As part of the July 2013 revision to the standard form Offer to
Purchase and Contract, in the section allowing buyers to make
inspections of the property, the drafters added fuel tanks to the list
of items a buyer may choose to inspect on the property. The form
specifically states that the buyer may want to conduct “[i]inspections
to determine the existence, type and ownership of any fuel tanks on the
Property.” Buyers always had the right to conduct this type of
inspection, but the addition of an express reference to fuel tanks
highlights growing concerns over underground fuel tanks.
In our market, and nationwide, many residences use
fuel oil stored in underground tanks for heating. These tanks are
reaching the end of their useful lives and are leaking or at risk of
leaking. In other states, one cannot complete a residential closing with
an underground fuel oil tank without either having it closed and filled
by a qualified professional or purchasing tank insurance to cover
losses from potential future leaks. According to one local insurance
broker, the insurance industry is sensitive to this risk in North
Carolina, probably because of its experience in other states. Three out
of eight of his homeowners’ insurance underwriters will not insure
residences with underground fuel tanks.
The worst case scenarios in a residential transaction
are the discovery of a leaking underground fuel oil tank, or the
discovery of contaminated soil in the location of a tank that has been
removed. In the event of such a discovery, the homeowner, or the
environmental consultant who made the discovery, must report the leak or
contamination to the N.C. Department of Environment and Natural
Resources (“DENR”). At that point, the homeowner will most likely be
responsible for cleaning up the contamination and taking any other
required remedial action. The assistance of an experienced environmental
consultant will be invaluable in complying with testing and cleanup
requirements. The goal in this process is to obtain a No Further Action
Letter from DENR and a Notice of Residual Petroleum for filing in the
Office of the Register of Deeds. The Notice becomes part of the chain of
title for the property.
DENR also provides financial assistance through its
Noncommercial Trust Fund. The Fund pays up to $1.5 million for
reasonable and necessary costs related to cleanup with a 20% co-payment
for costs greater than $1 million. Residential cleanups should rarely
come anywhere close to the $1 million level. There are also brand new
deductible requirements. For leaks discovered prior to August 1,
2013, there is no deductible. For leaks discovered after August 1, 2013,
there is a deductible of $2,000 or $1,000 plus a 10% co-payment,
whichever is less. Unfortunately, as of October 28, 2013, the Fund had
paid out all funds appropriated by the General Assembly. There is an
ongoing revenue source that will allow for the payment of six to ten
claims per month, but DENR expects new claims to be deferred two to
three months.
For additional information on underground storage
tanks, DENR has a very helpful website which you can access at:
http://portal.ncdenr.org/web/wm/ust/ustmain
If you need additional insurance information on
policy underwriting or tank insurance, you should contact a qualified
broker. The following brokers provided helpful information for
this article:
Madison Insurance:
http://www.georgeandcharlie.com
Morrow Insurance:
http://www.morrowinsurance.com
