I am looking at a park that has some contamination/EPA issues and wanted to get perspectives around reducing the liability risk.
Here is the overview. The seller is selling 2 parcels of land - one on which the park is located and the one separating between the park and the nearby highway. The second parcel used to have a gas station on it that was removed about 15 years ago. While removing the gas station the the land was contaminated by gas/oil. The owner replaced the contaminated soil and per broker the the current EPA rating for the the gas station parcel is 5 (lowest level of contamination). The seller currently intends to transfer title to both parcels to the new buyer.
They have had 2 deals fall through due to refusal by banks to finance this transaction and have now requested the EPA to provide a letter sating that they satisfied all EPA requirements and no further work is needed.
How big of a deal from liability perspective level 5 contamination is assuming they will receive the mentioned letter from EPA?
Are there any methods to reduce the liability risk? For example, what if I buy only the parcel of the land the park is on and let the seller keep the contaminated parcel? Will I have any liability exposure in this case?
thanks, @Dominic730! I know that rule of thumb, but am trying to see of there is something creative that might be done given it is the lowest EPA level and separate parcel. Perhaps, someone has had similar situation/experience.
The only way I am aware you can protect yourself is to get an innocent owner certificate, which means that certain testing must be demonstrated prior to your ownership that shows the contamination existed beforehand and you (in no way) caused it and are as a result not liable for any related remediation.
You need to confirm that this is acceptable to the bank - a lot of them are not experts on this and may have some sort of weird process they think is acceptable.
In many cases it’s not worth the effort as mentioned earlier.
I’m assuming you’ve already asked to just drop the adjacent lot from the purchase and buy just the parcel that has the MHP on it? If the seller said no, I’d assume that’s a pretty big red flag, and he implicitly acknowledges that the contaminated parcel is more of a liability than an asset.
If it were me I’d consult with both an environmental engineer and an environmental lawyer. If I wasn’t willing to do that, I’d just drop the deal.
The property will ALWAYS have that on record–you may believe it is no issue but you just lost perhaps 75% of future buyers–we just pass on a property at Branson Mo; gas station next door and now the property for sale has at least 10 test well that are monitoring the dangerous situation!!!
Tough scenario. I’d consider two separate sales if the park parcel is clean (need a phase 1 for the park). Buy the contaminated parcel separate with a plan to get rid of it. Sell it super cheap or just know you’ll have to hold it and pay taxes on it. I don’t have experience on the matter but seems you’d want the two separated at the sale and put both in separate LLCs to mitigate liability. Coming up with a plan on what to do with the bad lot seems to be the key. I’d consult with an attorney that deals specifically with environmental issues. Good luck!
Phase 1’s come back bad all the time due to issues with surrounding properties. It would be a waste of money to do a Phase 1 on this property when you know the adjacent lot is already dirty.
The environmental company will say that there is a risk the groundwater is contaminated and passing underneath the MHP. A Phase 2 will be their recommendation, and if not willing to spend 10-20K for that should not bother with the 2K Phase 1.
I have purchased property under these circumstances - where a dry cleaner 2 blocks away impacted groundwater and we had limited “off site contamination.” This was verified as part of the Phase 2 and a key input in the Innocent Owner process mentioned above. Fortunately the extent of this contamination did not require remediation, but the state could change their mind one day and ratchet up their requirements for remediation, which is the long term trend (and probably the right thing to do morally).
This happens all the time in urban areas with high density and businesses like this.
@jhutson Are you saying that one might be liable even though it is not his/her land that is contaminated and that the state can go after you at a later date despite previously stating that no remediation is needed?
How did you reduce your liability risk with that process? Was it solely through Innocent Owner process?
I was advised that the states are strengthening their regulations constantly, and that previously contaminated sites get re-reviewed over time for compliance with new regulations. I expect the extent to which this happens varies significantly, but it’s a risk to be aware of.
There is also the variable of land use. You probably wouldn’t want to open a farm on a site with soil contamination, but maybe a warehouse. With appropriate vapor barriers and ventilation systems supporting the foundation it could be more suitable.
Ground vapors from a fuel station are different from vapors coming from a dry cleaner (super bad), so make sure you’re aware of the type of contamination and how it may be able to cause problems with human health. Even if you’re not liable, do you really want to profit from a place that can make people sick?
My experience was with vacant retail commercial land, so I was able to justify the investment morally and financially. Between the Phase 1 and Phase 2 reports, alongside the Innocent Owner process I had all my CYA in place to sleep at night. It also was critical to having these to sell the property at a rate consistent with the other commercial properties in the area per foot.