Comprehensive Environmental Response Compensation and Liability Act

Comprehensive Environmental Response Compensation and Liability Act (CERCLA)

Federal laws passed in 1980 and known commonly as the Superfund. The law imposes strict liability for cleaning up environmentally contaminated land—one's liability does not depend on any fault or responsibility,but simply on one's status as any of the following:

• Apast or current owner of a facility
• Apast or current operator of a facility (such as a tenant or property manager)
• Agenerator of hazardous substances
• Atransporter of hazardous substances

Because of potential cleanup liability for the actions of previous owners,it is essential that any purchaser of commercial property investigate a property history for evidence of manufacturing processes, petroleum-related businesses such as gas stations, dry-cleaning plants, transmission repair shops, and any number of other activities. In the alternative, one may order a Phase I Environmental Report from a licensed engineer. As a practical matter, most lenders will require the report as a condition of providing funds for purchase.

At one time, there was some confusion over a mortgage lender's potential exposure to liability by virtue of possibly being considered an “operator”when involved in management decisions during a loan workout. There was also great fear about lender liability after foreclosure, when the financial institution became an “owner.”This has largely been cleared up through CERCLA amendments providing limited lender immunity provided there is appropriate due diligence before credit extension. Due diligence is usually resolved through requiring a Phase I Environmental Report from a licensed engineer, and then a Phase II report if the Phase I report indicates any suspicious evidence. After foreclosure,the lender can avoid liability if it takes steps to sell the property as soon as possible.

When selling or buying property,it is important for the sales documents to include a provision allocating financial responsibility in the case cleanup is necessary in the future.Parties may not disclaim responsibility under CERCLA,but they may contractually agree regarding who will bear the ultimate cost of a cleanup.