Dallas Bar Association

Environmental Disclosures in Commercial Real Estate Sales

By Jill A. Kotvis

Almost every commercial real estate transaction today involves potential environmental issues. The environmental issues can include aboveground storage tanks (AST), underground storage tanks (UST), buried solid waste, asbestos, mold, or historic uses or operations that may have led to soil or groundwater contamination. Disclosure of some of these issues by a seller of commercial real property is required under certain Texas and federal environmental statutes and regulations. 

USTs/ASTs. Texas UST regulations require sellers of property containing a UST or AST to provide to a purchaser a written notification of the tank owner’s obligations under the regulations relative to registration, UST compliance self-certification and construction notification or AST installation notification (30 TAC § 334.9). The following language is deemed sufficient to meet the disclosure requirements:

The USTs which are included in this conveyance are presumed to be regulated by the Texas Commission on Environmental Quality and may be subject to certain registration, compliance, self-certification, and construction notification requirements found in Title 30 Texas Administrative Code, Chapter 334.

The ASTs which are included in this conveyance are presumed to be regulated by the Texas Commission on Environmental Quality and may be subject to certain registration, delivery, prohibition, installation notification, and other requirements found in Title 30 Texas Administrative Code, Chapter 334.

The notification should also include the name and addresses of the seller and purchaser, the number of tanks, a description of each tank, the capacity, tank material, product stored, and the Facility I.D. number.

Asbestos. Federal asbestos regulations require a building/facility owner to transfer to successive owners written records of any notifications communicated or received concerning the identification, location and quantity of asbestos or presumed asbestos containing materials (29 C.F.R. § 1926.1101(n)(6)).

Mold. The Texas Mold Rules and authorizing statute (Texas Occupations Code § 1958(b)) require a seller to provide to a purchaser a copy of each Certificate of Mold Damage Remediation issued for the property during the preceding five years (25 TAC § 295.327(d)).

Superfund. In order to maintain an innocent purchaser defense or other defenses under the Texas “superfund” equivalent, a seller must disclose any release or threatened release of a hazardous substance known to seller during the time the seller owned the property (Texas Health and Safety Code § 361.275(g)). Similar provisions can be found in the federal “Superfund” statute (42 U.S.C. § 9601 (35)(C)).

Other Texas Programs. Other Texas programs such as the Voluntary Cleanup Program, the Texas Innocent/Owner Program and the Texas Risk Reduction Program, and the Texas law on the use of land over closed municipal solid waste landfills, provide for filings in the property records. These filings act as notice to future owners of the environmental condition of the property and any engineering or land use controls or restrictions applicable to the property or necessary for an environmental closure to remain effective.

Other States. Several states other than Texas have codified pre-sale environmental assessment obligations in property transfer statutes. The New Jersey Industrial Site Recovery Act goes one step further by imposing pre-conditions on the closure of industrial operations, conveyance of real estate on which such operations are located, and transfer of companies owning and operating such real estate. And in 2010, the state of Washington enacted a new law that, for the first time in the U.S., requires sellers of commercial real estate to disclose a wide range of “environmental conditions” to prospective purchasers.

General. Sellers are advised to disclose material facts involving the environmental condition of the property within their knowledge. The facts should not be embellished with opinion and should be provided only through existing environmental records and documentation (e.g., copies of permits, prior environmental reports) when possible. Sellers can further minimize environmental liability by allowing prospective purchasers an opportunity and sufficient time for a full environmental investigation, including soil and groundwater sampling.

This area of law is changing rapidly with environmental issues now in the forefront in our daily lives and business transactions. It is important to timely consult an environmental lawyer on these issues and to review disclosure obligations in each state in which commercial real estate transactions are involved.

Jill A. Kotvis is a solo practitioner practicing environmental law. She can be reached at jak1@nova1.net.

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