*This article was originally published in the March 2003 issue of The Practical Real Estate Lawyer.
A growing number of state and Federal initiatives hold the hope of developing brownfields into properties that are useful and safe once more.
Private parties have been reluctant to purchase or finance brownfields sites because of uncertainty over the amount of contamination at a site, applicable cleanup standards, likely cleanup costs, potential third party lawsuits, undiscovered contamination, and potential regulatory reopeners. Congressional gridlock over reauthorization of the federal Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601 et seq., (CERCLA) has only aggravated this situation, motivating developers and industry to move from urban areas into suburban "greenfields."
Faced with a quickly eroding urban job and tax base, state and local officials have aggressively developed alternative approaches to bring these contaminated properties back into productive use. Buyers, sellers, and lenders are now being provided with greater certainty about future liability and cleanup costs, as well as financial incentives to invest in brownfields. The results have been good for the environment, good for the community, and good for the businesses involved in the development of real estate.
Congress has defined a brownfield site as "real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant." 42 U.S.C. §9601(39)(A), the "Small Business Liability Relief and Brownfields Revitalization Act" (Revitalization Act). The U.S. Environmental Protection Agency (EPA) has previously defined brownfields as "abandoned, idled or underused industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. Estimates of the number of brownfields sites have ranged from the tens of thousands to 450,000. See Office of Technology Assessments, State of the States on Brownfields: Programs for Cleanup and Reuse of Contaminated Sites 2 (1995); sites now include mine-scarred lands, petroleum-contaminated sites, and sites contaminated with controlled substances. 42 U.S.C. §9601(39)(D)(ii)(I III)
The Revitalization Act is likely to affect the way in which property is bought and sold, and the way in which parties seek recovery of cleanup costs at existing Superfund sites, for years to come. Key changes are discussed below.
The law clarifies that a bona fide prospective purchaser is exempt from liability even if it has knowledge of the existence of contamination at a site after conducting "all appropriate inquiry." This is an important exemption from liability for brownfields redevelopers. This provision became effective on the date of enactment and applies if the prospective purchaser can show, by a preponderance of the evidence, that.
The law contains two other exemptions from liability: the innocent landowner defense and the contiguous landowner defense. The party claiming these defenses would have the burden of proving that it had not caused, contributed to, or consented to the release. It would also need to show that it had taken the "reasonable steps" regarding "all appropriate inquiry, " disclosures, prevention of releases, and maintenance of institutional controls discussed above. The innocent landowner and contiguous property owner defenses would not apply if the property owner had prior knowledge of the contamination.
The law also codifies the EPA's May 24,1995, policy regarding contaminated aquifers. See EPA, Policy Toward Owners of Property Containing Contaminated Aquifers, 60 Fed. Reg. 34,790 July 3, 1995). The law provides that a contiguous property owner shall not be required to conduct ground water investigations or to install ground water remediation systems except in accordance with EPA's 1995 policy.
Congress has clarified that a Phase I Environmental Site Assessment conducted on or after May 31, 1997, in accordance with ASTM E 1527-97, will constitute "all appropriate inquiry" under CERCLA, at least until EPA promulgates its own regulations. Among other things, the property owner must not have taken any action to impair any institutional controls that were placed on the site. Congress has further directed EPA to develop its own regulations regarding what constitutes "all appropriate inquiry" within the next two years.
The law clarifies that property owners have an affirmative obligation to maintain institutional controls that may have been imposed on contaminated property. The law further provides that property owners have an affirmative duty to prevent releases to qualify for any of the three exemptions (innocent landowner, contiguous landowner, or bona fide prospective purchaser) from CERCLA liability.
The law provides that EPA may impose a lien on contaminated property where EPA has incurred response costs to recover any "windfall profit" resulting from the increase in the fair market value. The lien arises at the time that EPA begins a response action, but EPA would need to go into court at the time the property is sold to perfect its lien.
Solid Waste Exemptions from Liability Parties contributing less than 110 gallons of liquid materials or 200 pounds of solid hazardous materials that were sent to a National Priorities List (NPL) site before to April 1, 2001, will enjoy the de micron-is exemption from liability. The government may make an exception to this exemption if:
In addition, residential households, businesses employing no more than 100 full-time employees, and section 501(c)(3) organizations employing no more than 100 paid individuals at the location that generated the solid waste, who disposed of municipal solid waste only at an NPL site, will be exempt from liability. The government may make an exception to this exemption if
The government's decisions regarding eligibility for the exemption are not subject to judicial review.
The statute clarifies who will bear the burden of proof in an enforcement action. If the government brings the enforcement action, the burden of proof will rest upon the party claiming the exemption. However, in private litigation, the burden will rest upon the plaintiff to prove that the party claiming the exemption is not entitled to it. In addition, new language in the law will allow the prevailing party to recover its attorneys' fees in private litigation.
States that wish to obtain brownfields grant funding must ensure that their response programs include mechanisms. for:
EPA will not take enforcement action against a site that is an "eligible response site" unless:
This deferral provision applies only to those response actions conducted after February 15, 2001.
Under the law, many types of sites do NOT constitute brownfields sites, including:
The government may determine, on a case-by-case basis, that some (but not all) of the sites excluded from the brownfields definition may nevertheless be eligible for funding.
H.R 2869, which combines elements of S. 350 (passed by the Senate in April 99-0) and H.R. 1831 (passed by the House in May 419-0), enjoyed widespread support when it moved through Congress. It provides the following types of financial incentives and exemptions from liability.
The financial assistance provisions state that:
The exemption provisions state that:
Miscellaneous provisions include the following
Virtually every state has now developed and successfully implemented a voluntary cleanup program ("VCP") as an alternative to the Superfund cleanup process. Northeast Midwest Institute, Brownfields "State of the States": An End-of-Session Review of Initiatives and Program Impacts in the 50 States (November 2001). Minnesota enacted the first such program in 1988. Minn. Stat. Ann. § 115B.175 (2002). Since then, at least 47 other states and the District of Columbia have adopted some type of VCP, and these programs have provided the vehicle for brownfields redevelopment. One of the most recent bills to become law was the Alabama Land Recycling and Economic Redevelopment Act, which was signed into law on May 21, 2001. See Ala. Code 1975 §22-30E-1 et seq. (2002). In addition, D.C. Law 13-312, which was approved by the City Council in the District of Columbia in December 2000, was approved by Congress in 2001. North Dakota, South Dakota and Wyoming have not adopted programs. See Northeast-Midwest Institute, Brownfield Basics: An Issue Primer (2001).
Many states have adopted separate brown fields legislation as well, which has typically created empowerment zones or provided for brownfields grants, loans, or tax abatements. See, e.g., Ohio's Clean Ohio Revitalization Fund, Pennsylvania's Hazardous Sites Cleanup Fund and Michigan's Brownfield Redevelopment Grant program.
The specific details of each state's VCP or brownfields program may vary dramatically, but the intent in each case has been to create a mechanism for expediting the investigation and, if needed, the remediation of contaminated properties that might otherwise fall between the cracks, and to provide buyers, sellers, and lenders with some certainty about potential liability for future cleanup costs or potential enforcement actions.
A common element of the state VCPs has been the effort to clarify who has liability and when. Many of these state programs specifically exempt "innocent" parties, such as lenders who have not contributed to the release, fiduciaries, prospective purchasers, easement holders, and the like. See, e.g., Texas' Voluntary Cleanup Program (Tex. Health & Safety Code Ann. §361.601 et seq.) (2002) and Virginia's Voluntary Remediation Program (Va. Code Ann. §10.1-1230 et seq. (2002)).
In the past, interested parties have frequently had a difficult time determining how much investigation or remediation might be required under the applicable regulatory programs. Now, many of the state VCPs use a tiered, risk based approach to cleanup. For example, under the Massachusetts Contingency Plan (MCP), the cleanup goal is "no significant risk" to human health, safety, public welfare, or the environment. See Mass. Gen. Laws Ann. ch. 21E, §3A(j) (2002). The MCP outlines three approaches for determining whether the "no significant risk" level has been achieved: Method 1, Method 2, or Method 3. Method 1 is a "look up" table providing dear numeric standards for 100 chemicals commonly found in soil or ground water. Method 2 allows for some adjustments in these numbers to account for site specific conditions. Method 3 allows cleanup standards to be determined on the basis of a site-specific risk assessment. Id. This tiered, decision-making process has broken the cycle of collecting information for information's sake. Now, parties know early in the transaction how much investigation or remediation might be required by the state.
In the past, regulatory agencies were under no requirement to review and approve or disapprove environmental studies quickly. This uncertainty and delay would frequently kill many real estate transactions. Now, many of the state VCPs include provisions to expedite the investigation and remediation of potentially contaminated properties. In Pennsylvania, for example, the Department of Environmental Resources (DER) has 60 days (90 days if a site specific cleanup number is selected) in which to respond to a final environmental report. See 35 Pa. Cons. Stat. Ann. §6020.102 et seq. (2001). If it fails to do so, the report is deemed approved, and the applicant may proceed with the cleanup. In Arizona, the Department of Environmental Quality must approve, deny or request additional information within 45 days of a request, and must closeout a case within 60 days of submission of a final report. See Ariz. Rev. Stat. §49-152 (2002).
In commercial real estate transactions, parties have frequently argued over how to determine that enough investigation and remediation has occurred. Most state VCPs now provide documentation of completion of the investigation or remediation. These completion letters take, many forms, and have differing degrees of finality, but they offer some certainty about the sufficiency of the work that has been done at the site.
In Minnesota, for example, there are six types of completion letters, ranging from certificates of completion, partial no action letters, no action letters, no association determinations, off-site source determination letters, and covenants not to sue on a site-by-site basis. See Minn. Stat. Ann. §115B.175 (2001). No Further Action Letters and Certificates of Completion are common in other states. See, e.g., Va. Code
Ann. § 10.1-1230 et seq. (2001); Del. Code Ann tit. 7, §9101 et seq. and Ch 60 (2001); Kan. Stat. Ann. §65-34,161(2001). Only a handful of states offer broad based covenants not to sue. See, e.g., Conn. Gen. Stat. Ann. §22a-133 et seq. (2002); Ind. Code Ann. §13-25-5-1 et seq. (2002); Mich. Comp. Laws Ann. §324.20101 et seq. (2002).
Both the Federal government and the states have recognized the benefits of offering financial incentives for the redevelopment of brownfields. These incentives have taken the form of grants, loans, and tax abatements or deferrals. Substantial, additional financial incentives are likely to be forthcoming in the future.
Since its inception in 1993, EPA has offered Brownfields Assessment Demonstration Pilot grants of up to $200,000 each to 399 cities, states, and tribes nationwide. EPA expects to select up to 38 additional National Assessment pilots by April 2002. These grants have totaled more than $90.9 million Recipients have included the cities of Miami, Florida; Clearwater, Florida, Baltimore, Maryland; Richmond, Virginia; Cleveland, Ohio, Knoxville, Tennessee; Fayetteville, North Carolina; Ketchikan Gateway Borough, Alaska, and Detroit, Michigan. On April 20, 2001, EPA Administrator Christie Whitman awarded 36 additional grants, totaling over $7 million, as well as $5 million to continue and expand assessments on existing sites.
EPA has provided numerous other types of incentives as well, such as:
Many states have also adopted tax incentives in their brownfields programs:
In dealing with the brownfields problem, industry responses have fallen into two major categories: risk-based corrective action, and new forms of insurance.
The ASTM E-50.04 committee has developed a guide for conducting risk based corrective action at chemical release sites ("RBCA II") (ASTM E 2081-00). www.astm.org. This guide uses a tiered approach to integrate risk and exposure assessment practices with site assessment and remedial measure selection to ensure that the selected remedy is cost-effective yet protective of human health and the environment. The basic steps in the RBCA process include:
By following this decision-making process, an interested party can avoid collecting information about a site for no specific purpose. If the initial information is sufficient to determine whether the contamination poses any risk to human health or the environment, then no further assessment may be needed. If, however, more specific information about exposure pathways and toxicity assumptions is needed before a cost-effective remedy can be selected, more detailed and site-specific information should be collected (Tier 2 and/or Tier 3 evaluation). In this regard, the ASTM approach provides a framework for conducting tiered risk assessments, rather than specific cleanup levels.
A number of environmental insurance products have become available on the market in the past c6uple of years that help limit the risk presented by real or perceived environmental contamination. These products fall into two basic categories: remediation stop loss insurance, and transfer insurance:
EPA has undertaken several initiatives to lessen the private sector's concerns about environmental contamination on real property. See, e.g., http://www.epa.gov/superfund/programs/ re-forms/reforms/2-8.htm#land.
These initiatives have included:
Documentation regarding the status of investigations and remediations and whether sufficient work has occurred (comfort letters). See, EPA, Guidance: Model Comfort Letter Clarifying NPL Listing, Uncontaminated Parcel Identifications, and CERCLA Liability Involving Transfers of Federally Owned Property (Jan. 1996); Memorandum: Model Comfort Letter Clarifying NPL Listing, Uncontaminated Parcel
Identifications, and CERCLA Liability Involving Transfers of Federally Owned Property (Aug. 1995); Memorandum: Policy on the Issuance of Comfort/Status Letters (Nov12, 1996); and Policy on the Issuance of Comfort/Status Letters (Nov. 12, 1996); and Delisting of 32,300 sites from CERCLIS. www.epa.gov/superfund/ programs/reforms/docs/overv00.pdf.
Certain liability reforms have included:
These Federal initiatives, as well as section 128 of the new brownfields law, have helped to clarify some of the Superfund liability issues and to reduce the likelihood that EPA will "second guess" voluntary cleanup actions conducted in states with a well-established VCP.
Environmental contamination no longer needs to be a deal breaker in commercial real estate transactions, particularly in those states that have well-developed VCPs and brownfields programs.
The new brownfields legislation, as well as the recent administrative initiatives, have gone a long way toward providing buyers, sellers, lenders, and fiduciaries with greater certainty that they will not be caught in the Superfund liability net, financial incentives to deal with contaminated properties, certainty about likely cleanup costs, and streamlined governmental review processes.
As a result, interested parties are now able to evaluate environmental risk in a rational manner, rather than blindly abandoning even mildly contaminated properties. The result is a system that is good for the environment, good for the community, and good for business.
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