Dumping Ground Toxic waste on your property could cost you-even if you didn't put it there.

Suppose you purchase a cozy old storefront on Main Street,remodel it and proudly open your new flower shop. Your business isjust getting on its feet when patrons of the cafe next door startcomplaining that the water tastes funny. After poking around a bit,investigators discover the cause: contaminated soil radiating fromyour property. Further examination reveals that a dry cleaner whoowned the property for 10 years routinely disposed of excesssolvents by pouring them down the drain, which led to anunderground leaching field. Restoring the land will be veryexpensive. But that isn't your problem, right?

Wrong. Under the federal Comprehensive Environmental Response,Compensation and Liability Act, better known as CERCLA (or theSuperfund Law), property owners can be held responsible for thecost of cleaning up environmental contamination on theirproperty-even if they had nothing to do with the pollution. Oftenstate or federal agencies extract the cost of cleanup from theproperty owner who's easiest to find. Likely as not, that'sthe current owner, who then has to locate whoever's responsibleand sue for compensation.

The legal concept involved here is called "joint andseveral liability." It means that any one of a number ofparties can be held legally responsible for the entire cost: theproperty owner at the time the contamination occurred, the partywho actually did the contaminating, the current owner, or even thelender that helped finance the business found responsible. Theconcept is convenient for government agencies looking for someoneto pick up the tab, but it can be a headache for business owners.More and more cases involving cleanup costs are piling up in thecourts.

One reason is that environmental cleanup is so expensive. Copingwith a contaminated well, for instance, might involve removing allthe contaminated soil and paying to dispose of it, which could costhundreds of thousands of dollars. Dealing with major industrialdump sites is even more costly.

The primary problem is deciding who should pay for it: Propertyowners? Insurance companies? Petrochemical businesses? Insurancecompanies? Taxpayers? Congress has attempted to address thequestion through a bill that would reauthorize the Superfund, thehuge fund used to study toxic waste sites and begin cleanup whilethe Environmental Protection Agency (EPA) uses the courts to pursuethose deemed responsible. In 1994, the Clinton administration triedto hammer out a solution acceptable to industry, insurers andenvironmental groups alike, but Congress failed to come to anagreement before the session ran out. Prospects look equally dimthis session. Superfund's taxing authority was scheduled toexpire at the end of 1995, but at press time, Congress was stillhaggling over the details of the re-authorization bill.

The reasons are largely political, but the process of reform isdifficult because of the complexity of the issues and the sheermagnitude of the problem. Among the issues: Should companies berequired to pay millions of dollars to clean up old sites that werecontaminated through actions that were legal at the time? Shouldthe liability of each party be proportional to its involvement inthe problem? Should sites be prioritized according to danger tohuman health or treated equally as potential problems in thefuture? Don't expect easy answers.

Steven C. Bahls is dean of Capital University Law andGraduate Center in Columbus, Ohio, where he teaches courses inentrepreneurship law. Freelance writer Jane Easter Bahlsspecializes in business and legal topics.

Environmental Audits

In the meantime, small-business owners are subject to the samelaw as major corporations. Even if the site was contaminated yearsbefore you bought it, through no fault of your own, you can berequired to pay the entire cost of remediation.

How would you know if your property was contaminated? Someonemight notice an oil slick on a nearby creek or patches on a vacantlot where nothing will grow. People drinking water from a nearbywell might start getting sick. Often, it's the city or countyhealth department that investigates a problem and reports itssuspicions to the state EPA. The agency can then order you, theproperty owner, to hire consultants and remediation crews. Inemergency cases, the agency may hire a crew, then sue you and yourbusiness for the cost of cleanup. Often it's a battle ofexperts to determine what the most appropriate remedy is.

The only way for the property owner to get off the hook is the"innocent landowner defense." CERCLA excuses privateproperty owners who acquire the land after it was contaminated, butonly if they inherited the property or if they "did not knowor had no reason to know" about the hazardous substance.

Just buying blind, though, isn't good enough. To prove thatyou did not know about the problem, you must have undertaken"all appropriate inquiry" into previous ownership anduses of the property to minimize your liability. That means havingan environmental audit conducted at the time you purchase theproperty.

Given the risks, many real estate lawyers recommend anenvironmental audit as a routine part of commercial property sales.A Phase I environmental audit is a preliminary assessment,typically conducted by an environmental consultant or engineer. Itincludes looking over the site for evidence of contamination andexamining the records of previous ownership to see what kinds ofbusinesses operated there in the past. If warranted, the consultantthen recommends a Phase II assessment, conducted by anenvironmental engineer or similar specialist, which involvesdigging, drilling and testing samples.

A Phase I assessment can cost anywhere from $1,500 for a smallretail site to tens of thousands of dollars for a factory. Phase IIwill likely cost even more. The potential cost of buying blind,though, is much worse.

If you're buying commercial property, ask whether the sellerhas had an environmental audit done. If he or she has, ask to seethe final report before committing yourself to the deal. It mayeven be wise to have your own audit conducted. Most medium-to-largecommunities have several environmental consultants and engineers.But because it's a new field-and a lucrative one-not allconsultants are well qualified. Check all references carefully. Askto see samples of the consultant's reports, and ask for thename of an attorney who's worked with the consultant foradditional insight.

Some buyers attempt to protect themselves by insisting on aclause in the purchase contract stating that the seller assumes allresponsibility for environmental contamination should it appear.Federal law, though, states that buyers can't escaperesponsibility through such clauses. In any case, the clause wouldbe only as good as the seller's ability to back it. As aresult, a competent environmental assessment is still your bestprotection.

Seller Beware

If you're selling commercial property and have reason tosuspect a toxic waste problem on the site, do you have to disclosethe problem? That depends on your state since disclosure laws varywidely among states. In times past, the legal principle wascaveat emptor, which means "let the buyer beware."It was the buyer's responsibility to inspect the property; ifproblems surfaced later, courts tended to rule that the buyershould have known better. Now, however, many states require sellersto disclose contamination if they know or should know about it.

If you suspect a problem, don't ignore it. You're betteroff investigating it and either getting it cleaned up beforeselling or telling the buyer about it to avoid unpleasant surprisesfor everyone.

If you discover a minor problem on your property, such as an oldleaking fuel tank, check with your state's EPA to see ifthere's a fund that could help cover the cost of cleanup. Moststates charge a small fee for intrastate and interstate shipmentsof fuel, putting the money into a fund for contaminated soilcleanup.

Toxic waste poses an enormous problem for our country. Somelarge companies are trying to help by knowingly buying abandonedindustrial "brownfields" and committing the resources torehabilitate them for future development for the good of thecommunity. Until your business has the resources to do that, makesure you don't buy property with environmental problems thatcould put you out of business.