Eminent Domain: Be Careful What You Ask For

The condemnation[1] of property for public works may not always be as clean and easy as the government would like.  Although local governments are often critical players in the cleanup and redevelopment of contaminated properties, contaminated property can: (1) trigger disclosure requirements; (2) lead to environmental liability, for example, under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) (42 U.S.C. §9601, et seq.) or an analogous state statute;[2] and/or (3) impact the ultimate valuation of the property.

Local governments can be liable under CERCLA as any one of the following:

• A current owner or operator of the contaminated property
• An owner or operator of the property at the time of contamination
• A party who arranged for the disposal of contamination
• One who transported the hazardous substances to the property

Condemning authorities can, however, avail of Superfund’s bona fide prospective purchaser defense by engaging in all appropriate inquiry in advance of condemnation and/or taking reasonable post condemnation steps with respect to any known or discovered contamination.

First, if the owner knows about the contamination and agrees to sell the property outside of the involuntary condemnation process, the owner generally must disclose the contamination.  If the owner does not agree to sell the property, and the property is taken by eminent domain proceedings, the owner generally owes the condemning authority no duty of disclosure.[3]

Second, if hazardous substances are found on the property post-condemnation, the condemning authority could, as the new owner of the property, be liable under CERCLA for the clean-up costs.  Although the innocent purchaser defense may be available to a condemning authority under CERCLA, the governmental authority must show it addressed hazardous substances in a prudent fashion and took reasonable precautions against the foreseeable acts or omissions of third parties who might otherwise cause of release of hazardous substances.  That said, even if successful in sidestepping CERCLA liability, the condemning authority may still face substantial costs if forced to remove contaminated soil as a prelude to the contemplated public works project.

Third, know that if property is contaminated, it may have an impact on the valuation of the property, with the burden of proof falling on the condemning authority to show the contamination caused a decrease in value.

In short, any condemning authority must carefully investigate the property thoroughly before proceeding with the taking.

[1] Condemnation is synonymous with eminent domain.

[2] This article is designed to address one federal statutory example which could trigger liability, but numerous other federal and state statutes may apply.

[3] In virtually every state and federal court, the condemning authority would have a right to inspect the property and to ask questions in discovery to ensure the property was not contaminated.