40 CFR Part 280, and the state regulations in Ohio are issued in Ohio Administrative Code 1301:7-9-28, 34, 35 and 36. In Ohio the office of the State Fire Marshal is responsible for enforcing UST regulations unless the USTs contain hazardous wastes (which the EPA regulates). Many local government entities also regulate certain types of USTs. The specific local regulations vary, so it is wise to check local ordinances and regulations when attempting to deal with UST situations.
Similar to Superfund and RCRA, the State Fire Marshal’s Office has numerous requirements before the installation, repair, removal, or abandonment of an UST is attempted. These rules are found in Chapter 1301:7-9 of the Administrative Code and information on these specific requirements and other general questions may be directed to: Division of State Fire Marshal, Bureau of Underground, Storage Tank Regulations, 7510 East Main Street, P.O. Box 526, Reynoldsburg, Ohio 43068-3395
3: What is an UST for purposes of the UST regulations and are there any exceptions to the USTs defined in the regulations?
A: An UST can be any tank containing petroleum or hazardous chemicals, provided that at least 10 percent of the volume of the tank is underground. Underground pipes connected to the tank are also included as part of an UST. (see 40 CFR ¤280.1). Numerous exceptions to the general definition of an UST exist. Some of these exceptions include the following:
- Farm and residential tanks of 1,100 gallons or less of motor fuel used for non-commercial purposes;
- Tanks used for storing heating oil used on the premises where it is stored (these are often regulated by local fire code);
- Septic tanks and storm water or waste water collection systems; and
- Flow-through process tanks.
The regulations concerning USTs provide a more specific and complete list of exceptions. (see 40 CFR ¤280.1 or Ohio Administrative Code 1301:7-9-04).
4: What hazards are the UST regulations designed to prevent?
A: There are several million USTs in the United States that contain petroleum or hazardous chemicals. Many of these tanks (some estimate as high as 25%) may be leaking and most others are susceptible to leaks (some estimate as high as 75%). Tanks are especially susceptible now because early USTs were made of steel, which corrodes over time. Leaking tanks present potential fire hazards, but the primary concern is that these LUSTs may contaminate nearby ground water. Since a large portion of the drinking water in the United States is obtained from ground water sources, there is concern that these LUSTs may contaminate the ground water used as a source for drinking water. In fact, LUSTs are the leading cause of ground water contamination because a leak of only one-half gallon per day of petroleum can contaminate a water supply of 50,000 gallons.
5: How do you know if you have a LUST?
A: Often, only a thorough environmental assessment can determine the existence of USTs on the real property and if any of them have leak problems. The existence of vent piping on real property should alert a person that an UST is or was present on the site. Soil discoloration is a “red flag” that may indicate that a LUST is located on the site. Environmental assessments are designed to locate these types of hazards, and thus one should be conducted in all commercial real property transactions.
6: What do you do if you have an UST or a LUST?
A: If one discovers an UST on the property, tests should be performed to determine if the tank is leaking. If one discovers a LUST, the owner or operator of the LUST must report to the State Fire Marshal’s Office within 24 hours of the discovery of the leak or suspected leak. The leak must then be immediately contained by the owner or operator to prevent further leaking.
The leak must be confirmed and located, and the vertical and horizontal extent of contamination must be investigated. The owners and operators must then submit a report to the Fire Marshal’s Office detailing the incident within 20 days after confirming the leak. If the leak exceeds 25 gallons, a corrective action plan must be developed and submitted to the State Fire Marshal for approval. Once the corrective action plan is approved, it must be implemented.
7: What disclosure requirements exist for a REALTOR concerning the presence and potential hazards of an UST on real property which is being sold?
A: First, Ohio’s residential disclosure law requires the presence of any known USTs to be disclosed to prospective buyers. Yet, unless material facts are present and known by the REALTOR, there probably are no disclosure requirements concerning the potential for soil or ground water contamination for a particular property because REALTORS usually have no expertise in determining whether these hazards exist. However, if material facts concerning the possibility of contamination are known to the REALTOR, that person has a duty to disclose to the potential buyer the property affected. These material facts include information that the REALTOR obtained in making the visual inspection or prior investigation of the real property. The “red flags” indicating possible contamination due to the presence of an underground storage tank include discolored water or soil, or the unusual absence of vegetation.
8: What regulations exist that ensure that funds will be available to remedy damage caused by USTs?
A: Federal regulations concerning UST financial responsibility appear at 40 CFR Part 280, Subpart H. These regulations apply to USTs containing petroleum. USTs not containing petroleum are generally regulated by other federal laws such as the Resource Conservation and Recovery Act and the Clean Water Act.
The amount of financial responsibility is divided into two separate requirements, a per-occurrence (single leak) amount and an annual aggregate amount to be paid by the owner or the operator of the UST. Most owners or operators must have per-occurrence protection of $500,000. Those owners or operators involved in “petroleum marketing” must have per-occurrence protection of $1 million. For owners or operators of 100 or fewer petroleum USTs, the aggregate annual protection amount is $1 million. For owners or operators of more than 100 petroleum USTs, there must be $2 million of aggregate annual protection.
These financial assurance requirements can be satisfied in several ways. Some of these methods are as follows:
- Insurance coverage through major insurers (40 CFR ¤280.98);
- A guarantee for the amount required by the regulations (40 CFR ¤280.96);
- A surety bond for the amount required by the regulations (40 CFR ¤280.98);
- A letter of credit for the amount required by the regulations (40 CFR ¤280.99).
Ohio has created the Ohio Petroleum Underground Storage Tank Financial Assurance Fund. The regulations implementing this legislation are available in the Ohio Administrative Code 1301:7-9-05. Essentially, an owner or operator may pay an annual fee per UST to obtain part of the coverage required by the federal regulations. The annual fee for 1997 is $300 per UST, and this fee will provide the responsible party with $1,000,000 in coverage, but with a $55,000 deductible. However, owners or operators of six or fewer tanks may pay $450 per tank and decrease their deductible to $11,000.
9: What can the seller and buyer of real property do to protect themselves from UST liability?
A: When there are USTs in active use or abandoned on real property which is being sold, the seller and the buyer should specifically address them in the Purchase Agreement and the due diligence work connected with the sale. For example:
Seller: A seller can take three steps to “cut off” future liability for the USTs. First, the seller can establish the condition of the USTs and the surrounding area by conducting an environmental assessment including UST testing and soil sampling. An assessment can establish that at the point of sale the property was clean and the USTs were in good working condition.
Second, the seller can remove the USTs and obtain a certificate of clean and proper closure, called a No Further Action letter, from the State Fire Marshal. This provides evidence that at the point of sale the property was clean.
Finally, the seller can incorporate language in the Purchase Agreement which shifts responsibility and/or ownership of the USTs to the buyer. For example:
The Buyer is aware of the existence of the underground storage tank (UST) on the Property and has examined it and accepts it in its present condition. The Buyer has also investigated the environmental condition of the Property and accepts the Property “as is.” Furthermore, the Buyer agrees to hold the Seller harmless from and against any and all claims arising in connection with the UST.
Buyer: A buyer should take several precautionary steps when buying property which has USTs on it. First, if the buyer does not intend to use the USTs, then the buyer should require the seller to remove the USTs from the property at the seller’s expense prior to closing. Language similar to the following should be included in the Purchase Agreement:
1. The Seller, at its sole expense, shall remove all USTs from the Property prior to the Closing date. Seller shall provide written evidence, satisfactory to the Buyer, that the USTs have been removed and closed in accordance with all applicable laws and regulations. If appropriate, buyer may require seller to obtain a “no further action letter” from the Bureau of Underground Storage Tank Regulation (BUSTR).
2. Seller warrants and represents that the USTs were removed from the Property prior to the Closing date in accordance with all relevant laws and regulations and that there is no contamination remaining on or under the Property originating from the USTs.
Second, the buyer should hire a qualified consultant to conduct a thorough environmental assessment which specifically focuses in the UST area.
Finally, if the buyer intends to use the USTs, the buyer should have them tested for leaks by a certified tank tester. The buyer should also obtain warranties and representations regarding the USTs’ condition.
Environmental Assessments
1. What can the buyer, seller and REALTOR do to avoid Superfund and RCRA liability or at least to minimize the risk of liability?
A: There are two steps which the buyer and seller can take to minimize the risk of environmental liability. First, the Purchase Agreement should be negotiated and drafted to include provisions which address and allocate the responsibility for the environmental conditions of the property being sold. Warranties, representations, idemnifications and inspections regarding environmental conditions can be specifically included in the Purchase Agreement. See Question 2 of this Section for examples. It is important to keep in mind when negotiating the Purchase Agreement that if a dispute regarding responsibility for an environmental problem on the property later develops, the terms of the Purchase Agreement will be the first and main place the courts will look to resolve the dispute.
The second step the buyer and the seller can take to avoid environmental liability is to conduct an environmental assessment of the property. For the buyer, the best way to avoid environmental liability is to avoid taking title to contaminated property. An environmental assessment will determine whether there are any environmental “red flags” on the property. For the seller, an environmental assessment can establish the environmental condition of the property at the point of sale and thereby cut off any future claims by the buyer that there was contamination on the property caused by the seller.
A REALTOR must be familiar with these protective steps which can be taken by his clients in order to understand and participate in modern commercial real estate transactions.
2. What provisions can be added to the Purchase Agreement to protect the buyer and seller from environmental liability?
A: Seller: The seller should attempt to include the following types of provisions in the Purchase Agreement: No representations or warranties have been made by the Seller as to the condition of the Property and it is understood and agreed that the Property is sold “as is ” at the time of the closing date. Buyer represents that he has inspected the Property and agrees to assume all liabilities or obligations arising out of the condition of the Property. Buyer shall indemnify Seller from and against any and all liability, damages and expenses incurred by the Seller in connection with the Property.
Buyer: The buyer should attempt to include the following types of provisions in the Purchase Agreement: Buyer has a right to conduct an environmental assessment of the Property prior to the Closing date. If based on the environmental assessment the Buyer is not satisfied with any condition of the Property, the Buyer has an absolute right to terminate the Agreement. Seller, at Seller’s expense, shall remove all tanks located on the Property, whether above or below ground, and shall restore the Property to substantially the same condition as existed prior to such removal. Seller represents and warrants that the Property is not contaminated with any toxic or hazardous waste, substance or material as defined in any environmental law or regulation. Seller further represents and warrants that the Property is not in violation of any environmental law or regulation applicable to the Property. Seller shall indemnify the Buyer from and against any and all claims, liability, obligations or damages arising out of the condition of the property, including all known and unknown environmental conditions.
Obviously, contractual provisions can be far more complex than these rather simple examples, and should be carefully tailored for the particular situation.
3. What is an environmental assessment?
A: An environmental assessment is an investigation into the environmental condition of a piece of real property and /or any improvements or businesses conducted on that property. The buyer or seller of real property, especially commercial or industrial property, may condition the purchase or sale of the property on a satisfactory environmental assessment.
4. Why conduct an environmental assessment?
A: A thorough environmental assessment is the most effective method of avoiding the assumption of environmental liability when buying or selling real property. Many of the environmental laws tie environmental liability together with property ownership, either at the time the contamination of the property occurred or simply at the present time, without regard to who is at fault for the contamination. Therefore, the best way for a prospective purchaser to avoid costly environmental cleanups is to avoid being in the chain of title to the contaminated property. Likewise, a seller of property can use an environmental assessment to establish that his property was free from contamination (or, if the property has environmental problems, that the purchaser know of them) at the time of closing. This helps the seller “cut off” environmental liability caused by subsequent contamination of the property by future owners and defeat claims of any failure to disclose.
5. Why are environmental assessments important to REALTORS?
A: Many transactions involving the sale of commercial or industrial property now include some type of environmental assessment as part of due diligence prior to closing. Many lenders also require evidence of the environmental investigation prior to releasing the purchase money. REALTORS, therefore, must be familiar with environmental assessments in order to answer their client’s questions as well as effectively coordinate the environmental assessment (i.e., make arrangements for the environmental consultants to visit the property).
6. What are things to watch out for in environmental assessments?
A: There are several pitfalls to avoid when commissioning an environmental assessment. First, it is important to allow sufficient time during the transaction to conduct a thorough investigation. A minimum of thirty (30) days should be allotted to conduct the assessment. It takes time to hire a consultant, negotiate a scope of work, collect the relevant information, schedule a site visitation and contact the governmental agencies. Also, if there are any problems uncovered in the Phase I investigation additional time for further tests is required.
Second, it is critical to make sure that the environmental consultant is qualified to conduct the particular assessment needed. Right now, there are no industry standards or licensing of consultants and therefore, there are many consulting firms that simply do not know what they are doing. When hiring a consultant, ask to see a qualifications statement and the resumes of the people who will actually be doing the work on the subject property. Spending an extra thousand dollars to hire a competent consultant now may save hundreds of thousands of dollars in environmental cleanups down the road. In connection with this, make sure that the consultant hired is willing to stand behind his work. Many consultants use disclaimers in their work proposals which state that the work in the assessment is not guaranteed or represented to be suitable for any particular purpose. A consultant, at a minimum, should be willing to represent that he will use due diligence to investigate the condition of the property and will comply with the investigatory standards generally acceptable by other consultants in the environmental assessment industry.
Finally, the reports generated by the consultants should be reviewed by a competent environmental attorney who can review the draft report for any erroneous factual statements, any speculative comments or any legal conclusions drawn by the consultant. The attorney will also be able to fashion legal documents to address issues, or the lack thereof, revealed by the assessment.
Superfund and RCRA
1: What is Superfund?
A: Superfund is the common name for the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Superfund was enacted by Congress in 1980 in response to the well-publicized environmental concerns of the 1970s such as the Love Canal. Superfund was amended and authorized in 1986 by the Superfund Amendments and Reauthorization Act (SARA).
The Superfund program is designed to clean up contaminated property where releases of hazardous substances have occurred in the past or are threatening to occur due to past practice. For example, an old warehouse which stored pesticides or other chemicals in leaking drums is a potential candidate for a Superfund cleanup action. Even less obvious properties such as a vacant lot which served as the unofficial dumping ground for the local gas station may be hiding potential Superfund liability.
Under Superfund, the U.S. Environmental Protection Agency (EPA) and other third parties are authorized to clean up property on which hazardous substances have been released and then to seek the costs incurred in the cleanup from any or all of the potentially responsible parties (PRPs). The EPA also has authority to order any or all of the PRPs to conduct the cleanup themselves.
2: Who can be liable as a PRP under Superfund?
A: One of the most unique and frightening aspects of Superfund is its breadth of coverage. Under the Superfund program, there are four groups of PRPs which may be liable for all or part of the cleanup costs:
1. Current owners or operators of the facility;
2. Owners or operators of the facility at the time of disposal or a release of hazardous substances at the facility;
3. Any person who generated, treated, or disposed of hazardous substances which have been released or threaten to be released at the facility or who arranged for the treatment, storage, or disposal of hazardous substances at a facility; and
4. Any person who accepts or accepted any hazardous substances for transport to a disposal or treatment facility selected by that person (transporters).
Although at first glance these categories appear specific and not applicable to many groups such as corporate officers, directors, and shareholders, parent and affiliated companies, banks, developers or REALTORS, the courts have construed the language very liberally in order to maximize the number of parties available to contribute to the cleanup. In at least one case, a court did not dismiss the developers from a Superfund action involving a housing development built on contaminated property because the developers, by bulldozing over existing contamination, “disposed” of hazardous substances on the property. Whether this far-reaching interpretation of Superfund will be upheld is uncertain. However, this case does emphasize the focus of the courts in Superfund cases to clean up contaminated property and then find a financially viable party to pay for the cleanup.
3: What triggers a Superfund cleanup? How is liability imposed?
A: Superfund is a strict liability statute. This means that a person’s Superfund liability is triggered by the release or threat of release of a hazardous substance into the environment without regard to his fault. If a person fits into one of the four categories of PRPs described above, there has been a release or a threat of a release of a hazardous substance, and the person cannot use one of the narrow defenses, then that person is liable under Superfund. It does not matter that the PRP was not negligent or that other PRPs were “more to blame” for the release.
Furthermore, Superfund imposes joint and several liability to the government on all PRPs. This means that all PRPs are individually liable for the entire cost of the cleanup and that the EPA may pursue any one or all of the PRPs to recover the cleanup costs. Fear of being held individually responsible for the entire cleanup is the best incentive for PRPs to work together and cooperate with the EPA in accomplishing a cleanup.
4: Are there any defenses to Superfund liability? What is the “innocent purchaser” defense?
A: Even if a person is a PRP under Superfund, he will not be liable if he can prove that the release or threat of release is the sole result of (1) an act of God, (2) an act of war and/or (3) the actions of a third party. Since the primary purpose of Superfund is to clean up contaminated property without regard to fault, courts construe these defenses very narrowly and hence, they are rarely successful.
A purchaser of real property, however, may establish the “innocent landowner” defense to Superfund liability if he can show that at the time the property was acquired he did not know and had no reason to know that any hazardous substance was disposed on the property and that he has not caused any release or threat of release on the property. The interpretation of the term “no reason to know” is critical for buyers of property who want to shield themselves from Superfund liability. REALTORS must have a working knowledge of this term in order to advise and assist their clients in real estate transactions.
To establish that the purchaser had “no reason to know” of hazardous substances on the property, he must have made all appropriate inquiry into the previous ownership and current conditions of the property and also have reviewed all reasonably ascertainable information regarding the environmental condition of the property. This is why most commercial transactions involving real property now include an environmental assessment of the property as part of the purchaser’s due diligence work. A more detailed analysis of the appropriate inquiry into the environmental condition of the property in order to establish the “innocent landowner” defense is discussed in the section on Environmental Assessments.
The “innocent landowner” defense may have limited value, however. If serious contamination exists and an environmental assessment fails to find it, a court will be reluctant to rule that “all appropriate inquiry” was made. Also, state law may impose liability on the landowner separate from the federal Superfund law. Finally, as a practical matter, the “innocent landowner’s” property is still contaminated and may be useless until it is cleaned-up.
5: Besides conducting an environmental assessment, what can a person do to protect himself from Superfund liability when purchasing real property?
A: A person can protect himself from Superfund liability by including appropriate provisions in the purchase agreement which shift the burden of potential Superfund liability to the other party. Direct liability to the government cannot be avoided; however, the ultimate financial responsibility for a Superfund cleanup can be assigned in the purchase agreement through the use of indemnification clauses and environmental warranties or representations.
For example, the purchaser may include a provision in the purchase agreement that the seller will indemnify and hold the purchaser (and the REALTOR) harmless against any Superfund claim by the EPA or any third party. These types of provisions have been often litigated and most courts have held them valid and have permitted private parties to negotiate and determine the ultimate risk of Superfund liability with such contractual provisions. Buyers, sellers, REALTORS, and lenders therefore can try to allocate or minimize their environmental liability exposure through the use of these provisions.
The Resource Conservation and Recovery Act (RCRA)
1: What is RCRA?
A: The Resource Conservation and Recovery Act (RCRA) is an environmental law which regulates the generation, handling, transportation, storage, and disposal of solid and hazardous waste. Each year, millions of tons of hazardous waste are generated in the United States. Prior to RCRA, very little of this waste was handled in an environmentally safe manner. As a result of a growing concern regarding the serious threat to human and environmental health and safety, RCRA was enacted in 1976. In 1980, the EPA issued regulations implementing the objectives which Congress had outlined in RCRA. Ohio’s law, which is substantially equivalent to RCRA, is found at R.C. Chapter 3734.
The primary objective of the RCRA “cradle to grave” program is to ensure that hazardous waste is properly managed from the time it is generated until the time it is disposed at a properly licensed facility.
2: How is the RCRA program structured? How does RCRA work?
A: To achieve RCRA’s objective, the EPA set out voluminous regulations applicable to all persons involved in the management of hazardous waste. These persons were divided into three categories; (1) generators of hazardous waste, (2) transporters of hazardous waste and (3) facilities which treat, store and dispose of hazardous waste (TSD facilities). It is important to note that almost any commercial business, especially a manufacturer, will probably fit into one or more of these three categories.
For each of these groups there is a set of regulations which generally require the group members to (1) identify any hazardous waste, (2) notify the EPA of hazardous waste activity, (3) make periodic reports to the EPA and notify the EPA in the event of spills or emergencies and (4) handle, store, transport and dispose of hazardous waste pursuant to proper permits and technical requirements.
RCRA requires generators, treaters, storers, and disposers of hazardous waste to conduct these activities in highly regulated waste management areas. Upon closure of such a waste management area, an extensive investigation and clean up may be necessary.
Failure to comply with any of the RCRA requirements under federal or Ohio law can result in substantial civil and criminal penalties. Fines or civil penalties of up to $25,000 per day can be levied against violators for each violation and when more serious violations occur, prison terms have been given to violators.
3: Why is RCRA important to a REALTOR?
A: Many, if not most, commercial businesses are subject to the requirements of RCRA. As a result, whenever a business is bought or sold important considerations are whether the business is in compliance with RCRA and whether there are any outstanding RCRA violations which may result in expensive cleanups or compliance work. To ensure RCRA compliance, prospective purchasers will generally conduct a RCRA compliance audit on the business being purchased. A compliance audit is similar to an environmental assessment (discussed below) but is not limited to the environmental condition of the real property. A compliance audit consists of a review of the hazardous waste handling practices at the facility and is generally more involved and expensive than an environmental assessment. Further, just as Superfund liability can be assigned in the purchase agreement, the risk of RCRA noncompliance can be shifted to the seller or buyer by contractual provisions in the purchase agreement.
A REALTOR, therefore, should be aware first that regulations governing the management of hazardous waste do exist and that there is a good chance that a commercial business being sold is subject to at least certain RCRA regulations. Second, a REALTOR should realize that noncompliance with RCRA may result in substantial penalties but that the risk of noncompliance can be assigned at the time the purchase agreement is negotiated.
4: What is the relationship between Superfund and RCRA?
A: Superfund applies retroactively to releases of hazardous substances which have occurred or which will occur as a result of some past activity. RCRA applies prospectively and actively regulates the current management of hazardous waste. Also, the hazardous substances regulated under Superfund are more numerous than the hazardous wastes regulated under RCRA. A RCRA hazardous waste is a Superfund hazardous substance but the reverse is not necessarily true. Note, however, that both laws can be applied at a single site in order to clean up a release of hazardous wastes.