By Jones Osborn II

As a general rule, the seller of real property is not required to volunteer adverse information about the physical condition of his property. Although he cannot actively mislead the buyer or stand silent when he should speak, he has no duty to come forward on his own to point out defects.

In fact, it is not uncommon for the buyer and seller to specifically agree that the buyer is making his own investigation and that the buyer releases the seller from all responsibility for the physical condition of the property. In other cases, where the buyer desires representations and warranties, he usually must negotiate for them. The general rule is that the buyer and seller are free to negotiate a mutually acceptable contract on whatever terms they find acceptable, and if the seller refuses to make representations about the condition of the property, the buyer is free to walk away.

Exception. The Arizona Legislature, however, has placed a limit on the seller's right to refuse to make any representation or warranty concerning the condition of his property. Under Arizona law, anyone selling real property knowing that it has been the subject of prior environmental remediation must disclose this fact to the buyer in writing. He cannot remain silent, even if the buyer is willing to purchase the property "as is." This means that if an old service station site has been cleaned up and the seller knows about it, he must disclose it to the buyer in writing even if the property is now in full compliance with law. The same is true for other kinds of contamination that may have been remediated, such as underground storage tank leaks, contaminated dry wells, buried chemicals, asbestos, oil or chemical spills, or other kinds of environmental contamination that constitute a violation of Arizona law. (It is interesting that the wording of the statute only requires disclosure of remediated contamination, leaving one to wonder whether the seller is required to disclose unremediated contamination, which is a worse problem.)

Two Standards. Under Arizona law, contaminated sites must be cleaned up to satisfy one of two standards. If the site is to be used for non-residential uses, one standard applies. If the site is to be used for residential uses (and certain similar uses, such as schools and day-care centers), a higher standard applies.

Because the residential standard is so high, the law has provided an exception to the mandatory disclosure requirement. If contaminated property has been cleaned up so that it meets the residential standard, the statutory disclosure need not be made. Under this circumstance, the seller may remain silent about the remediation, so long as he has not made other statements or representations that may mislead the buyer about this issue.

Conclusion. If you are a seller of remediated property, you must disclose the prior remediation to the buyer, even if you are selling the property "as is" (unless it has been cleaned up to the residential standard). If you are the buyer and are informed of a prior remediation on the property, hire your own consultant to double-check the results. Environmental liabilities are potentially so severe that you will want to have your own experts check out the remediation to make sure it has been done correctly and in full compliance with law before you proceed with the purchase.

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The statute referred to above is A.R.S. § 33-434.01.