Known or potential contamination may add cost and uncertainty to real estate transactions. Therefore, it is natural for buyers of contaminated properties in Oregon to be concerned about their potential liability for costs associated with investigating and cleaning up that contamination. For those acquiring such properties, this fact sheet briefly describes potential liability under Oregon’s environmental cleanup law and under the federal cleanup law, Comprehensive Environmental Response, Compensation and Liability Act, and some methods to manage that liability.
NOTE: This information is not intended and should not be construed as legal advice. Prospective purchasers should consult with an attorney before buying potentially contaminated property.
Buyer liability under Oregon law
Under Oregon Revised Statute 465.255, a buyer of contaminated property may become liable for the cost of cleaning up existing contamination, if the buyer knew or should have known about the contamination at the time of purchase. When a pre-acquisition environmental assessment reveals contamination, the purchaser may become liable for that contamination - even though it occurred before the purchaser became the owner. Similarly, a person buying property without first conducting an environmental assessment may become liable for existing contamination that is discovered later.
Addressing state liability concerns
ORS 465.255 includes some statutory defenses that are particularly relevant to buyers. For example, under the “innocent purchaser” defense, a person who buys property that is already contaminated would not be liable if the person did not know and reasonably should not have known of the contamination at the time of purchase. To maintain this defense, the person must have conducted “all appropriate inquiry” before purchasing the property. Although Oregon has not adopted an AAI rule, an assessment consistent with the federal AAI rule (discussed below) would generally constitute satisfactory inquiry. Other forms of inquiry may also be sufficient. In any case, if the pre-acquisition assessment identifies contamination or conditions requiring further inquiry, this defense would not be available.
Persons who inherit contaminated property and entities that take contaminated property by condemnation or tax foreclosure may also have defenses to liability under Oregon law. Oregon law also provides a “security interest holder” defense to liability, which may protect lenders and others who hold mortgages or trust deeds on contaminated property simply to secure payment.
Other liability management tools
Other state tools available to prospective buyers to manage potential liability include Prospective Purchaser Agreements and No Further Action decisions.
The Oregon Legislature created the Prospective Purchaser program to encourage redevelopment of contaminated properties. DEQ may enter into a PPA with a prospective buyer that limits the purchaser’s liability for environmental cleanup at the property if the agreement will result in a “substantial public benefit” (e.g., substantial funding toward cleanup, cleanup actions, or productive reuse of vacant property). PPAs can often help buyers and sellers decide who will pay for and complete cleanup of the property. To provide liability protection, a PPA must be completed before the purchaser closes on the property.
In many cases, concerns about liability can be addressed by the seller cleaning up the property before closing on the sale. Sellers often work though DEQ’s Voluntary Cleanup Program to investigate and clean up contamination before a transaction closes. When cleanup is complete, DEQ will issue a NFA letter. This action does not release a current owner or subsequent purchaser from liability but does indicate that, based on information then available to DEQ, the property has been cleaned up to DEQ’s satisfaction. NFAs may include conditions such as long-term monitoring requirements or land-use restrictions. In either case, for many purchasers, a NFA is a practical approach to address contamination.
In addition, DEQ’s Off-Site Contaminant Migration Policy (which replaces the Contaminated Aquifer Policy) applies to certain properties that have been contaminated solely by releases at other properties.
Note that even if a person qualifies for a defense to liability, a PPA, or relief under DEQ’s Contaminated Aquifer Policy, it does not mean that DEQ or someone else will clean up the property.
Buyer liability under federal law
Under CERCLA, the owner of contaminated property is liable for cleanup costs, unless that owner qualifies for one or more statutory defenses.
CERCLA provides an “innocent purchaser” defense similar to that in Oregon law, for purchasers who “did not know and had no reason to know” of property contamination at time of purchase. This defense requires the buyer to perform all appropriate inquiry in compliance with U.S. Environmental Protection Agency rules (Code of Federal Regulations, Title 40, Part 312). A detailed property assessment is required to meet the AAI standard.
CERCLA also provides a Bona Fide Prospective Purchaser defense to liability for certain buyers of contaminated property - even when buyers know of the contamination. Purchasers must perform all appropriate inquiry in compliance with the EPA rule and satisfy various “continuing obligations” to maintain the defense.
Unlike a PPA with DEQ, the federal Bona Fide Prospective Purchaser defense does not require a written agreement with EPA. This lack of an agreement, and uncertainty about several provisions in the new BFPP law, has caused concern among some buyers about their potential federal liability. EPA’s BFPP Policy recognizes that, in limited instances, the public interest is served by EPA entering into Prospective Purchaser Agreements or some other form of agreement with purchasers of contaminated property.
Similar to Oregon law, security interest holders, persons who inherit contaminated property and entities taking contaminated property through condemnation may have a defense to liability under CERCLA.
Managing liability with private agreements
Parties to a real estate transaction can also allocate liability for contamination as between the buyer and seller through indemnification, hold-harmless, or similar agreements. While these can help buyers address uncertainty and are a common feature of many transactions, they do not relieve buyers of any underlying liability.
- A prospective purchaser of property that may be contaminated should make sure the property is investigated before the transaction closes.
- For many purchasers of contaminated property, having an agreement with the seller for cleanup, or ensuring that a DEQ No Further Action decision is in place are practical approaches to managing concerns about contamination and potential liability.
- To manage liability under state law, DEQ offers Prospective Purchaser Agreements.
Special rules not addressed in this fact sheet may apply to properties subject to RCRA (federal Resource Conservation and Recovery Act) or to properties with underground storage tanks.
Who do I contact?
Please call DEQ's PPA program coordinator at 503-229-6461 (800-452-4011 x6461, toll-free in Oregon) if you have questions about the program or want to discuss whether a PPA may be appropriate and useful for your transaction.