Hidden Environmental Liabilities: Legacy Dry Cleaners and the Risk to Commercial and Industrial Property Owners

Legacy environmental contamination associated with former dry-cleaning operations has emerged as a significant and often underappreciated source of liability in California commercial and industrial real estate. Across the state, the California Department of Toxic Substances Control (DTSC) has expanded its focus on historical dry cleaner sites, initiating investigations and requiring cleanup at properties where operations may have ceased decades ago.

For developers, property owners, and businesses acquiring or repositioning urban and infill sites, these liabilities are not theoretical. They are increasingly the basis for regulatory enforcement actions that can materially affect project feasibility, financing, and long-term asset value. They may also come as a complete shock to many property owners who were unaware that they owned one of these sites, and may now own a financial and legal liability.

Strict Liability Framework: Responsibility Extends to Current Owners and Operators

Environmental liability for contamination linked to dry cleaning operations falls within a combination of state and federal statutes, including California’s Hazardous Substance Account Act (“HSAA”) and the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). These statutes impose strict, joint, and several liability on a broad class of responsible parties, including current property owners, operators, and, in some cases, tenants.

In practical terms, liability does not depend on fault or knowledge. A purchaser who acquires a property without awareness of prior dry-cleaning operations may still be required to investigate and remediate contamination. The legal framework attaches liability to the property itself, making the current owner or operator the most accessible and financially viable party for regulatory enforcement.

DTSC’s Proactive Enforcement Model and Site Identification

DTSC’s current enforcement approach reflects a deliberate shift toward proactive identification of contaminated sites. Rather than relying on transaction-triggered disclosures or reported releases, the agency now conducts more independent investigations into historical land uses. This has led to a significant increase in the number of property owners receiving the bad news that their property may be a source of PCE contamination.

DTSC’s process frequently involves review of historical business directories, fire insurance maps, building permits, and waste disposal records to identify former dry-cleaning locations. Once identified, DTSC has consultants sample at or near these properties for evidence of Perchloroethylene (PCE), a chlorinated solvent widely used in dry cleaning operations throughout the twentieth century.

PCE is a dense non-aqueous phase liquid (DNAPL) that can migrate vertically through soil and persist in groundwater for decades. Its physical properties make it particularly difficult and costly to remediate, often resulting in large and complex subsurface plumes that extend beyond the original source area.

Vapor Intrusion and Human Health Risk as Primary Enforcement Drivers

Regulatory urgency in dry cleaner cases is driven less by historical soil impacts and more by concerns of current human health risks associated with vapor intrusion. Vapor intrusion occurs when volatile chemicals such as PCE travel from contaminated soil or groundwater into overlying structures, potentially exposing occupants to harmful indoor air concentrations.

DTSC evaluates vapor intrusion risk under its established guidance frameworks, and where it identifies a potential pathway into buildings, the agency may require immediate site access, sub-slab investigation, and indoor air sampling. This process occurs even where there is limited evidence of historical operations and particularly in densely developed urban areas.

For developers pursuing residential or mixed-use projects, vapor intrusion is frequently the controlling issue. Even though most consultants argue that DTSC’s standards are too conservative and restrictive, for now, it’s the controlling policy. If there’s vapor intrusion, DTSC will likely require that a project include mitigation measures—such as vapor barriers or active sub-slab depressurization systems—as a condition of development, affecting cost, project design, and long-term operational obligations.

Financial Exposure and Insurance Limitations

The financial implications of dry-cleaner contamination are substantial and often underestimated during acquisition. Investigation alone can require multiple phases of soil, soil vapor, and groundwater assessment, followed by remediation technologies such as soil vapor extraction or groundwater treatment systems that may operate for years.

Standard commercial general liability policies typically contain absolute pollution exclusions, often leaving property owners and businesses without coverage for investigation or cleanup costs. Even specialized environmental insurance products may exclude pre-existing conditions or limit coverage for early-stage investigation, resulting in significant out-of-pocket expenditures before remediation begins.

This exposure can arise in a wide range of contexts, including retail centers, mixed-use developments, and industrial properties where a single tenant space historically housed a dry-cleaner. We consider it good news if contamination is limited to just the source property; in many cases, contamination has migrated onto adjacent properties, expanding the scope of liability and regulatory oversight.

Due Diligence and Liability Management in Real Estate Transactions

Given this regulatory environment, environmental due diligence for properties with potential dry-cleaner history requires a level of rigor beyond standard transactional practice. Buyers simply cannot skimp on environmental assessments or reliance on sellers’ disclosures.

Industry-standard Phase I Environmental Site Assessments, conducted in accordance with ASTM E1527-21, are the baseline for identifying recognized environmental conditions. Where the report identifies potential contamination, Phase II investigations can help characterize subsurface impacts to find or rule out possible contamination. These investigations are essential not only for risk assessment, but also for preserving potential liability protections, including the bona fide prospective purchaser defense under CERCLA (42 U.S.C. § 9607(r)).

These defenses are not self-executing. They require strict compliance with pre-acquisition due diligence requirements and ongoing post-acquisition obligations, including cooperation with regulatory agencies and adherence to land use restrictions where applicable. Too often, we see Phase I assessments that reference an inability to review government records or simply rely on the fact that there are no known discharges of material at a property. We cannot stress this enough: these “data gaps” can become costly oversights later.

Implications for Developers, Industrial Property Owners, and Businesses

For developers, investors, and operating businesses, legacy dry-cleaner contamination represents a distinct category of environmental risk that requires early evaluation in the acquisition and underwriting process. While these sites can present redevelopment opportunities in urban markets, the regulatory and financial exposure requires careful management.

Projects that successfully move forward are those that identify potential contamination at the outset, engage with regulatory agencies proactively, and integrate investigation and remediation into the overall development strategy. Conversely, failure to recognize these risks prior to acquisition can result in unanticipated delays, enforcement actions, and material impacts to a project or business’s bottom line.

In the current enforcement climate, historical land use is not merely a background consideration. It is often the determining factor in whether a property can be developed, financed, or repositioned as intended.

Frequently Asked Questions

Why are dry cleaner sites a focus of regulatory enforcement in California?
Dry cleaning operations historically used perchloroethylene (PCE), a persistent and mobile chlorinated solvent. Regulatory agencies, particularly DTSC, have prioritized these sites due to the potential for long-term groundwater contamination and vapor intrusion risks affecting current occupants.

Can current property owners be held liable for contamination they did not cause?
Yes. Under statutes such as the Hazardous Substance Account Act and CERCLA, liability is strict and can apply to current owners and operators regardless of fault or knowledge of prior operations.

What is vapor intrusion, and why does it matter for development?
Vapor intrusion refers to the migration of volatile chemicals from contaminated soil or groundwater into indoor air. It is a primary driver of regulatory action and can require mitigation systems that affect building design and long-term property management.

Does standard insurance cover dry cleaner contamination?
In most cases, no. Standard commercial general liability policies include pollution exclusions, and environmental insurance policies often have limitations or exclusions for pre-existing conditions and investigation costs. Older policies may provide better coverage, but these are harder to find and may be harder to trigger coverage.

How can buyers and developers manage this risk?
Risk management requires thorough environmental due diligence, including Phase I and Phase II Environmental Site Assessments, followed by early engagement with regulatory agencies where contamination is identified. It is also important to structure transactions to address liability and cleanup obligations.

About Us

The Law Office of Jennifer F. Novak offers smart legal support for property owners and businesses. We focus on environmental court cases and rule compliance. Our team handles soil and groundwater cleanup, Clean Water Act citizen suits, and Water Board orders. We guide you through complex rules and fight for fair treatment. Contact us today for dedicated environmental legal help.