Brownfields And The Redevelopment Of Contaminated Property


Contaminated industrial and commercial property, common in urban and suburban areas, have been underutilized due to the environmen-tal liability associated with these parcels. These properties typically blight the local landscape resulting in lost taxes and a decline in community character. The problems associated with developing brownfield sites has resulted in the increased development of agricultural land and pristine properties.

The brownfield problem stems principally from the liability imposed under the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), also known as Superfund. Under CERCLA, the present and prior owner or operator of property contaminated with hazardous substances may be held strictly liable for the cleanup costs. Many states, including New York, have adopted provisions that impose comparable liability. The defenses under CERCLA are limited. As a result of the potentially significant cleanup costs associated with contaminated sites, potential developers and purchasers have avoided contaminat-ed properties. Similarly, lenders have avoided loaning on properties that are contaminated.

The liability concerns have been significantly compounded by the lengthy process to investigate and cleanup contaminated property. This process can take many years and, at serious sites, can cost millions. The investigation and cleanup process has been further aggravated by the lack of cleanup standards for both soil and groundwater. After a site is adequately investigated, a process that by itself is expensive and time consuming, there has been significant uncertainty regarding the scope of a necessary cleanup.

Many of these problems are being addressed resulting in a growing level of interest in the acquisition and development of contaminated sites. This shift can be attributed to (i) increased experience in dealing with the issues posed by studying and remediating these properties, (ii) further definition regarding the costs associated with cleanup by consultants and other professionals, (iii) the development of soil cleanup objectives and (iv) the recognition that risk based approaches may well be appropriate in evaluating cleanup objectives. The identification of soil cleanup objectives and a risk based approach to soil and groundwater cleanups have significantly promoted the interest in brownfield developments in New York state.

New York State's Voluntary Cleanup Program

In 1994, the New York State Department of Environmental Conservation ("DEC") implemented the state's Voluntary Remedial Program to promote the redevelopment of contaminated parcels. The department's effort is not based on a statutory program and is not set forth in department's regulations. Rather, it is an informal but nevertheless significant process implemented under DEC's discretion.

Under the program, DEC hopes to eliminate or reduce open ended cleanup costs, provide assurance to financial institutions that would lend on properties, allow the reuse of contaminated sites with appropriate protection for public health and community needs, and provide notice to potential purchasers and lenders regarding the type of use that has been approved for a remediated property. The program is intended to apply to sites that are contaminated with both petroleum and hazardous substances.

Properties eligible for the program include any contaminated property in the state with specific exceptions:

  • Sites where the federal government has lead responsibility

  • Treatment, storage or disposal facilities subject to corrective action or closure under the RCRA program and similar facilities operating under RCRA interim status that are subject to enforcement actions

  • Sites subject to enforcement actions requiring a potentially responsible party to remediate hazardous substances. It must be noted that the DEC is evaluating whether to include sites on the State's Registry of Inactive Hazardous Waste Disposal Sites.

The department and the volunteer/developer would execute an enforceable agreement or consent order with the volunteer agreeing to perform an investigation of the property and, if the volunteer chooses, the remediation of the premises. A work plan describing the investigation and possible remediation of the premises may be attached as part of the agreement or consent order.

An appropriate cleanup level consistent with the safe use of the property for its intended future purpose would be defined. Where future industrial uses are contemplated for the property, the volunteer would be required to clean up the site consistent with such an industrial use. As a result, the DEC is expected to typically apply a risk assessment in evaluating cleanup levels. Although a risk based approach will be applied, the DEC will want to consider soil cleanup objectives and groundwater quality standards as part of the cleanup evaluation.

The agreement or consent order will include a qualified release that would be executed by the Department after the site is remediated. The release is subject to certain reopeners and conditions:

  • changes in the site's use could require further cleanup

  • unknown conditions could require further work at the premises

  • a release does not bind private parties injured by the contamination

  • the Attorney General is not prevented from pursuing litigation under the common law with respect to the contamination from the site

  • the United States Environmental Protection Agency's jurisdiction is not affected by the release

The State Environmental Quality Review Act ("SEQRA") may also be triggered under the voluntary cleanup program. Where the cleanup of the property is directly associated with the property's future use, the SEQRA review, including the possible preparation and acceptance of an environmental impact statement, may have to be completed prior to the cleanup. This could result in a time consuming delay.

The relationship of a voluntary cleanup program to the state's program for the remediation of inactive hazardous waste sites poses a complication. Where a site that is part of the voluntary cleanup program is listed after the execution of an agreement or consent order, the site will be designated as a "V" (volunteer) site in the Registry of Inactive Hazardous Waste Sites. The listing of the site as a "V" category may pose significant concerns for a developer. The listing of the site could well pose transactional issues since a lender may be unwilling to finance a property that is listed and tenants may have concerns about entering into a lease.

Under Risk Based Corrective Action or RBCA, known as the "REBECCA" program, established by the American Society of Testing and Materials, a formal and recognized risk based evaluation methodology has gained wide acceptance. The RBCA process provides an objective procedure that is gaining acceptance by DEC. The RBCA process should be considered as part of a risk assessment and should be discussed with DEC as part of a voluntary cleanup program.

It must also be noted that the preparation of a risk assessment can be complicated and time consuming. Cleanups could be expedited if DEC developed firm soil cleanup objectives for industrial properties and, groundwater cleanup objectives where there is no risk to downgradient sensitive receptors. Although the DEC has issued informal soil cleanup objectives for sites contaminated with both hazardous waste and petroleum, these cleanup objectives apply to sites with future unrestricted uses and are presumably contemplated for residential use. Soil cleanup objectives for industrial parcels, which have been issued in other states, would be most useful.

The Voluntary Cleanup Program includes more than 30 agreements that have been executed and has received widespread interest throughout the state. The Department has demonstrated a willingness to work with volunteers and has aggressively pursued the success of the program.

Federal Brownfield Efforts

Brownfield initiatives throughout the country have principally been pursued at the state level. Nevertheless, EPA has encouraged brownfield development through a number of efforts, notably their prospective purchaser agreement program.

Under a prospective purchaser agreement, a party that is interested in taking title to contaminated property may obtain a substantial degree of assurance from the EPA through a binding agreement that the party would not be held liable for contamination at the site. These agreements are intended to eliminate the strict liability of the purchaser for the cleanup and investigation of the property. The party must not be responsible for contaminating the property and must provide some benefit to the government either through direct payment, an agreement to conduct a cleanup, or possibly the redevelopment of the parcel. The agreement would include a limited covenant not to sue and provide contribution protection protecting the prospective purchaser from cost recovery lawsuits by potentially responsible parties. This program is described in the July 3, 1995 Federal Register.

EPA has pursued other initiatives including a grant program for brownfield development in the amount of $200,000 per site and the removal of 25,000 sites from the EPA CERCLIS list, which describes numerous sites that might be contaminated.

Negotiating A Transaction Involving Contaminated Property

Negotiating the purchase or sale of contaminated property will typically involve an investigation of the premises to define the scope of contamination, an estimate of cleanup costs, and negotiations over the relationship between the sale price and the costs and risks associated with remediating the property. These points are a critical component of the development of a brownfield site and several critical and subtle points must be carefully evaluated as described in the following paragraphs.

  • The scope of contamination must be defined through an investigation. The purchaser may want to retain the consultant that would perform the initial study of the property to be confident that problems are properly investigated. If a seller conducts this investigation, the purchaser may be concerned that the investigation was inadequate. If the seller insists on controlling the study, the buyer may be able to participate by approving or developing the work plan for the investigation. Similarly, identification of the environmental consultant is critical. It is important to retain a qualified firm. It is also critical that both the purchaser and seller have a level of confidence that the consultant will perform the work in an objective manner.

  • If the purchaser is intending to remediate the premises after a closing, the purchaser will want to be confident that the scope of the contamination has been adequately defined. However, if the seller will be responsible for the cleanup, the purchaser should still require that the contamination be defined but perhaps the investigation would not have to be as comprehensive.

  • If the seller is responsible for cleanup, the purchaser will want to confirm the seller's financial ability to remediate the site and will want to assure that a legally binding agreement is executed by the seller regarding the seller's obligation to remediate the premises. If the seller is going to perform the cleanup after closing, a possible result with many contaminated sites, the purchaser should participate in the review of reports and discussions with regulatory authorities.

  • If the seller is performing the cleanup, the purchaser and seller should agree on cleanup standards. The parties may seek to establish the cleanup objectives with a regulatory agency prior to closing. The difference in a particular cleanup standard can result in an enormous difference in the remedial costs.

  • The parties may want to obtain insurance with regard to the premises. Several carriers now provide coverage for the exceedence of anticipated cleanup costs. Although these policies are expensive, such insurance can substantially reduce the risk of the party obligated to perform the cleanup.

Conclusion

In recent years, the redevelopment of contaminated property has become a driving force in the environmental field. Many developers have identified properly located contaminated parcels as significant targets for acquisition and redevelopment. As a result, it is anticipated that the brownfield program in New York State and throughout the country will continue to grow and expand.