“As Is” Clauses and Environmental Liability

Cleaning up hazardous waste can be a very expensive proposition.  Indeed, the presence of even small amounts of toxic substances can kill a deal.  Consequently, the parties to a real estate transaction have increasingly begun to allocate the responsibility for toxic waste clean-up by contract.

In a recent Court of Appeals case, Car Wash Enterprises, Inc. v. Kampanos, 74 Wn. App. 537 (1994), the Court stated that while contractual allocations of liability are valid, the phrase “purchaser has examined the property. . . and accepts the same as is” does not effectively transfer liability.

In Car Wash, the purchaser bought a former gas station from Kampanos.  The purchaser knew before closing that there were underground storage tanks on the site but did not have them tested.  The tanks were removed shortly after closing.  Four years later, the purchaser tested the soil and found it contaminated.  The purchaser spent more than $53,000 to clean up the site.  Not surprisingly, the purchaser then sued Kampanos.  In his suit, the purchaser requested (based on Washington’s Model Toxic Control Act [The MTCA], RCW 70.105D) that Kampanos contribute to the cost of the clean up.

The Court of Appeals originally decided the MTCA did not allow for this kind of lawsuit.  The Court reasoned that the MTCA did not authorize private parties to allocate MTCA liability between them.  After much persuasion, the court reconsidered its decision and concluded that liability for environmental clean up can be contractually allocated.  It also emphasized that such an agreement does not alter a person’s liability to the State under the MTCA.  In short, if the state taps a person on the shoulder and says, “clean it up!” the person being “tapped” can use their contract to reach out and in turn “tap” the party who has agreed to accept liability.

The Car Wash Court next considered whether the “As Is” clause on the purchase and sale agreement transferred the risk of future environmental liability to the purchaser.  The Court decided that the issue boiled down to the intent of the parties, and that Kampanos failed to meet its burden of proof on that issue.  Consequently, using the terms “As Is” in a real estate purchase and sale agreement, without more, invites a prolonged and costly battle over just what the parties meant.  Instead, suggest to the party you represent, that their attorney review the matter and draft language that specifically allocates the risk.  This will help avoid problems in the future, keep your clients happy and minimize the risk that a clause you draft would be considered the unlawful practice of law.

Published December 1994

This article contains information of general interest, and is not intended to be, nor should it be relied upon as a substitute for specific legal advice.