Liability

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Overview

Why Liability Still Matters

As brownfield sites become more important to the land base of rural and urban communities for housing, commercial and industrial development, buyers and sellers of brownfields are taking greater, more educated risks in the transaction and real estate development processes. The biggest impediment to the redevelopment of a brownfield site is uncertainty. The most significant uncertainties include:
  • cleanup standards (how clean is clean or when are we finished)
  • pervasive and -inclusive liability (who is liable for what and how do we allocate risk)
The key to a successful brownfield project is managing the risk – that is identifying the scope of the problem and allocating or mitigating the risk.
The nature of the properties typically considered for revitalization can lead to uncertainty associated with the legal requirements regarding these properties that have been either dormant or abandoned for many years prior to the current interest in revitalization. Revitalization project teams often require a legal mechanism to assist in reducing or mitigating the possible risks associated with third party claims, claims by previous owners, regulatory issues, real estate law, environmental law, liens, and a variety of other potential legal issues.
Under federal and state statutes, a severe economic burden often falls on those who did not create the problem, including those who unwittingly purchase contaminated property. This burden is essentially due to the all-inclusive, retroactive, and strict liability scheme built into both statutes. Although both Federal law and many state cleanup statutes provide for an “innocent landowner” and other narrow exemptions and defenses, those defenses have been extremely difficult to establish. Liability - even the cost of disproving potential liability - has kept prospective purchasers from acquiring and cleaning up contaminated property and financial institutions from lending money for such transactions.
As with many of the other aspects of successful revitalization, a thorough assessment of the legal condition of the property, and adjacent properties, prior to initiating the project should be completed. The development of a detailed legal history and the identification of potential legal issues that could impact the revitalization effort are necessary. Unknown legal issues encountered during project implementation may be costly in terms of project schedule and financing. Therefore, it may be critical that this information be uncovered and addressed as early in the process as possible.

After 20 Years of Brownfields Programs, How Has Liability Evolved?

Despite truly great progress of brownfield cleanup and reuse from 1990 through 2010, potential liability arising from federal and state “Superfund” laws and the effect of the 2002 amendments to CERCLA (a.k.a. the “Brownfields Amendments,”[1]) has not significantly changed. CERCLA[2] and state environmental cleanup laws apply concurrently to the same property in most cases. As a result, the brownfield stakeholders and the practitioners advising those stakeholders must consider potential liability under both statutory schemes and pick the right tool to mitigate the uncertainties caused by brownfield liability.
The Brownfields Amendments did not change state cleanup laws, and some of the new federal provisions may be inconsistent with their state counterparts. In addition, despite interpretive memoranda from US EPA, the Brownfields Amendments remain untested in the courts. Still, for the first time, CERCLA attempts to clarify when EPA will not interfere at sites where cleanup has been undertaken pursuant to a state program. Stakeholders, including attorneys and their clients, should decide early in the real estate transaction whether and to what extent it makes sense to try to capture the potential benefits of the Brownfields Amendments.
[1] Small Business Liability Relief and Brownfields Revitalization Act, Pub L No. 107-118, 115 Stat 2356
[2] Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 USC § 9601 to 9675.

Understanding Liability in the Context of Recycling Contaminated Real Estate.

The brownfield concept grew out of a need to mitigate the unintended, adverse effects of CERCLA cleanup and financial responsibility requirements on redevelopment of industrial and commercial property, primarily in the inner cities but also in rural areas. By the late 1980’s, a pattern to avoid potential CERCLA liability was developing in cities across the United States. As older industrial sites and districts continued to deteriorate, industry often relocated to nearby suburban and rural farmlands or, in many cases, to new regions of the country or abroad. Many sites simply suspected of being contaminated were and still are avoided in favor of greenfield development. The resulting loss of jobs weakened tax bases and dampened economic growth in primarily urban areas. The decentralization of industrial properties created pressure for expanded transportation and other utility infrastructure, putting greater fiscal and environmental stress on surrounding communities.
In response to this pattern, federal and state governments began grappling with the brownfield concept in the early 1990’s. As part of the Clinton administration’s Brownfield Initiative, EPA developed guidance documents to “clarify” the liability of prospective purchasers, lenders and current property owners involved in brownfield sites; e.g., the “Model Comfort Letter” used to clarify National Priorities List (NPL or federal superfund site) listings, uncontaminated parcel identifications, and CERCLA liability involving transfers of federally owned property; and the “prospective purchaser guidance” for those interested in buying contaminated land subject to CERCLA.
States were also leading the effort to mitigate the unintended consequences of liability, such as in 1995 when Oregon passed the Recycled Lands Act (HB 3352) which amended the state superfund law to incorporate brownfield concepts. The goal was to encourage the redevelopment of contaminated lands in a less costly and less cumbersome way than is typical at federal superfund cleanups and to mitigate the risk of undertaking such development. Until the 2002 Brownfields Amendments, however, the liability provisions in the federal statute remained unchanged.
CERCLA (as amended by the Brownfields Amendments) defines 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 USC § 9601(39). The federal definition is subject to a number of exclusions, including facilities listed or proposed for listing on the NPL, or where cleanup under CERCLA is planned or ongoing. Aside from funding eligibility purposes under the Brownfields Amendments, the term “brownfield” is intended to distinguish developed land from unused suburban and rural land referred to as “greenfield” sites.

What, Me Worry?

One reason the principal entities involved in revitalization (owners, purchasers, developers, lenders, investors, and insurers) have been reluctant to pursue revitalization projects is that federal and state environmental laws assign liability to a broad range of entities. This is known as “status liability.” A property owner or operator of a contaminated property may be held responsible for the cleanup. Purchasers are concerned about possible liability associated with contamination caused by the previous owners. In addition, current owners fear the potential for future liability related to the presence of unknown contamination. This liability section discusses: Liability Risk Concerns, Reducing Risk of Regulatory Liability, Reducing Risk of Third Party Liability, Environmental Insurance, The CERCLA Brownfields Amendments of 2002, and Resources and Tools.
Most states now have Voluntary Cleanup Programs (VCPs) under which public or private parties that voluntarily agree to clean up a contaminated site are offered some protection from future state enforcement action at the site, often in the form of a “no further action” determination, covenant not to sue, or “certificate of completion” from the state. Such state commitments may not affect EPA’s authority to respond to actual or threatened releases of hazardous substances under CERCLA. There are, however, a variety of collaborative efforts undertaken at current and former federal Superfund sites where protection under federal and state liability schemes is accomplished. Further, many stakeholders are blending federal protections (for example, brownfield prospective purchaser [BFPP] defenses) with state mechanisms such as VCP protections and state prospective purchaser agreements (PPA’s).
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