There are presently 8000 identified contaminated sites in Massachusetts, most of which are commercial or industrial in nature. Many of these sites are also located in economically distressed urban areas. After years of debate regarding the redevelopment of contaminated property initiatives, developers, lenders, regulators and environmentalists applauded the recently-enacted Brownfields Act. Chapter 206 of the Acts of 1998, formally entitled "An Act Relative To Environmental CleanUp And Promoting The Redevelopment Of Contaminated Property," was passed by the Massachusetts Legislature and signed by Governor A. Paul Cellucci in early August, 1998.
The Brownfields Act was enacted to encourage the redevelopment of underutilized, contaminated urban properties by providing liability endpoints and financial incentives which did not previously exist under M.G.L. c. 21E ("21E"). Prior to the Brownfields Act, 21E imposed strict, joint and several liability upon any present owner or operator of contaminated property purely by virtue of one's status and regardless of fault. This "status liability" includes liability for costs associated with site assessment, containment and removal of contamination, losses associated with damage to natural resources, and losses associated with property damage. Many prospective owners and operators of contaminated property were hesitant to become involved with such development. Moreover, lending institutions have been extremely reluctant to finance such transactions, largely due to the broad liability scheme and the unquantifiable costs associated with the remediation. As a result, many of the contaminated sites in Massachusetts had been abandoned and threatened the core of inner cities and old mill towns.
The key provisions of the Act are: (1) innocent person liability exemptions under 21E: (2) activity and use limitations; (3) contribution protection; (4) covenants not to sue; and (5) the appropriation of approximately 45 million dollars for financial incentives.
Liability Relief
1. "Eligible Person" Exemption for Innocent Owners and Operators
The Brownfields Act exempts "eligible persons" from liability for 21E contribution, response costs, and property damage claims, unless the liability arose contractually. An eligible person is an owner or operator who did not own or operate the site at the time of the release, and who did not cause or contribute to the contamination at the site. To benefit from the liability exemption, the site must achieve a permanent clean-up or remedy operation status.
If the site contains only soil contamination, the owner must clean up the soil contamination to the extent of his or her property boundary pursuant to Massachusetts Department of Environmental Protection ("DEP") standards. If the property includes the source of groundwater or surface water contamination, the owner must clean up all water-borne contamination to DEP standards. Furthermore, the liability protection extends to all subsequent property owners, as long as they maintain the site's clean status or the ongoing remediation remedy.
2. Downgradient Property Owners
A Downgradient Property Owner who has no connection with the property that contains the source of the contamination can qualify for the liability exemption as long as he did not cause or contribute to the contamination. In addition, the Downgradient Property Owner must notify DEP of the release, once it is known.
3. Eligible Tenants
A Tenant is exempt from operator liability as long as his tenancy began after the release was reported to DEP and he did not cause or contribute to the contamination.
4. Redevelopment Authorities and Communities Corporations
Redevelopment Authorities and Communities Corporations are exempt from liability as long as they acquired the property after August 5, 1998, and they did not cause or contribute to the contamination. Moreover, there is an affirmative obligation on such entities to notify DEP of the release, as well as to act diligently to divest of the property, once it has been acquired.
5. Secured Lenders
A Secured Lender is exempt from liability after it has taken ownership or possession of contaminated property, i.e., by foreclosure, as long as the Secured Lender prevents exposure to oil or hazardous materials, provides access to the parties conducting the necessary remedial response actions on the site, and acts diligently to divest its ownership interest. Moreover, a lender has an affirmative obligation to provide notice of the contamination to DEP and to perspective buyers prior to a public foreclosure auction.
6. Governmental Bodies and Charitable Trusts
Governmental Bodies and Charitable Trusts enjoy liability exemptions under the Brownfields Act if they are holding property restrictions that were created for the public benefit, pursuant to M.G.L. c. 184, §32 (i.e., conservation restrictions, agricultural preservation restrictions, watershed preservation restrictions, and affordable housing restrictions).
Activity and Use LimitationS
Very often, owners and operators of contaminated property place deed restrictions on the future use of the site in order to maintain a level of No Significant Risk. Such deed restrictions are referred to as Activity and Use Limitations ("AUL"). Under the Brownfields Act, owners and operators can continue to use AULs to maintain a level of No Significant Risk and are eligible for liability exemptions for contribution, response costs, and property damage under 21E, if a subsequent owner violates the restrictions placed in the AUL. This exemption is available only to prior owners and/or operators who have complied with the terms of the AUL and the provisions of 21E and who did not cause or contribute to the subsequent AUL violation.
It is important to note, however, that under the Brownfields Act, all sites at which an AUL has been recorded will be subject to target audits by DEP. This means that the site may be audited by DEP any time after the site has reached a level of No Significant Risk.
Contribution Protection
The Brownfields Act provides incentives to non-eligible persons who perform voluntary clean-ups and resolve their liability with the Commonwealth of Massachusetts through an administrative or judicially approved settlement. Such parties are eligible to receive contribution protection.
Covenants Not to Sue
Current and/or prospective owners or operators of sites where the proposed redevelopment or reuse will contribute to the economic or physical revitalization of the community may be eligible to receive from the Commonwealth a Brownfields Covenant Not To Sue agreement. The fifteen (15) cities in Massachusetts with the highest poverty rates will receive the highest priority for the agreements. Second priority goes to sites in Economically Distressed Areas, and third, to sites in any remaining municipalities in the Commonwealth. Economically Distressed Areas are defined as areas of the Commonwealth that have either been: (1) designated as or meet the criteria for Economic Target Areas; or (2) former manufactured gas plant.
Financial Incentives
The second key element of the Brownfields Act is the inclusion of various financial incentives to encourage the private sector to develop and/or loan money on contaminated sites throughout the Commonwealth. The Act has established three different financial incentive programs.
1. Redevelopment Access to Capital
The Redevelopment Access to Capital ("RAC") program will be administered by the Massachusetts Business Development Corporation and is designed to encourage lending on contaminated sites. The RAC will provide private sector loans with environmental insurance to ensure that remediation on contaminated sites is completed, the loan is repaid, and the collateral is restored to its "clean" value. Fifteen million dollars has been appropriated for the RAC program.
2. The Brownfields Redevelopment Fund
The Brownfields Redevelopment Fund ("BRF") is administered by MassDevelopment and is designed to provide low interest loans and grants for site assessments and remediation in "Economically Distressed Areas." Thirty million dollars has been appropriated for the BRF.
3. Brownfields Tax Credit
The Brownfields Tax Credit is designed to encourage private sector investment in the remediation of contaminated sites in Economically Distressed Areas. Taxpayers and domestic, foreign or limited liability corporations who qualify as "Eligible Persons," initiate environmental response actions within three years of the Brownfields Act, and achieve and maintain a permanent clean-up solution or remedy operation status may be eligible for a tax credit of up to 50 percent of their costs incurred between August 1, 1998 and January 1, 2005. This tax credit is limited to those sites at which a permanent solution is achieved without an AUL. If the site is restricted with an AUL, tax credits are reduced to a maximum of 25 percent.
Conclusion
As Massachusetts becomes an increasingly urbanized state, the redevelopment of property previously used for commercial and industrial business purposes becomes more attractive . The recent enactment of the Brownfields Act will surely further its objective of encouraging the redevelopment of underutilized, contaminated urban properties by providing liability endpoints and financial incentives and will result in the preservation of undeveloped areas.
For more information on the Brownfields Act, please contact:
Nancy Kaplan
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, MA 02110
(617) 951-1400