The Vault

January 2002
Coburn Dewees Berry

Purchasers and lenders must be especially concerned about state and federal environmental laws relating to hazardous substances and wetlands.  Here's why.

Hazardous Substances

Owners and operators of Tennessee real property have a risk of liability under both federal and Tennessee law: the risk of personal liability for the cost of cleaning up hazardous wastes.  The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601-9675, as amended, known as "Superfund," while originally passed by Congress in 1980, became a real threat in 1986 with the passage of amendments that gave the statute more teeth and gave the Environmental Protection Agency motivation for enforcement.  The Tennessee Hazardous Waste Management Act of 1983, TCA Section 68-46-201 et seq. , is Tennessee's counterpart of Superfund.

 Under both Superfund and the Tennessee statute, any current "owner or operator" of a "facility" in or on which hazardous materials have been deposited, dumped, or stored is liable for the costs of removing the materials.  Additionally, anyone who owned or operated a facility when hazardous materials were being dumped or stored, or knew of the presence of the hazardous materials when he transferred the facility to a new owner or operator, is also liable for clean-up costs under the federal and state statutes.  A "facility" has been defined broadly to include any tract of real property containing hazardous materials.  Liability under Superfund is strict: if one meets the definition of "owner or operator" under the federal statute, one is liable regardless of one's responsibility for the presence of the hazardous materials at the facility.  Additionally, liability is joint and several, so that the EPA may proceed against one or any combination of liable parties.  Under the Tennessee statute, however, equitable principles are employed in apportioning liability for the costs of clean-up.  Certain limited defenses, known as the "third-party" defense and the "innocent purchaser" defense, are available under Superfund, but they require high standards of care and can be difficult to avail oneself of in commercial transactions.

 Liability under Superfund and the Tennessee statute is especially problematic because the cost of cleaning up contamination can greatly exceed the value of the property.  Superfund has a $50,000,000 liability cap.  The Tennessee statute has no liability cap and provides for a superlien for clean-up costs.

 While there is always a risk of unearthing drums of hazardous materials stored long ago, the risk of the presence of such materials on most tracts of real property should be slight unless the property is or has been used as an industrial site where such materials have been produced or handled.  Nevertheless, the potential liability under both the federal and state statutes can be staggering.  As a consequence, environmental investigations have become standard operating procedures prior to the closing of many sales of real property.

Wetlands

 Most real estate lawyers are aware of the dangers that federal and state laws dealing with hazardous wastes and substances present for their developer clients.  But not all appreciate the risks of running afoul of wetlands regulations or requirements.  These are complex and fraught with pitfalls, but here a is brief overview.

The federal Clean Water Act (33 U.S.C. § 1344) and the Tennessee Water Pollution Control Act (T.C.A. §§ 69-3-101, et sea.) restrict a developer's ability to fill or alter "wetlands".  "Wetlands" are not only what we traditionally think of as swamps and marshlands.  They can also be drainage ditches, sediment ponds, places that hold water only briefly after heavy rains, and similarly unprepossessing areas.  A wetland can be man-made as well as natural.  A wetland can even appear to be dry.  All that is required is for soil to be sufficiently wet for a sufficient number of days each year that it will support certain types of vegetation suited for saturated soils.

 The Army Corps of Engineers has primary jurisdiction over wetlands at the federal level; the Department of Health and Environment, Division of Water Pollution Control, has jurisdiction at the state level.  Developers must obtain permits from one or both of these agencies to fill or alter most wetlands.  The state reserves the right to approve the fill or alteration of wetlands of any size.  No federal permit is required for wetlands of less than one acre.  For more than one, but less than ten acres, the Corps may issue a "nationwide" permit, but only after notice to, and consideration of comments from, various other state and federal agencies.  If more than ten acres are involved, an "individual" permit is needed.  An individual permit is more difficult, expensive, and time consuming to obtain than a nationwide permit, and its issuance must be preceded by public notice and opportunity for comment.

Both the Corps and the state usually require "mitigation" as a condition of a permit.  Mitigation, which can be quite expensive, involves creating a new wetland area to replace the one that will be lost.  The new area must generally be two to three times larger than the old one.  Bonds to ensure successful mitigation are not uncommon.

Improper filling or alteration of wetlands can result in a steep fine or even a jail sentence.  Structures built on filled or altered wetlands may have to be removed.  Accordingly, developers should investigate the presence of wetlands carefully before proceeding with a new project.  In making these investigations, the services a qualified engineer are essential.  A good phase-one site assessment should deal with wetlands as well as hazardous wastes and substances.  In retaining a firm to conduct a phase-one site assessment, a developer's lawyer should include language to specify that the assessment will include a determination whether any wetlands exist on the property in questions.

Note

The foregoing summaries are based on articles appearing in the June 1987 and the October 1994 issues of the Tennessee Real Estate Law Letter.