January 23, 2002

Liability for Subdivision of Contaminated Property

Holland & Knight Newsletter
Rafe Petersen

With the development of contaminated properties becoming increasingly more common, an interesting issue that recurringly arises is related to potential liability following subdivision. Assuming that a property is subdivided and a party purchases a "clean" subdivided parcel, could the purchaser of the "clean" parcel be held potentially liable if contamination is later found on the property retained by the seller or sold to a third party? The short answer is no, depending on several factors. Nonetheless, care ought to be taken to ensure that purchasers of "clean" parcels do not end up buying more than they bargain for.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund ), 42 U.S.C. §§ 9601-9675 (2001), establishes a severe liability regime for the release or threat of release of "hazardous" substances. The statutory scheme created by CERCLA imposes strict, joint and several liability on "owners" and "operators" of "facilities" at which hazardous substances have been "released." Hence, a purchaser’s potential liability is generally predicated on

  • whether it is an "owner" or "operator" of a contaminated parcel



  • whether a "release" occurred at the parcel, and



  • the definition of the "facility" at which the release occurred

As a hypothetical, assume that the purchaser of the clean parcel "Acme" has no relationship to the seller other than the purchase and sale of this property and that the contamination is completely contained within the seller’s remaining parcel. If that is the case, then it is unlikely that Acme would be considered an "owner" or "operator" of a contaminated parcel. If Acme has never been in the chain of title to the property (i.e. there is no indicia of ownership), has not exercised any control over the operation of that parcel, or is not a successor in interest to the seller (i.e. no parent/subsidiary relationship or otherwise) then Acme is unlikely to be considered either an "owner" or "operator" of the adjacent parcel. Yet, the inquiry does not end there.

A Fourth Circuit case, Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837 (4th Cir 1992), offers insight into how the courts address the issue of subdivision of a contaminated "facility." In Nurad the plaintiff’s property had been part of a larger parcel of land before it was subdivided and sold by the previous owner. Seeking costs for remediation of contamination that it discovered on its property, the plaintiff (Nurad) filed suit against all prior tenants of the larger parcel. Nurad argued that the prior tenants’ property interests necessarily included the implicit authority to "control" the entire property, including the area where the leaking underground storage tanks (USTs) were located, even if a tenant had occupied only a portion of the property. The Fourth Circuit rejected this broad interpretation of "operator," holding that the former tenants must have some level of authority to control the facility in order to be liable for the contamination from the USTs. Thus, it is not enough that the property was at one point held in common ownership, Acme would have to exercise some level of control over the operation of the adjacent site to be considered an "operator" for purposes of CERCLA liability.

In addition, Nurad argued that the "facility" encompassed the entire site, not simply the area where the USTs were located. Under this interpretation, all tenants would be considered as having a property interest in the contaminated "facility." The Fourth Circuit, however, rejected this argument, defining the "facility" to be limited to the area immediately around the USTs. The court reasoned the following:

In this case, the only ‘area’ where hazardous substances have ‘come to be located’ is in and around the storage tanks, so the relevant ‘facility’ is properly confined to that area. To be sure, the tanks are a part of the larger piece of property that is now the Nurad site. During the relevant period, however, the site was subdivided and separate portions of it were leased out to individual tenants. The fact that those tenants may have had control over a building that was adjacent to the USTs is irrelevant under the statute; a defendant operates a ‘facility’ only if it has authority to control the area where the hazardous substances were located. Thus, while liability under § 9607(a)(2) is strict . . ., it nonetheless extends only to those who have authority over the area where hazardous substances are stored. The statute places accountability in the hands of those capable of abating further environmental harm, while Nurad’s proposed definition of ‘facility’ would rope in parties who were powerless to act. (emphasis added)

Thus, as long as the premises demised to a tenant did not include the subject contaminated "facility," that tenant would not be held liable for contamination at other areas of the larger parcel. Similarly, Acme’s liability for the contamination at the adjacent parcel would be limited by the fact that the contaminated "facility" is properly confined to the parcel where the contamination is located.

It is important to consider that Acme’s avoidance of liability for contamination at the adjacent property is also predicated on the assumption that the contamination at the adjacent parcel has not migrated to or from Acme’s parcel. A passive owner who purchase property that is contaminated potentially may be held liable for the cleanup in the event that the contamination migrates or otherwise is exacerbated during its ownership. Moreover, had the contamination spread throughout the entire property, including the subsurface under the buildings and common areas demised to the other tenants, the court in Nurad most likely would have defined the "facility" to include the entire property, and all tenants would have been equally liable as operators. See Axel Johnson, Inc. v. Carroll Carolina Oil Company, Inc., 191 F.3d 409, 418-19 (4th Cir 1999) (noting that the Nurad court made the specific finding that the area around the USTs was the only contaminated area). Thus, purchasers of the "clean" parcel must ensure that their due diligence is sufficient to detect any contamination.

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