Waste Programs Division: Superfund/Water Quality Assurance Revolving Fund (WQARF): Liability and Real Estate Issues

Residential Liability Policy

For properties included within the boundaries of state and federal superfund sites, the following policies lend clarification to liability concerns. The U.S. Environmental Protection Agency (EPA) and the Arizona Department of Environmental Quality (ADEQ) maintain a policy of not requiring residential homeowners to perform or pay for cleanup actions at state or federal Superfund sites. Homeowners may be held liable for cleanup where their own actions have led to a release or threatened release of hazardous substances requiring a cleanup of their property, or where the property is used for non-residential purposes. This policy is designed to alleviate concerns about cleanup liability for homeowners, as well as parties involved in real estate transactions, such as lenders and title insurers.

This information was adapted from the U.S. EPA Publication 9230.0-23FS, "Homeowners Exempted From Cleanup Costs,"; dated November 1991, and Arizona Revised Statutes §49-283 (B) (see below).

A.R.S. 49-283 (B) Notwithstanding the provisions of subsection A, a person that owns real property is not a responsible party if there is a release or threatened release of a hazardous substance from a facility in or on the property unless one or more of the following applies to that person:

  1. Was engaged in the business of generating, transporting, storing, treating or disposing of a hazardous substance at the facility or disposing of waste at the facility, or knowingly permitted others to engage in such a business at the facility.
  2. Permitted any person to use the facility for disposal of a hazardous substance.
  3. Knew or reasonably should have known that a hazardous substance was located in or on the facility at the time right, title or interest in the property was first acquired by the person and engaged in conduct by which he associated himself with the release. For the purpose of this paragraph, a written warranty, representation or undertaking, which is set forth in an instrument conveying any right, title or interest in the real property and which is executed by the person conveying the right, title or interest, or which is set forth in any memorandum of any such instrument executed for the purpose of recording, is admissible as evidence of whether the person acquiring any right, title or interest in the real property knew or reasonably should have known that a hazardous substance was located in or on the facility. For purposes of this paragraph, "associated himself with the release" means having actual knowledge of the release and taking action or failing to take action that the person is authorized to take and that increases the volume or toxicity of the hazardous substance that has been released.
  4. Took action which significantly contributed to the release after he knew or reasonably should have known that a hazardous substance was located in or on the facility.

A.R.S. 49-283 (C)Any liability which accrues to an owner of real property under this section does not accrue to any other person who is not an owner of the real property merely because the other person holds some right, title or interest in the real property. An owner of real property on which a public utility easement is located is not a responsible party with respect to any release caused by any act or omission of the public utility which holds the easement in carrying out the specific use for which the easement was granted.

A.R.S. 49-283 (D) person otherwise deemed a responsible party is not liable under this article if he can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the resulting damages were caused solely by:

  1. An act of God.
  2. An act of war.
  3. An act or omission of a third party, whether lawful or unlawful including acts of vandalism or unlawful disposal of hazardous waste or hazardous substances, other than an employee or agent of that person or other than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with that person, unless the sole contractual arrangement arises from a published tariff and acceptance for carriage by a common carrier by rail, if that person establishes by a preponderance of the evidence that:
    1. He exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of the hazardous substance in light of all relevant facts and circumstances.
    2. He took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.
  4. A release or threatened release which was subject to limits or conditions in a federal permit or a state permit relating to the protection of public health or the environment and the operation of the releasing facility has been and is in compliance with applicable limits or conditions
  5. .
  6. The application of a pesticide product registered under the federal insecticide, fungicide, and rodenticide act (61 Stat. 163) and applied according to label requirements.
  7. Liability has been assumed by the federal postclosure liability fund established under 42 United States Code section 9607(k).
  8. Any combination of paragraphs 1 through 6 of this subsection.

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Off-Site Migration Liability Policy

In general, the U.S. EPA will not take action to compel such property owners to perform cleanups or to reimburse the agency for cleanup costs where contamination to their property was caused solely by migration of contaminants from other property.

This information was adapted from the U.S. EPA Publication, Policy Toward Owners of Property Containing Contaminated Aquifers, November, 1995.

Under Arizona law a person is not responsible for a hazardous substance that is located on or beneath the property if the hazardous substance that is located on or beneath the property is present solely because it migrated from property that is not owned or occupied by that person.

This statement adapted from A.R.S. §49-283.E.

A.R.S. 49-283 (E) A person is not a responsible party with respect to a hazardous substance that is located on or beneath property that is owned or occupied by that person if the hazardous substance is present solely because it migrated from property that is not owned or occupied by that person and that person is not otherwise a responsible party as prescribed by subsection A, paragraph 2 or 3.

Lender Liability

A.R.S. 49-283 (H) A person who maintains indicia of ownership in a property primarily to protect a security interest in a facility and who does not participate in the management of the facility is not liable as an owner or operator of that facility pursuant to this section. This subsection does not apply to a person who does any of the following:

  1. Through intentional misconduct or gross negligence causes, contributes to or aggravates the release of a hazardous substance.
  2. Fails to disclose to the facility's purchaser the known presence of a release or a threatened release of a hazardous substance at the time of sale or divestiture of the facility or the security interest in the facility.
  3. Fails to obtain a phase I environmental assessment of the facility that complies with standards adopted by rule pursuant to subsection K of this section at the time of or at a reasonable time before foreclosure. This paragraph does not apply to residential properties with fewer than five residential units.
  4. Fails to do any of the following after acquiring ownership of the facility:
    1. Provide the department reasonable access so that the necessary remedial actions may be conducted.
    2. Undertake reasonable steps to control access to the area of known presence of a release of a hazardous substance to protect the public health and welfare and the environment.
    3. Act diligently to sell or otherwise divest the property within two years of the lender's possession or ownership, whichever is earlier.

A.R.S. 49-283 (I) A fiduciary is not personally liable as an owner or operator pursuant to this section. This section does not preclude claims against assets held in an estate, a trust or other fiduciary capacity for the release or a threatened release of a hazardous substance from one of the assets. This section does not apply if either of the following apply:

  1. A fiduciary through intentional misconduct or gross negligence causes, aggravates or contributes to the release or threatened release of hazardous substances or permits others to do so, except that a fiduciary shall not be liable for the intentional misconduct or gross negligence of any nonemployee agent or independent contractor if the fiduciary has not specifically directed the nonemployee agent or independent contractor to perform the grossly negligent act or engage in the intentional misconduct.
  2. The appointment of the fiduciary is for the purpose of avoiding liability under this article. It is prima facie evidence that the fiduciary was appointed to avoid liability under this article if the facility is the only substantial asset in the fiduciary estate.

A.R.S. 49-283 (J) Subsections F, G, H and I shall not be construed to affect the liability of any person who is otherwise liable with respect to the release or threat of release pursuant to this section.

A.R.S. 49-283 (L) A fiduciary may not be a fiduciary and grantor of the same fiduciary estate.

A.R.S. 49-283 (O) For purposes of this section:

  1. "Fiduciary" means:
    1. A trust company or bank certified or authorized to engage in the trust business pursuant to title 6, chapter 8, article 1.
    2. Any person appointed by a court or testamentary act to act as personal representative, executor, trustee, administrator, guardian, conservator, receiver or trustee in bankruptcy.
    3. Any person acting as a trustee of a deed of trust pursuant to section 33-803.
    4. Any person acting as a trustee pursuant to title 14, chapter 7.
    5. Any person acting pursuant to and subject to fiduciary obligations under the employee retirement income security act of 1974 (29 United States Code sections 1101 through 1114).
  2. "Indicia of ownership" means legal or equitable title that has been acquired through or is incident to the default of a borrower.

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Prospective Purchaser Agreements

Arizona is one of a growing number of states to address, through statutes, the liability issues associated with buying, selling or developing real property contaminated by hazardous substances. Because of the potential for liability as an owner of property contaminated with hazardous substances, property owners and other participants in property transactions (buyers, developers and their financial institutions) frequently need to determine if the property they are interested in is contaminated. When contamination is discovered, participants in property transactions may also want to know the extent of the ADEQ authority to take enforcement actions or to recover cleanup costs.

Pursuant to A.R.S. § 49-285.01, ADEQ may enter into a Prospective Purchaser Agreement (PPA) that provides a written release and covenant not to sue for potential Water Quality Assurance Revolving Fund (WQARF) liability and for potential owner liability to the State under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for the existing contamination at the property, if certain statutory conditions are met. In order to be eligible for a PPA, the following conditions must be met: (1) the property is within a WQARF registry site or ADEQ has sufficient information to determine the extent of the contamination, (2) the purchaser did not cause or contribute to the contamination and is not affiliated with any person who may be responsible for the contamination, (3) the purchaser's use or development of the property will not exacerbate the contamination or interfere with ongoing remedial actions, and (4) the purchaser provides a substantial public benefit, which must be more than the mere continuation of a business on the property. Examples of substantial public benefit include: (1) substantial funding or other resources to perform or facilitate remedial measures at the property; (2) an agreement by the applicant to perform substantial remedial measures at the property; (3) productive reuse of a vacant or abandoned industrial or commercial property; (4) development of property by a governmental entity or nonprofit organization to address an important public purpose; and (5) creation of conservation or recreation areas.

The release and covenant not to sue are not effective until the public benefit and all other obligations under the PPA have been performed. ADEQ may also agree to seek a court-approved consent decree that will provide contribution protection from claims under § 107 of CERCLA. A complete application must be received by ADEQ before the sale of the property closes in order for the purchaser to be eligible for a PPA. The decision to enter into a PPA is solely within the ADEQ's discretion and is not an appealable agency action.

Prospective Purchaser Agreement Fees

ADEQ charges certain initial fees to cover its direct and indirect costs of drafting a PPA. For property listed on the Water Quality Assurance Revolving Fund (WQARF) registry, an applicant shall pay (1) an initial nonrefundable charge of $2,500 (this charge covers up to 34 hours of ADEQ staff time), (2) an hourly charge of $73.00 for all time in excess of 34 hours, (3) the cost of publishing the notice seeking public comments, and (4) an initial nonrefundable charge of $2,000 if the applicant requests a court-approved consent decree. If ADEQ's consent decree costs exceed $2,000, then the applicant shall pay all additional costs. For property that is not listed on the WQARF registry, an applicant shall pay an initial nonrefundable charge of $3,600 (this charge covers up to 49 hours of ADEQ staff time) and the other charges listed above.

Statements and information required to be in a PPA include:

  1. A statement that the property is or is not within a site listed on the WQARF registry.
  2. A statement that identifies the current seller/owner of the property.
  3. A statement that identifies, if known, all past owners and operators of the property.
  4. A statement that the applicant is not liable for an existing or threatened release of a hazardous substance at the property.
  5. If the applicant is a business entity, a statement concerning ownership of the applicant, including affiliations, interests and status of incorporation, if applicable.
  6. A statement that the applicant is not affiliated with any person who may be responsible for the contamination through any familial relationship or any corporate or contractual relationship other than a contract to protect a security interest.
  7. Information concerning the proposed redevelopment or reuse of the property.
  8. A statement that the proposed redevelopment or reuse of the property will not contribute to or exacerbate the contamination or unreasonably interfere with remedial measures necessary at the property or cause the contamination to present a substantial health risk to the public.
  9. A statement that fully identifies the extent of the contamination at the property.
  10. Identification of the proposed substantial public benefit, which may include:
    1. Substantial funding or other resources to perform or facilitate remedial measures at the property;
    2. An agreement by the applicant to perform substantial remedial measures at the property;
    3. Productive reuse of a vacant or abandoned industrial or commercial property;
    4. Development of property by a governmental entity or nonprofit organization to address an important public purpose;
    5. Creation of conservation or recreation areas; and
    6. Other substantial public benefits that ADEQ considers sufficient.

Exhibits to a PPA application include:

  1. A copy of the deed that sets forth the legal description of the property.
  2. A map depicting the location of the property.

Additional documents to be submitted:

  1. Documentation that supports the applicant's statements regarding the extent of the contamination at the property.
  2. If the applicant is a business entity, documents that show the legal formation or organization of the entity (e.g., articles of incorporation, L.L.C. articles of organization and operating agreement, or partnership agreements, etc.).
  3. Documentation that identifies the local planning and zoning authorities with jurisdiction over the property so that ADEQ may identify and consider the reasonably anticipated future land uses at the property and surrounding properties.

Prospective Purchaser Agreement application form (PDF) (WORD).

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Settlement Options for Potentially Responsible Parties

In 1997, the Arizona Legislature substantially amended the Water Quality Assurance Revolving Fund (WQARF) statutes. As a result of this legislation, three settlement options were made available for resolving WQARF and Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) liability to the State. These options are qualified business, financial hardship, and general settlements.

A 30-day public comment period is required for each of the three settlements. Notice of the settlement is published in a newspaper of general circulation in the county where the property is located. ADEQ may withdraw from any settlement after considering the public comments. If contribution protection is requested, the settlement must be approved by a federal court.

Qualified Business Settlements

The qualified business settlement (QBS) statute (A.R.S. § 49-292.01) allows an eligible person or business entity to settle all potential liability to the State under WQARF and § 107 of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for known hazardous substance contamination at the property. To be eligible, the applicant must be a living person or valid business entity and have identifiable gross income, as defined by § 61 of the internal revenue code, greater than one dollar and less than two million dollars in each of the two years prior to the application and for the average of the two years preceding the year ADEQ or the U.S. EPA initiated an investigation into the applicant's share of liability. In determining the applicant's gross income, ADEQ may consider the gross income of all concerns in which the applicant has ownership, control, of management. Any transfer of money or assets by the applicant within two years preceding the application is void for the purpose of determining eligibility. An applicant whose liability arose out of criminal acts is not eligible for a QBS. The applicant shall pay 10 percent of its average annual gross income for the two years preceding the year the application was submitted, including the income from money or assets transferred within two years preceding the application. The settlement amount will be interest free if it is paid in full within five years. If the settlement amount is paid from five to ten years, then it shall bear interest at the rate of six percent per annum. The applicant shall also grant to ADEQ an easement on the property in a form provided by ADEQ.

If ADEQ determines that an applicant is not eligible for a QBS, ADEQ must notify the applicant in writing within 90 days of receipt of a complete application and other requested information. The denial of a QBS is appealable to the Office of Administrative Hearings pursuant to A.R.S. § 49-298.

  • Qualified Business Settlement Application (PDF) (WORD)

Financial Hardship Settlements

ADEQ will consider any offer of settlement by a person or business entity who may be potentially liable to the State under Water Quality Assurance Revolving Fund (WQARF) or § 107(a) of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The person must demonstrate a financial hardship with respect to payment of that person's liability. A person who is unable to pay the full amount of his or her share of liability may pay a reduced settlement amount based upon the person's ability to pay. A person whose liability arose out of criminal acts is not eligible for a financial hardship settlement.

To apply for a financial hardship settlement, a person must submit to ADEQ tax returns for the preceding five years and other financial information sufficient to establish that the applicant cannot pay the full amount of his or her liability. ADEQ has 90 days to determine whether the person qualifies for the financial hardship settlement. If ADEQ determines that the person does not qualify, ADEQ will notify the person in writing. The denial of a financial hardship settlement is appealable to the Office of Administrative Hearings pursuant to A.R.S. § 49-298.

General Settlement

Pursuant to ADEQ's general settlement authority under A.R.S. § 49-292, a person or business entity may make an offer to ADEQ to settle its potential Water Quality Assurance Revolving Fund (WQARF) and Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) liability to the State. ADEQ will consider the factors under § 49-282.06 and § 49-285 (E) and (F) in determining whether to settlement any person's liability. Under the general settlement provision, ADEQ has wide discretion to consider any offer of settlement.

For further information on how to apply for a qualified business, financial hardship, or general settlement, please contact:

Remedial Projects Section
(602) 771-4293
(800) 234-5677 - Toll Free

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