I own a property that I suspect might have contamination problems.
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Question
I own a property that I suspect might have contamination problems. Are there any issues related to willing this property to my son?
Answer
Landlords who own property that may have risks of environmental contamination should use care when passing the property to a beneficiary of his/her will or trust. Not only does the recipient of the property have potential liability, but also the executor or administrator under a will or intestate probate or the trustee of a trust could face liability under certain circumstances. Failure to adequately consider contamination can result in costly future problems for your executor/administrator or successor trustee or to a beneficiary.
Owners of contaminated real property are exposed to possible liability lawsuits from those of the public who have been adversely affected by the contamination. This can include adjacent property owners or from users of water underlying or flowing through the property. Additionally, there can be pollution liability under federal and/or state statutes and owners of contaminated properties can be held liable for the costs of cleaning up the contamination. Cleanup of contamination sites can be extremely costly, usually not just thousands of dollars. Costs often vary from tens to hundreds of thousands, sometimes even millions of dollars. Contamination on a property can also expose an owner to lawsuits from adjacent property owners or from users of water underlying or flowing through the property.
The most common form of pollution liability is the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§9601-9675. Individuals, estates, and trusts and even managers of estates may also be liable under state environmental statutes and the growing body of state common law environmental liability for nuisance and trespass. However, CERCLA liability is currently probably most prevalent. Although the Act doesn’t
single out estates and trusts, neither does it afford them special treatment.
Under CERCLA, “responsible parties” can be held liable for the costs of cleaning up contaminated land. Responsible parties include past owners and current owners of the property. It matters not whether anyone in the chain of ownership knew of the contamination or contributed to it. Lenders receive protection as long as adequate due diligence is performed prior to financing a property. The only one who is personally fully protected from liability is the one who died.
There are possible defenses related to inherited contaminated property, adequate discussion of which is beyond the scope of this response. For the executors or administrators who manage the estate and the trustees who manage trust estate assets, personal liability usually depends on the degree of their control over the use of the contaminated property. However, with the numerous court statements about the breadth of CERCLA liability, and the recognition by courts of the powers that these offices wield over property operations, liability is becoming more common.
Therefore, if you own property that you know or have any reason to suspect might be contaminated, do not leave that property to anyone under your will or living trust without adequate consideration of the issue. You should consult an attorney who is experienced in dealing with problems of contaminated property including the issue related to estates. Real estate which is known or suspected to being contaminated should not even be transferred into a trust.
You should also consider discussing the issue with those who might have to deal with the property following your demise. This would include likely executors or administrators of your estate and successor trustees of your living trust.
Finally, you might consider determining whether or not there actually is a serious risk of contamination liability. If contamination of a property is suspected rather than being a certainty, you might want to consider obtaining a Phase 1 Environmental Site Assessment (ESA) on the subject property. A Phase 1 ESA on the subject land includes examination of potential soil contamination, groundwater quality, surface water quality, and sometimes other items.
When the site includes improvements, the assessment may include: identification of possible asbestos containing building materials; inventory of hazardous substances stored or used on site; assessment of mold and mildew; and
evaluation of other indoor air quality parameters.
If the results of the Assessment show no problems, the risk of future problems is greatly reduced. If the results indicate a potential problem, a Phase 2 Assessment might also be required. A Phase 2 ESA is a more “intrusive” investigation wherein samples of soil, groundwater, or building materials are collected and tested for quantitative values of various contaminants.
Beyond a Phase 2 ESA there is potential Phase 3 ESA wherein remediation of a site is investigated.