Failure to Report Contamination: Understanding the Potential Penalties and Deal-Related Consequences

Commercial property owners (and in some cases, other persons who cause, allow, or discover a release of hazardous substances) may be required to report certain environmental contamination events to the U.S. Environmental Protection Agency (EPA), as well as state and local agencies, under various circumstances. Not only can failure to report environmental contamination lead to steep penalties, but if a deal to sell the property is in the works, it could also have deal-related consequences. Learn more from an experienced California contamination lawyer at Bick Law LLP:

When Are Commercial Property Owners Required to Report Environmental Contamination?

At the federal level, “[a]ny person in charge of a vessel or an offshore or an onshore facility” must report spills (including oil spills) and other hazardous substance releases that exceed federal reporting thresholds. As EPA explains, “[a]ny person or organization responsible for a release or spill is required to notify the federal government when the amount reaches a federally-determined limit.”

These limits vary for oil and other hazardous substances. For example, regarding oil spills, reporting may be required if a spill results in either: (i) a violation of applicable water quality standards; (ii) a film or “sheen” on the water or shoreline; or (iii) a sludge or emulsion beneath the surface of the water or on the shoreline. Thus, generally, the reporting requirements for oil spills are not tied to the specific amount of oil spilled, but rather to the effects of the spill.

However, with regard to other hazardous substances, reporting requirements for contamination events generally are based on the amount involved. As EPA also explains:

“For releases of hazardous substances [other than oil], the federal government has established Superfund Reportable Quantities (RQs). If a hazardous substance is released to the environment in an amount that equals or exceeds its RQ, the release must be reported to federal authorities, unless certain reporting exemptions for hazardous substance releases also apply.”

Superfund Reportable Quantities (RQs) are listed in 40 C.F.R. Section 302.4. As noted above, however, exemptions apply in some circumstances, and various other factors can influence property owners’ reporting obligations. This includes, but is not limited to, whether the contamination event is a one-time occurrence or a continuous release.

Environmental contamination reporting requirements exist at the state level as well. For example, in California, “any significant release or threatened release of a hazardous material requires immediate reporting by the responsible person to the Cal OES State Warning Center,” and other designated authorities.

Practical Challenges in Determining Reporting Obligations

Determining whether a release exceeds an RQ is not always straightforward. When a release occurs from a known source, such as a tank or container with a measurable volume or concentration, it may be possible to quantify the amount discharged and assess whether federal reporting thresholds have been met. In many cases, however, contamination is identified in soil or groundwater without a clearly defined point of release or measurable volume. In these situations, the available data may be insufficient to determine whether RQs have been exceeded, and immediate reporting may not be required until additional investigation clarifies the extent of the release.

Historical contamination presents additional challenges when evaluating reporting obligations under CERCLA. The statute’s reporting requirement applies only if a specific release event can be identified as the source of the contamination, and if at least one such release equals or exceeds the applicable RQ within a 24-hour period. In practice, it is often difficult to quantify the volume of contamination and attribute it to a single, discrete release within that timeframe. Contamination discovered on a property may instead reflect small, continuous leaks or spills that occurred over many years, but accumulate in the subsurface and appear equivalent to a single large spill. Unless there is evidence, such as historical documents, photographs, or witness accounts, indicating a sudden, identifiable release exceeding the RQ during a 24-hour period, a CERCLA reporting obligation is unlikely to be triggered.

What Are the Penalties for Failing to Report Environmental Contamination?

Penalties for failing to report environmental contamination depend on the nature of the hazardous substance released, the amount involved, and, under California law, whether the release may pose a significant threat to public health or the environment. In all cases, however, penalties can be substantial where a party fails to report a release that creates or contributes to a risk of harm to human health or the environment.  Under federal law, failure to report a release of a hazardous substance that meets or exceeds a reportable quantity can result in civil or criminal penalties, including fines of up to $10,000 per day and potential imprisonment. In California, failure to report a “reportable” or “significant” release can result in civil penalties of up to $25,000 per day and may also increase a party’s liability for cleanup and oversight costs.

Companies can still face penalties for spills even after reporting them, particularly if the spill constitutes a violation of federal or state law. However, there is a benefit to self-reporting. Disclosure can mitigate potential penalties and may allow a liable party to work with an agency through a voluntary agreement to investigate and remediate the contamination, with a payment to the agency for oversight. In California, the penalty matrix for hazardous substance violations considers factors such as self-reporting and cooperation in setting penalty amounts. See https://govt.westlaw.com/calregs/Browse/Home/California/CaliforniaCodeofRegulations?guid=IA07ACB005B6111EC9451000D3A7C4BC3.  Failure to report and/or cooperate with regulatory authorities can result in substantially higher penalties. 

What Are the Potential Deal-Related Consequences of Failing to Report Environmental Contamination?

There are risks associated with failing to report environmental contamination – particularly releases that may pose a significant threat to public health or the environment –  that can jeopardize pending transactions involving contaminated properties. When a prospective seller faces potential liability for a contamination event, postponing required reporting can create uncertainty regarding the extent of that liability. In fact, in some cases, a buyer that acquires or takes title to property with knowledge of a release may itself be obligated to report the release. This dynamic can create issues related to  confidentiality, particularly in how the seller manages due diligence conducted by the buyer.

If a buyer has knowledge of a release, and the seller refuses to report, the buyer may need to reconsider the transaction. If the seller withholds due diligence information on confidentiality grounds, the buyer must determine how much risk it can absorb given the uncertainty around spills and releases at the target property. Again, this may trigger a need to reevaluate the terms of the deal. How diligence is managed should be carefully planned and included in a term sheet, letter of intent, or purchase agreement, with clear provisions allowing the buyer to exit the deal if the seller is not transparent about environmental concerns.

Separately, reporting of historical releases (those that do not create an imminent threat to human health or the environment) is extremely complex and challenging. In many cases, a seller may be within its legal rights to hold back reporting. As discussed above, historical contamination typically does not require reporting unless it can be linked to a specific, identifiable release.  Although historical contamination may not trigger a reporting obligation, it can nonetheless create significant transactional and liability considerations for both buyers and sellers. A buyer may be tempted to pass on a property impacted by a historical release.

While subsequent reporting may trigger a voluntary cleanup agreement with a state agency, such risks can be mitigated through contractual protections, such as indemnities, releases, escrow agreement holdbacks, and/or pollution legal liability (PLL) insurance. The impact of historical contamination on property transactions can impact the ability of a buyer to claim innocent landowner protection or bona fide prospective purchaser protection. For more information on how property owners and prospective purchasers can keep their deals on track in the face of discovered historical contamination, see _____ (add link to other blogs here).

Schedule a Confidential Consultation with a California Contamination Lawyer at Bick Law LLP

If you need more information about the penalties and deal-related risks associated with failure to report an environmental contamination event, we invite you to get in touch. Please call 949-432-3500 or contact us online to schedule a confidential consultation with a California contamination lawyer at Bick Law LLP.