Environmental Considerations When Buying Land
In a study done by Pew Research, states were ranked based upon how many residents approved/disapproved of local environmental regulations. Topping the pro-regulation states was Hawaii with 68% of residents stating that environmental laws and regulations are worth the cost, while 56% of Montana residents claimed that such regulations cost jobs and harm the economy. See where your state ranks here.
When a real estate developer purchases land, or anybody else for that matter, they become responsible for that property and everything on it. For example, if a chemical gets into the drinking water or vapors emanate from the ground causing residents of an apartment building to become sick, the owner of that property is legally responsible. Thus, knowing what’s on the property you buy is important.
Common sources of contamination can include an underground gas tank, pesticides used for farming, septic tanks, stormwater runoff, and chemicals used by industrial companies. Often the previous owners or users of a property are responsible for contamination that may exist when you look to buy a piece of property. While a bookstore may exist there today, a site may have previously belonged to a gas station with a tank below ground that sprung a leak or a dry cleaner that used dangerous chemicals and solvents.
Who You May be Liable To
Imagine you bought a piece of land with an abandoned warehouse on it with the intention of converting it into an office building. It seems like a good idea at the time and the open floorplan will provide plenty of options for configuring the space as you fix it up. In this example, the previous tenant manufactured Plexiglas. In fact, they sold so many shields to local retail businesses during COVID that they’ve decided to move into a larger space, which explains why the place is available for you to buy today.
Unfortunately, a chemical used in Plexiglas called methyl methacrylate can irritate your eyes and skin. At high enough temperatures it can even be potentially explosive. Perhaps there was a leak. While the company cleaned up what they could, they may not have gotten all of it, or reported the leak to anyone.
After you build your offices and rent the space out, some of your tenants complain about their eyes bothering them. Others start having allergic reactions. Nobody can figure out what’s happening. Then people at the property next to yours start having the same issues. The neighboring landlord hires a professional to look into the issue and it’s finally discovered that there’s a chemical stemming from your property causing the issues.
Legally you may now be liable to not only your tenants, but their employees, and your neighbors. Even if you addressed those legal issues, selling the property now will be more difficult and your legal responsibility can easily continue even after you are able to sell it.
What Can You Do?
The first thing is to do your due diligence before you buy the property. Just as you wouldn’t buy a house without first having a home inspector look for issues that you would never think to look for, having an environmental study done on a property can save a ton of money, time, and heartache. These studies often begin by looking at the previous owners of the property you’re considering buying. They’ll also look at neighboring properties. Just as in our example above a chemical reached your neighbor’s property, it’s possible that your neighbor could have a toxin that makes its way onto the property you’re looking at. These studies can also include taking samples of the dirt, building materials, groundwater, etc. and testing for toxins. Armed with this information you can estimate the costs of remediating the contamination and decide whether or not you still want to purchase the property.
You can also attempt to have the seller and/or previous owners compensate you for the cleanup. Though this isn’t always an easy road to take, it is an option. Additionally, you may be able to apply for low-interest rate loans or even grants that will reimburse you for the costs of cleanup. Government bodies may even assist with the cost if you develop the land in a way that they want. For example, they may be more willing to help you out if you’re building affordable housing than if you’re trying to build an amusement park that the city doesn’t want.
Buying property entails risk and one risk that we often don’t think of is that of environmental contamination. The costs associated with either removing or at least containing contamination can vary dramatically depending on the type of contamination and the extent of it. This is the type of expense that can easily destroy your entire budget, potentially costing millions of dollars. Be careful. Be smart. Be informed.