Purchasing a Contaminated Property

Phoenix is booming.

And Patrick Paul, an environmental litigation attorney at Snell & Wilmer in Phoenix, says development has been rapid. So rapid, in fact, that more and more, he’s seeing investors interested in land that’s been contaminated—or, in other words, contains a recognized environmental condition (REC).

“Phoenix is interesting,” Paul says. “Most of downtown or metropolitan Phoenix is in or, bordering upon, either a federal or state Superfund area. … We have properties that, maybe in a down economy, people would say, ‘I don’t want to take that risk.’”

So, say you do want to take that risk, and purchase a contaminated property in Arizona. Are there special steps you have to take to purchase the land? And how do you protect yourself from potential future liability?

The first step is to familiarize yourself with the history of the property. Paul notes that you should speak with your broker about the property’s history, and get a title report, too. If you have a sense that the property was, for example, previously a dry cleaner or a gas station—or you’re in an industrial area—then you’ll want to hire an environmental consultant. The consultant will then conduct a Phase I environmental site assessment.

“It’ll tell you the history of the property—that the tanks were removed, and that there is or isn’t a formal regulatory closure on the property,” Paul says. “If there is, you’re in a good situation.”

If there isn’t, you’ll need to work with your consultant and an environmental attorney to become a bonafide prospective purchaser. Under this designation, notes Paul, you have protection from future environmental liability, and also from most environmental agencies.

“Today, what I’m seeing more of is a willingness to understand the risk, and proceed forward with the knowledge and information and protection,” Paul says. “You dot your i’s and cross your t’s, and you can fairly easily insulate yourself from liability.

“If you do [the Phase I assessment] and you’re still a little edgy, there’s a perspective purchaser agreement (PPA), under which you sit down with a state or federal agency, and you run down the litany of what you’ve got, what you know, what you’re going to do to make it better,” he continues, noting that most regulatory agencies are open to discussion and negotiations with a prospective buyer.

Of course, your future liability will also depend on what kind of business you plan to put on the land. “If you’re planning a daycare facility, you can bet your bottom dollar that your level of cleanup is going to have to be substantially greater than if you’re running a factory,” Paul says.

If you do plan on purchasing contaminated land for a future business in Arizona, reach out to an experienced environmental attorney, as well as an environmental consultant, to minimize your risk. “None of this stuff is necessarily bulletproof,” Paul says. “You conduct due diligence as thoroughly as possible, and come to as an informed decision as you can, but the total and complete elimination of risk probably is not possible.”

For more information on real estate transactions, environmental issues, contaminated sites, and potential liability, see our overviews of environmental law and business litigation.