Strict environmental regulations can significantly increase the cost of purchasing a commercial or industrial property. In a nutshell, any owner or prospective purchaser must factor in the potential liability and cleanup costs for any particular piece of property, i.e., if you buy the property, you also buy the pollution on the property and all of the related headaches. The cost of cleaning up and litigating a typical contaminated site could easily approach the million dollar range, which is enough to scare away most prospective purchasers.

Further, a significant number of the existing commercially-zoned properties in the State of Hawai`i have been in use for years and are likely to have hazardous substances on the site. Prior operations such as laundry mats, automobile dealerships, or farms have frequently created years of contamination build-up. This contamination must be addressed so as to comply with federal and state regulations and avoid future liability. Prospective purchasers are ordinarily advised to avoid these properties because of the significant risks of present and future expense.

Recognizing that most prospective purchasers avoid contaminated properties or “brown fields,” several notable new programs have been initiated by the State of Hawai`i and the Environmental Protection Agency, with varying degrees of success. One of the most intriguing, but somewhat underutilized, programs is the “Voluntary Response Program.” This program streamlines the cleanup process for prospective purchasers by allowing them to enter into an agreement with the seller and the State of Hawai`i to voluntarily cleanup the property. Application to this program can protect, on a limited scale, a purchaser that wishes to buy a property prior to understanding the full extent of contamination and has made an agreement with the seller as to who will assume the cleanup costs. In exchange for voluntarily cleaning the site, the State of Hawai`i will exempt the participating parties from liability for the hazardous materials removed or addressed in the cleanup. After successfully completing the remediation, the Department of Health can issue a “letter of completion” that will run with the land and apply to any subsequent purchasers.

In addition, the Hawai`i Brownfields Cleanup Revolving Loan Fund (“Brownfields Loan Fund”) was recently established so as to “to encourage clean up and redevelopment of commercial and industrial properties that are idled, underutilized or abandoned as a result of real or perceived contamination . . . .” This program provides low-cost loans to fund cleanup activities on properties that are accepted into the Voluntary Response program. To be an eligible “borrower”, the applicant may be a current owner, prospective purchaser, or a government agency and must not have caused or contributed to the contamination at the site. There are some limitations on the use of this money; however, informal discussions with the administrators of this program have indicated that there is a significant interest in making this program attractive to eligible borrowers and there may be a surprising degree of flexibility in the application and use of the loan funds.

It should also be noted that the Environmental Protection Agency has recently released the “All Appropriate Inquires” (“AAI”) rule and the revised ASTM Phase I Environmental Site Assessment Standard Practice regulations. Previously, there was a limited defense to liability for the purchase of a contaminated property where the purchaser was “innocent,” i.e., “at the time the [purchaser] acquired the facility the [purchaser] did not know and had no reason to know that any hazardous substance” was on the property. The main problem, however, was that it was virtually impossible to prove that a purchaser was “innocent” and therefore this defense had limited applicability. Under the new AAI rule, the EPA has detailed the specific steps necessary to establish whether a property has a contamination problem and, in the event none are found, protects the purchaser from liability. While the AAI rule will likely increase the cost of a standard environmental review of a property, it does provide some greater assurances to any purchaser as to prospective liability.

In sum, the purchase a commercial or industrial property can be a confusing process with the ever-present fear of future liability and unexpected costs. There are, however, some steps that can be taken to avoid some of the fear that may be associated with the purchase and provide a degree of certainty. Individuals or companies would be wise to fully explore these options with an environmental consultant and an attorney before suffering from a strong case of buyers’ remorse.