P R O B A T E   &   P R O P E R T Y
November/December 2002
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Environmental Law Update

Environmental Law Update provides information on developments in environmental law as it applies to property, probate, and trust matters. The editors of Probate & Property welcome information and suggestions from readers.

Changes to Superfund Will Encourage Brownfields Redevelopment

On January 11, 2002, President Bush signed into law H.R. 2869, the Small Business Liability Relief and Brownfields Revitalization Act. The term “brownfields” is defined in the Act to include “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.” Directed at the liability scheme for redevelopment of contaminated properties, the Act is likely to enable future property transactions and influence the way in which parties seek recovery of cleanup costs at existing Superfund sites.

Exemptions from Superfund Liability

Foremost, the Act provides certain relief for prospective developers of brownfields properties by making it easier for a person to redevelop a contaminated property without being held liable for cleanup by amending the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund” ), 42 U.S.C. §§ 9601–9675 (2001). CERCLA establishes a severe liability regime for the release or threat of release of “hazardous” substances. Id. § 9601(14)(F). The statutory scheme created by CERCLA imposes strict, joint, and several liability on “owners” and “operators” of “facilities” at which hazardous substances have been.” Id. This has a chilling effect on brownfields redevelopment, as innocent parties are hesitant to take title to or otherwise disturb contaminated property.

Prospective Purchasers

First, the Act resolves certain questions concerning the liability of prospective purchasers of contaminated sites. Under the Act, a bona fide prospective purchaser is exempt from Superfund 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. To take advantage of the exemption, the property must be purchased after the date of enactment (January 11, 2001), and the purchaser cannot be a successor business organization to the prior owner of the property. In addition, the prospective purchaser must demonstrate, by a preponderance of the evidence, that all disposal occurred prior to the time it acquired ownership and that it made “all appropriate inquiry” into the prior uses of the property in accordance with “good commercial and customary standards and practices.” The prospective purchaser also would need to show that it (1) made all legally required disclosures concerning the presence of the contamination, (2) took “reasonable steps” to stop any continuing release and prevent any future releases, and (3) did not impede the effectiveness or integrity of any institutional controls. The provisions are generally consistent with standard due diligence practices but require the purchaser to ensure that the site does not pose a hazard during its ownership.

Innocent Purchasers and Adjacent Landowners

The Act contains two other important exemptions from liability: an innocent landowner defense and a contiguous landowner defense. The contiguous landowner defense is applicable to property owners that are contiguous to and are or may be contaminated by a release from a neighboring property. The innocent landowner defense covers property owners that had no knowledge or reason to know that the property they purchased was contaminated. The party claiming these defenses would have the burden of proof to show that it had not caused, contributed to, or consented to the release. It would also need to show that it had undertaken the same steps as prospective purchasers are required to make in terms of “all appropriate inquiry,” disclosures, prevention of releases, and maintenance of institutional controls. The innocent landowner and contiguous property owner defenses do not apply if the property owner had actual or constructive knowledge of the contamination.

Revised Due Diligence Standard

The Act clarifies the standard for due diligence. Under the Act, a Phase I Environmental Site Assessment conducted on or after May 31, 1997, in accordance with ASTM E 1527-97 will meet the “all appropriate inquiry” standard, at least until EPA promulgates its own regulations. EPA is expected to promulgate its regulations within the next two years. At this time it is unclear whether EPA will simply ratify the ASTM standard.

Windfall Profit Lien Provision

It is important to note, however, that the Act does not resolve liability absolutely. The Act provides that EPA may impose a lien on contaminated property if EPA has incurred response costs in order to recover any “windfall profit” resulting from the increase in the fair market value. The amount of the lien will be the lesser of the response costs and the increase in property value. The lien continues until the EPA has recovered all its cost or the lien is satisfied by sale of the property. The lien arises at the time that EPA begins a response action, but EPA must maintain an action to perfect its lien at the time the property is sold. Parties considering purchasing a property that has been subject to extensive EPA cleanup actions would want to investigate the potential for significant response costs that would result in a lien.

Deferral of EPA Enforcement

The Act seeks to resolve federal liability under CERCLA and therefore does not resolve state liability. Certain provisions of the Act, however, seek to make it easier to address both state and federal liability simultaneously. The Act provides that EPA will not take enforcement action against a site that is under state enforcement oversight. A site under state oversight will be considered an “eligible response site” unless (1) the state requests federal assistance; (2) the contamination has migrated across state lines; (3) after taking into account the actions that have been taken, EPA determines that the release presents an imminent and substantial endangerment and that additional remedial action is needed; or (4) there is new information that was not known at the time the initial cleanup was approved or completed (e.g., that the contamination at the site is more toxic than originally expected). EPA will defer its authority only if the state (1) maintains a record of sites where response actions have been completed, (2) indicates whether the site is suitable for unrestricted use, and (3) identifies any institutional controls relied upon in the remedy. Finally, this provision applies only to those response actions conducted after February 15, 2001.

State Financial Incentives

Finally, the Act also provides the states with financial incentives for enhancing brownfields programs, investigation, and cleanup. States will receive $250 million per year for the next five years, a total of $1.25 billion, to fund brownfields cleanups. States desiring brownfields grant funding must ensure that their response programs include mechanisms for (1) maintaining an inventory of brownfields sites, (2) sustaining adequate enforcement authorities that will ensure that response actions (including long-term operation and maintenance activities) will be completed, and (3) providing for meaningful public notice and participation. In addition, a state may not receive funding unless it maintains and makes available to the public a record of brownfields sites.

Conclusion

EPA has estimated that there are 500,000 brownfields sites nationwide ranging from petroleum-contaminated sites to former dry cleaners and old quarries. Although not providing absolute relief from liability, the revisions to CERCLA under the Act will likely enhance opportunities for redeveloping such sites.


Environmental Law Update Editor: Rafe Petersen, Holland & Knight LLP, 2099 Pennsylvania Ave., N.W., Suite 100, Washington, DC 20006-6801, rapetersen@hklaw.com.

 

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