OHIO ASSOCIATION OF REALTORS
LEAKING UNDERGROUND STORAGE TANKS WHITE PAPER
Published by OAR’s Legal Services Group (June, 1991)
Introduction
Environmental issues are, to put it mildly, of major concern to the real estate industry. While there is obviously a multitude of factors which affect the marketability of land, few have risen in importance in such a dramatically short period of time as the environmental consequences associated with real property transfers. Congress and state legislatures have enacted laws designed to prevent contamination and to fix liability for costly cleanups, and the various regulatory agencies have demonstrated great zeal in enforcing their state and federal mandates. The purpose of this paper is to address, in general fashion, a relatively narrow yet widely reported environmental concern–the underground storage tank. The reasons for the concern, the governmental response, and the ramifications on real estate transactions will be discussed.
I. WHY THE CONCERN
Underground storage tanks (USTs) have come under public and governmental scrutiny because of their potential adverse effect on groundwater resources. The importance of providing protection to groundwater becomes apparent when one considers that over one-half of our national population obtains its drinking water from this source. According to the U.S. Environmental Protection Agency, there are over 2 million regulated USTs in the country, 25% of which are currently leaking their contacts into the environment. A leaking underground storage tank (LUST) can contaminate drinking water, touch off explosions and fires, and kill plants and wildlife. The cost associated with cleaning up contaminated soil and water has been known to exceed the property’s fair market value.
II. THE GOVERNMENTAL RESPONSE
A. Federal and State Regulators
In 1984, Congress amended the Resource Conservation and Recovery Act (RCRA) to specifically address the LUST problem. The U.S. Environmental Protection Agency was given broad authority to develop regulations for release detection, recordkeeping, release reporting, corrective action, tank installation and closure, and financial responsibility. In addition, all UST owners were required to notify their designated state agency of the existence of any UST since January 1, 1974, unless the owner had knowledge that the tank had been removed. The RCRA amendments also established the authority of the U.S. EPA or its designated representative, to inspect and monitor UST sites, and establish penalties for non-compliance with the law.
In Ohio, the General Assembly enacted laws which parallel the federal regulatory scheme. The State Fire Marshal’s office has been designated as the lead agency for implementing both the federal and state programs and for requiring corrective action in response to releases from USTs. Principle responsibility for administration is vested in the Bureau of Underground Storage Tank Regulation (BUSTR), a division of the State Fire Marshal’s office. Finally, pursuant to a “memorandum of understanding” between the State Fire Marshal and the Ohio EPA, the Ohio EPA has limited jurisdiction to conduct certain technical and emergency response aspects of the program.
B. Scope of the UST Requirements
An underground storage tank is defined as “any tank or combination of tanks that is used to contain an accumulation of regulated substances, the volume of which is 10% or more beneath the ground surface.” Roughly 95% of all regulated USTs contain petroleum, however, federal law lists a variety of hazardous substances which are also covered. Federal law also exempts certain USTs from regulation, the most common exemptions being:
- Farm or residential tanks with a capacity of 1,100 gallons or fewer which store motor fuel for personal (non-commercial) use;
- Tanks which store heating oil for consumptive use on the property where stored;
- Storm water or waste water collections systems;
- Flow-through process tanks;
- Septic tanks;
- Any tank located in an underground area (i.e. basement or cellar), so long as the tank is situated on or above the floor surface.
As a general proposition, the UST regulations can be broken down into two broad categories, namely requirements which apply when the tank is operating and requirements which apply when the tank is no longer in use.
The applicable regulations for operating tanks are extensive. All must be upgraded within statutory time frames to meet minimum standards regarding thickness or lining, the existence of spill or overfill prevention equipment, release detection devices, inventory control, etc. Newly installed tanks even have standards to meet regarding design, construction and installation. Finally, and of great importance to regulators, is a showing by the owner/operator of financial ability to take corrective action in the event of a release, and to compensate third parties for property damage or bodily injury arising from the release. Ohio has developed a petroleum tank cleanup fund designed to help UST owners meet these financial responsibility requirements. Owners must pay an annual fee of $150 per tank, and are responsible for the first $50,000 in cleanup and third party liability costs (state pays the rest up to a cap of $1 million per occurrence). Tank owners with fewer than 6 tanks, after January 1991, may elect to pay $300 per tank and thereby reduce the deductible to $10,000.
For USTs which are no longer in use, the most critical factor is the legal determination of “ownership.” If an UST was not in use on or after November 8, 1984, the owner is the person or entity who owned it “immediately before the discontinuation of its use,” even if the property on which the tank is situated is subsequently sold. If an UST was in operation after November 8, 1984, the owner is the person who owns it when a statutory deadline arrives or a problem arises. Whether real estate transfers occur thereafter is, again, largely irrelevant to the determination of ownership. Ownership, of course, establishes responsibility and liability for clean up costs and third party damages arising from a release.
It should be noted that Congress has established a LUST Trust Fund to pay for the corrective action costs of clean up but the fund may be used only in very narrow circumstances. Generally, the Federal Trust Fund will be unavailable unless there is no financially solvent, responsible owner to be found and prompt action is necessary to protect human health and the environment.
III. RAMIFICATIONS ON REAL ESTATE TRANSACTIONS
Aside from the obvious adverse effect of reducing marketability, the presence of an UST does not impose any special responsibilities on the REALTORÒ other than disclosing its existence and any material facts concerning the contamination known to the REALTORÒ . As of November 5, 1990, the only federal or state mandate which impacts directly on a real estate transaction is the requirement that the seller inform the purchaser of his obligation to notify the state (BUSTR) of the change of ownership. There is no requirement that the seller inform (or warn) the purchaser of the other aspects of the regulatory program.
Neverless, the marketability of the property will often depend upon assurances from the seller that the property is free from environmental problems. If the purchaser does not demand such assurances, the lending institution undoubtedly will. If an UST is situated on the property, and if the prospective purchaser does not intend to operate the tank, the most common and most desirable solution is the physical removal of the tank. (Federal regulations permit what is termed the “permanent closure” or “abandonment in place” of USTs, which is basically a procedure whereby the tank is filled with an inert material such as sand or concrete slurry. However, in Ohio, the State Fire Marshal discourages leaving a permanently closed tank in the ground, permitting it only in limited instances where the tank is located under a building and removal would cause structural damage. If removal is required, it must comply with strict EPA regulations, and if a site assessment reveals contamination, remediation must occur. It is common for the cost of remediation to be negotiated and shared between buyer and seller. In any event, at the removal stage the assistance of professional environmental consultants is imperative.
In regard to REALTOR liability, the following quote from the fall, 1990 Division of Real Estate Newsletter provides this advice:
…the contract with the seller (or buyer) as well as state real estate law define the agent’s duties. Generally speaking, the presence of absence of an UST does not necessarily alter the agent’s responsibilities. Whether it’s an UST, central air conditioning, the neighborhood school system or some other feature of the property, Article 5.3 of the Canon of Ethics still applies to the agent who “should ascertain all material facts concerning every property for which he accepts the agency, so that he may fulfill his obligation to avoid error, exaggeration, misrepresentation, or concealment of material facts.”
And when in doubt – disclose.
For additional information concerning the UST Regulatory Program, contact:
Division of State Fire Marshal
Bureau of Underground Storage Tank Regulations
7510 East Main St.
PO Box 526
Reynoldsburg, OH 43068-3395
614-752-7938
800-686-2878
Additional information regarding the UST liability of sellers and buyers, including contractual provisions is found in the Environmental Hazards Manual. For copies, contact:
Ohio Association of REALTORS
200 East Town St.
Columbus, OH 43215
614-228-6675