In your daily reading you’ve probably come across an article or two about “PFAS,” the newest environmental contaminants under public scrutiny. But what are they, should you be worried about them, and will they affect your next real estate deal? This note gives you the basics.   

What is a PFAS, anyway?
“PFAS” is short for “per- and polyfluorinated substances,” a large class of chemicals having a chain of linked carbon and fluorine atoms.  They have been used in industrial applications and consumer products - basically anything that needs to be shiny or stain resistant. That includes pizza boxes, no-stick pots and pans, car wash soaps and waxes, clothing, and stain-resistant carpeting and upholstery.  They were also a key component of fire-fighting foams, and were stored and used in large quantities during training exercises at airports and military bases. 

What’s the problem with them? 
For many years PFAS were not known to cause any adverse health effects in humans or adversely affect the environment. They weren’t regulated as a hazardous substance under environmental laws, so they could be emitted to the atmosphere, disposed of in landfills, and poured down the drain without a second thought. As a result, PFAS can be found in soil and groundwater at industrial and commercial sites, but also in less expected places, like farms where the leftover solids from wastewater treatment plants was used as a fertilizer.     

Recent studies, however, claim to show a link between PFAS and certain types of cancers.  Based on those studies, this year the federal Environmental Protection Agency listed two PFAS (PFOA and PFOS) as hazardous substances under the federal Superfund statute (which requires cleanup of contamination in soil and groundwater), and also established drinking water standards for those substances. Several states have also listed PFOA and PFOS as hazardous substances under state regulations, and other PFAS (there are thousands of them) are expected to be added to state and federal hazardous substances lists soon.   Because of the bio-accumulative nature of the chemicals, the EPA and state agencies are setting extremely low clean-up levels - as low as 4 parts per trillion.      

As a real estate owner or developer, how do I manage that risk?   
A couple of ways:  

• First, good environmental due diligence is key. Get a Phase I environmental site assessment before you sign a lease or close a deal, and get it from a reputable environmental consultant that understands PFAS and the nature of the risks they pose.  Make sure the Phase I satisfies all of the criteria for ”All Appropriate Inquiries” under both state and federal law - if it does, it will set you up for defenses to liability under the federal Superfund law and possibly state law.   
•  Second, if the Phase I indicates a risk of PFAS (or other contamination) at the site, you may need to do a “Phase II” investigation to sample the soil and groundwater and rule out any contamination. If it’s clean - great, you’re done. If it’s contaminated, you know what you’re getting into, and you can allocate responsibility for any required cleanup between you and the seller - either through indemnities, escrows, or purchase price reductions.   

If the seller won’t allow you to do a Phase II (and a lot of times they won’t), then consider requiring an indemnity from the seller, or possibly environmental insurance.  But as you’re setting up those contractual protections, think about what a future buyer will want when you try to sell the property. Compromising on liability protection in order to get the deal done can set you up for headaches later. 

• Third, if you have a known issue, consider your state’s brownfield or voluntary cleanup program. Most states have some kind of program that allows buyers to remediate a property and qualify for long-term liability protection that can be passed down to new buyers. States are doing their best to streamline those programs so that they limit delays as much as possible. And some states have more generous programs that provide tax credits to developers that actually offset a lot of the cost of redevelopment.    

In sum, PFAS will be a complication in real estate deals for the foreseeable future, but there are options for mitigating and allocating the risk. Willing parties can use those options to push their deals across the finish line.