Definition
An Innocent Purchaser is a party who acquires property without knowledge of existing contamination and has conducted all appropriate environmental due diligence before the purchase. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), specifically the Superfund Amendments and Reauthorization Act (SARA), all parties in the chain of title to a contaminated property may be held responsible for its cleanup. An exception exists for buyers who performed a thorough environmental assessment (Phase I Environmental Site Assessment) and had no knowledge of the property’s contamination.
Examples
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Industrial Land Purchase: A company purchases an industrial property that is later discovered to have subsurface contamination. If the purchaser conducted a Phase I Environmental Site Assessment before closing and this assessment did not indicate contamination, the company might be considered an innocent purchaser and thus not liable for cleanup.
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Residential Property: Jane buys a residential lot that was part of a former industrial site. Before purchasing, Jane ensured a Phase I Environmental Site Assessment was performed that cleared the lot of any known hazards. Later, contamination is found. Under SARA provisions, Jane is considered an innocent purchaser due to her compliance with the environmental assessment, exempting her from liability.
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Vacant Land: An investor buys vacant land for future development and orders a Phase I Environmental Assessment, which shows no contamination. Years later, hazardous waste is discovered. The investor maintains their status as an innocent purchaser due to their diligence.
Frequently Asked Questions
What is a Phase I Environmental Site Assessment?
A Phase I Environmental Site Assessment (ESA) is a report prepared for a real estate holding that identifies potential or existing environmental contamination liabilities. The assessment includes a review of records, a site inspection, and interviews with owners, occupants, neighbors, and local government officials.
What laws govern the liability of property contamination?
The primary law that governs this area is the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), which was amended by the Superfund Amendments and Reauthorization Act (SARA). This law holds parties responsible for the cleanup of contaminated sites but allows for certain defenses, such as the innocent landowner defense.
Who can be held liable under CERCLA?
Potentially Responsible Parties (PRPs) under CERCLA may include current and past owners and operators of a contaminated property, waste generators, and transporters who arranged for the disposal or treatment of hazardous substances at the site.
How can a purchaser confirm their status as an innocent landowner?
To confirm their status, a purchaser must undertake “all appropriate inquiries” before acquiring the property, typically through a Phase I Environmental Site Assessment. They must also show no prior knowledge of contamination and maintain this status by exercising due care post-purchase.
What happens if contamination is discovered post-purchase?
If contamination is discovered after the purchase, the purchaser’s liability will depend on whether they undertook all appropriate inquiries before the acquisition and maintained adherence to due diligence afterward. If these criteria are met, they may be deemed an innocent purchaser and not be liable for cleanup costs.
Related Terms
- Environmental Site Assessment (ESA): An evaluation performed to assess the environmental condition of a property and identify any potential contamination.
- CERCLA: The Comprehensive Environmental Response, Compensation, and Liability Act, a federal statute enacted to manage contaminated properties and assign liability.
- SARA: The Superfund Amendments and Reauthorization Act, which amended CERCLA to include, amongst other provisions, the innocent landowner defense.
- Potentially Responsible Parties (PRPs): Individuals or entities that may be liable for contamination under CERCLA.
- Liability Protection: Legal provisions that protect certain entities from being held responsible for contamination cleanup after undertaking due diligence assessments.
Online Resources
- Environmental Protection Agency (EPA) - CERCLA
- American Society for Testing and Materials (ASTM) Standards for Phase I ESA
- Investopedia - Environmental Site Assessment
References
- Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §9601 et seq. (1980).
- Superfund Amendments and Reauthorization Act (SARA), Pub.L. 99-499, 100 Stat. 1613.
Suggested Books for Further Studies
- Environmental Liabilities and Real Property Transactions: Managing Environmental Risk Through Due Diligence by A. Myrick Freeman
- The Environmental Liability Exposures of Commercial Lenders/Developers by Bill McElnea
- Real Estate Transactions, 6th Edition by Robin Paul Malloy and Mark A. Sargent