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Newsletter | August 2014, Issue 3
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ENVIRONMENT
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Amendment to Soil Environment Preservation Act - Potential Exemptions from Environmental Contamination Liabilities
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Since March 25, 2015, the definition of a "polluting party" and its liabilities under the Soil Environment Preservation Act (“SEPA”) was amended in view of a 2012 ruling by the Constitutional Court. The amendment implements the court’s ruling that had determined (i) unconstitutional failure to exempt a land owner from any liabilities related to contamination on and around land and (ii) held the successor to the land owner liable for all the damages, for example, even if the land was contaminated prior to conveyance. The amendment expands the scope of the exemption — to both the land owner and its successor — and allows a land owner to apply for governmental subsidies for a certain amount of cost over a threshold limit if the owner and its successor is subject to the cleanup liability.
Exemption from Liabilities in Connection with the Contamination
According to the amendment, a landowner would be exempt from the liabilities if:
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(i) The contaminated land was purchased before January 5, 1996, (ii) the contaminated land was transferred to a third party before January 5, 1996, or (iii) the contaminated land that was transferred to the landowner before January 5, 1996.
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The landowner had in good faith (i.e., those who were unaware of the soil contamination and not responsible for causing the contamination) verified that the contamination level of the land did not exceed the environmental exposure limits at the time of purchase. Those who conducted Soil Environment Site Assessment and found that the contamination level did not exceed the exposure limit are prima facie good faith land owners.
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The landowner did not cause the contamination even though the contamination occurred on his or her land. For example, the owner of the land on which the facility that caused the contamination is located would not be liable as long as he or she did not contribute to the contamination. Instead, the owner/operator of the facility would be obligated to clean the contamination (but would be eligible for government subsidies).
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Notwithstanding above, the exemption is not allowed if, on or after January 6th, 1996, the landowner leased or otherwise permitted the use of the land to (i) those who caused soil contamination or (ii) those who owns or operates the facility that caused the contamination to operate on the land.
Eligibility for Governmental Subsidies
If exemption is not available, the land owner or its successor may still be eligible for subsidies for the entire or partial cost of soil de-contamination if:
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The transfer/purchase of the contaminated land took place no later than December 31, 2001 and the cost of remediation substantially exceeds the value of the land; or
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The transfer/purchase of the contaminated land took place no sooner than January 1, 2002 and the cost of remediation exceeds the value of the land plus the profit that was and could be generated from land. The profit includes increase of the fair market value of the land due to appreciation from the remediation. Thus, subsidies are available only if the total cost of remediation exceeds the profits subject to the presidential decree to be promulgated in the future.
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Takeaways
After the enactment of the amendment, disputes to avoid liabilities and to determine the scope of indemnities are expected to increase. Thus, due diligence on a commercial real estate transaction, including an environmental site assessment, from the early stage is critical to identify potential or existing environmental contamination liabilities under the amended Act, including (i) conducting a good faith Soil Environment Site Assessment and (ii) understanding the liabilities of the interested parties.
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