Barg Coffin Lewis & Trapp, LLP Articles

June 1999

The Brownfield Toolbox

by Brian S. Haughton, and Janine Keck Massey

INTRODUCTION

Years ago, the presence or suspected presence of contamination on real property sounded the death knell for its sale, redevelopment or refinancing. The liability schemes created by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") and other laws often scared away potential buyers and lenders. Current owners feared opening a Pandora's box by undertaking redevelopment.¹ Cleanup costs and other contamination-related liabilities were relatively unpredictable and uncontrollable.

Many properties that were known or suspected to be contaminated were moth-balled, languishing behind chain-link fences bearing "No Trespassing" signs. These "brownfields" were passed over by buyers, lenders and developers in favor of pristine "greenfields," properties unblemished by prior human use and typically located on the edge of developed areas. Brownfield prices dropped, jobs and capital fled urban cores, city tax bases eroded, and urban sprawl led to traffic, air quality, open space and habitat conservation concerns.

As a result, in recent years, market and political forces have caused many to take a second look at brownfields, and a number of tools have been developed to reduce the costs and uncertainty that formerly stymied some brownfield projects. This article will describe the most important of these tools.

RISK-BASED CORRECTIVE ACTION

Growing regulatory acceptance of risk-based corrective action ("RBCA," pronounced "Rebecca") is among the prime reasons why it is economically feasible today to redevelop brownfields that would have been passed over a few years ago. The other tools discussed in this article all incorporate or rely on RBCA principles.

In the early days of cleaning up contaminated property, the inability or reluctance of regulators and others to answer the hard question of "How clean is clean?" often resulted in a "zero-tolerance" approach toward contamination levels. When in doubt, regulators set cleanup levels at "background" levels, that is, levels indigenous to uncontaminated sites in the vicinity.

There were two significant problems with this approach, however. First, it often promoted remedies that merely shifted the hazardous substances from one place to another, deferring environmental problems instead of solving them. Thus, in many cases, cleaning up one site to background levels meant transporting tons of contaminated soil to a hazardous waste landfill (the so-called "dig-and-haul" alternative) so that the soil still ended up in the ground, only in a different location. This response quickly filled up landfills and generated a lot of truck traffic from contaminated sites. Second, lots of money was spent on activities that did not appreciably reduce risk to humans and the environment, like continuing to "pump and treat" groundwater after contaminants had reached asymptotic (i.e., irreducible) levels.

Since those early days, advances in the field of risk assessment have led to the now widely-held recognition that non-zero, above-background levels of some contaminants do not present significant risks to humans or the environment under some circumstances. The RBCA process defines those levels and circumstances.

• An Overview of RBCA

RBCA is a tiered risk-screening process. Once contamination has been discovered, the process starts by identifying the chemicals of concern, their concentrations and locations, the potential impacts on the environment and humans who might be present on the property and the potentially significant pathways by which humans, plants and animals could come into contact with the chemicals (such as through drinking affected water or breathing vapors emitted from contaminated soil).²

The contaminant levels are then compared to established non-site-specific risk-based screening levels ("RBSLs"), which are intentionally very conservative and based on experience with how chemicals change and migrate over time at many sites.³ As a result of this initial screening, the site may require no cleanup at all, or the RBSLs may establish that some or all contaminants or areas require further evaluation.⁴

Where further evaluation is required, additional investigation and analysis lead to the development of risk-based site-specific target levels ("SSTLs"). As the name suggests, SSTLs are based on site-specific factors, including contaminant mobility and toxicity, soil lithology, groundwater flow patterns, anticipated site and neighborhood uses and local weather patterns. Contaminant levels are compared to the SSTLs to identify which contaminants and areas, if any, present risks to humans or the environment in excess of established risk standards.⁵

If action is required, cleanup alternatives are then analyzed to determine the most cost-effective way to reduce the risk to acceptable levels.⁶

• Implementing RBCA

Through the relatively straightforward process described above, RBCA redefined the problem of cleanup from "eliminating unacceptable chemicals" to "eliminating unacceptable risks." As a result, new remedial solutions proliferated.

For example, with solvent-contaminated groundwater or soil, under traditional regulatory schemes, the site owner might have been compelled to eliminate the chemicals by pumping the groundwater or excavating the soil and removing the solvents through some treatment process. Under RBCA, the site owner may be able to show that there is no pathway by which the solvents could cause any harm (e.g., soil under a building foundation) or that a less expensive cleanup approach (e.g., a ferrous wall for contaminated groundwater) will remove them before they do.

After a remedy is implemented, regulatory agencies often require owners to take post-construction measures to ensure that risk-based solutions continue to operate properly and the risks remain at acceptable levels. Groundwater monitoring (for a defined period of time) may be required to confirm that contaminants are biodegrading as predicted or are not migrating off site. Where the risk analysis is based on plans for future use of the site, deed restrictions can be recorded to prevent future owners from changing the use without taking additional measures to address the resulting risks.⁷ Examples include limiting the site to commercial and industrial use and prohibiting use of groundwater.

Implementing RBCA often entails obtaining input from interested parties other than the site owner and the overseeing regulators. Developing site-specific remedies (instead of adopting generalized "off-the-shelf" approaches) creates an opportunity for neighbors and environmental groups to inject their views into the decision-making process. Technical assistance grants are available in some cases to defray the costs of hiring environmental consultants to help develop and support the views of such groups.

• Creative Use of RBCA

In anticipation of the involvement and questions of interested parties and regulators, successful brownfield redevelopers incorporate RBCA-type thinking early on in their development plans. In fact, there are advantages to be gained by introducing RBCA analysis prior to acquisition of the property. Pre-acquisition risk analysis during due diligence (see Section III below) can demonstrate cost-saving opportunities that allow greater flexibility in negotiating price and other terms.

After acquisition, the advantages of RBCA analysis are not limited to planning and implementing cost-effective cleanups. The results can also be used to identify opportunities to craft cleanups to help other aspects of the project, including land use planning, community relations, marketing and budgeting. For example, soil contaminated with heavy oil that poses no threat to groundwater may be appropriately addressed by capping it with a tennis court, saving cleanup costs, providing a marketing amenity and perhaps satisfying a dedication requirement imposed during the land use entitlement process. Sealing contaminated soils beneath a low-rise research and development building may raise its elevation a few feet and provide better views from the office windows. Trees that are used to clean up groundwater contamination (via an innovative technology known as phyto-remediation) may bring a refreshing touch of nature back to a blighted area. Environmental discrimination (i.e., the disproportionate subjection of economically disadvantaged residents to the effects of contamination) can be reversed by redeveloping "border" parcels (located on the border between residential and industrial areas) in a way that moves contamination away from low-income housing and eliminates pathways for human exposure.

RBCA makes possible improvements to environmentally impaired areas that were economically "off-limits" just a few years ago. Nevertheless, RBCA cannot make every brownfield redevelopment candidate into a viable project. Separating the viable from the non-viable is the province of the next tool.

DUE DILIGENCE

Proper environmental screening has for some time been an important part of real estate transactions. In brownfield acquisitions it is even more important because it can:

help a developer avoid surprises that can lead to broken deals, lawsuits, liabilities, cost overruns and development delays;
create competitive advantage by enabling the buyer to drive down the price and obtain concessions from the seller and identifying creative environmental solutions that can drive a developer’s return on investment up 50 to 100% over the return on "clean" property;
form the basis for the so-called "innocent purchaser defense" against cleanup cost liability (assuming the screening process indicates the property is clean);
reveal constraints (not necessarily related to the presence of hazardous substances) on construction and marketing, and
avoid later claims that the brownfield redeveloper breached its duty of care owed to its customers (e.g., commercial tenants, home buyers, etc.).

The screening process is phased, beginning with Phase I.

• Phase I Environmental Site Assessments

One of the purposes of due diligence is to satisfy the "all appropriate inquiry" and "good commercial or customary practice" standards for the innocent purchaser defense.⁸ This is accomplished by performing a Phase I Environmental Site Assessment.

The American Society for Testing and Materials ("ASTM") has developed a "Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process," also known as ASTM E1527-97. Its purpose is to set forth what constitutes "all appropriate inquiry . . . consistent with good commercial or customary practice" within the meaning of CERCLA’s innocent purchaser defense.⁹ It is also likely to be referred to as the standard of care in any future lawsuits where the buyer’s exercise of care is an issue (e.g., suits by the buyer’s partners or corporate shareholders claiming the acquisition was imprudent or by future site users claiming personal injuries or other damages).

The ASTM Phase I is a preliminary screening process to assess whether "recognized environmental conditions" exist on the property, without actually conducting soil or groundwater sampling. "Recognized environmental conditions" means conditions indicating contaminants likely have been released – or threaten to be released – into site structures, soil, groundwater or surface water.¹⁰

To comply with the ASTM standard, the assessment must be performed by an environmental professional – usually a consultant – who has sufficient training and experience to follow the ASTM procedure and form reliable conclusions regarding recognized environmental conditions.¹¹ The consultant begins the Phase I process by reviewing databases and documents likely to show any environmental problems at or affecting the property.¹² These materials can reveal known or suspected contamination not only at the site, but also at nearby properties which could, for example, contaminate the target site by pollutant migration through groundwater. Also at this stage, the consultant should review and assess whatever environmental documents the seller provides.¹³

In the second step, the consultant conducts a "site reconnaissance," or a walk-through inspection of the property. This inspection should be based on the findings of the first step; thus, the consultant should pay particular attention to potential problem areas identified during the document and database review. Of course, the consultant should also note other obvious indicators, including stains on the ground or floors, evidence of asbestos- or lead-containing building materials, abandoned drums, transformers and stressed vegetation. Pipes sticking up from the ground may indicate the presence of underground storage tanks, and the ASTM standard requires the consultant to report any unusual odors as well.¹⁴

The final investigative step is to interview site owners, occupants, and anyone else who may have relevant information concerning the site.¹⁵ Thus, if the document review reveals a neighbor filed a complaint about a hazardous material spill at the property, the neighbor and the responding official should be interviewed. Although these interviews may be conducted over the telephone, they are often conducted during or in connection with the site walk-through. This not only can save costs, but it may also be more effective because it enables the consultant and the interviewee together to point at, see and perhaps smell the areas and substances being discussed.

At the end of the Phase I process, the consultant should produce a report covering the investigation’s findings and identifying any "recognized environmental conditions."¹⁶ Typically, the result is essentially binary: there likely is – or is not – an environmental problem. If there is a problem, further work will often be required to assess its seriousness. The generic name for the further work is, surprisingly enough, "Phase II."

• Phase II Environmental Site Assessments and Cleanup Cost Estimates

The chief feature distinguishing a typical Phase II from a Phase I is invasive testing of soil or groundwater or both. Sometimes this is called for because no test data are available. Other times, a Phase II is required because existing data are old or incomplete or both and, therefore, do not provide a reliable picture of current site conditions.

The main purpose of a Phase II is to gather data sufficient to enable the consultant to develop a cleanup cost estimate or range to be used for negotiating price with the seller and setting the redevelopment project budget. The Phase II process should be tailored to fit the due diligence budget and the buyer’s need for precision and reliability in the cleanup cost estimate (these two constraints are often in tension).

The process ordinarily begins with the consultant’s preparation of a workplan, laying out a schedule, a budget, the number, locations and types of samples and the chemical analyses that will be run on each sample. While a Phase I may cost between $3,000 and $5,000, Phase II costs are often substantially higher.

Because the work is invasive, the current property owner’s permission is necessary before it can be undertaken. Depending on the nature and extent of the work, this permission may take the form of an oral license, a voluminous written access agreement or anything between these two extremes.

When the test results arrive, the consultant should develop an interpretive model of the contamination at the site, using all of the information collected during Phases I and II. The resulting report should at a minimum describe the nature and extent of the contamination and contain some assessment of how serious it is. Either in that report or separately, the consultant should discuss available cleanup options, particularly addressing costs and any possible creative uses of RBCA, as discussed in Section II above. In that regard, the consultant may discuss the site conditions with the relevant environmental regulators to determine their receptivity to various remedial approaches.

The consultant’s findings can contribute to the brownfield redeveloper’s decision-making processes in many ways, not all of them related to contamination cleanup costs. The cheapest remedial option may involve a deed restriction (e.g., no residential use) that the market cannot support. Contaminated groundwater may trigger extra worker-safety requirements. Information about the depth of clean groundwater may limit the types of construction that are possible. The presence of wetlands or endangered species can restrict the areas of development. Non-hazardous odors (as from an up-wind garbage dump) may pose marketing constraints.

Once the redeveloper decides to go forward, there are a variety of tools that can be used to increase the likelihood that the consultant’s predictions come true or, failing that, to manage the risk that they do not. Among these are various protections that can be obtained from environmental regulators.

GOVERNMENTAL PROTECTIONS AGAINST SURPRISES

There are numerous federal, state and local programs and policies designed to facilitate brownfield redevelopment. Many involve a trade of money (cleanup dollars provided by the redeveloper) for some degree of certainty as to the amount and type of cleanup required, plus a written blessing from an agency (in the form of a letter or certificate when the cleanup is done) that can be used to soothe the nerves of skittish lenders, buyers and tenants.

The programs differ by type of site, speed, cost and the degree of comfort afforded at the end of the process. In California, most of these programs are run by the Department of Toxic Substances Control ("DTSC") or the Regional Water Quality Control Board ("RWQCB"). For federal programs, the lead agency is typically the United States Environmental Protection Agency ("USEPA"). Following are brief descriptions of a few examples.

• The Voluntary Cleanup Program

For several years, DTSC has overseen the Voluntary Cleanup Program ("VCP") pursuant to Section 25355.5(a)(1)(C) of the Health and Safety Code.¹⁷ This statute was one of many in the Hazardous Substance Account Act automatically repealed as of January 1, 1999 under the "sunset" provision of Section 25395(a). We include the VCP in our discussion, however, because it, or something very like it, will likely be reauthorized soon.

The VCP enables a property owner to enter into a "Voluntary Cleanup Agreement" with DTSC to clean up contamination under DTSC’s oversight, and, when the cleanup is done, receive DTSC’s written certification that all appropriate cleanup actions have been completed and that no further cleanup action is necessary. Sites that pose high health risks or otherwise have environmental problems urgent enough to land them on the federal or state "Superfund" lists and sites that are contaminated only with petroleum are not eligible for the program.¹⁸

In addition to funding the cleanup, the program applicant must also pay DTSC’s costs incurred in overseeing the cleanup, preparing the certification and preparing any necessary deed restrictions and operation and maintenance agreements. Participating in the VCP does not require any admission of legal liability, and DTSC’s oversight increases the likelihood that the cleanup will be found "consistent with the national contingency plan," thereby enhancing the prospects for cleanup cost recovery from other responsible parties under CERCLA.¹⁹

The speed of the process is relatively high, the cost varies depending on the amount of DTSC input necessary, and the degree of comfort provided at the end of the process is good, but not perfect. The certificate does not provide a release or covenant not to sue.

• Unified Agency Review Program

For sites subject to regulation by many agencies, California created the "Unified Agency Review" or "AB2061" program²⁰ to grant one agency the regulatory authority to supervise and sign off on a cleanup for all state and local agencies. Not only does this program provide "one-stop shopping" (usually with the agency most familiar with the property), but the certificate at the end of the cleanup affords a release against further action by any state or local agency with jurisdiction over hazardous material releases.

Any responsible party²¹ may request the California Environmental Protection Agency’s Site Designation Committee to designate an administering agency to oversee the cleanup at a site.²² Depending on the circumstances, the administering agency may be DTSC, the RWQCB, the Department of Fish and Game or a local agency. The administering agency (rather than the applicant) must confer with the other agencies who may have jurisdiction over the release;²³ this requirement is intended to reduce administrative burdens on the applicant.

At the end of the process, the certificate of completion bars further claims by state or local agencies except under limited circumstances such as the discovery of a new hazardous substance release or fraud on the part of the applicant. The issuance of a certificate may be challenged by a non-administering agency by petitioning the Site Designation Committee.²⁴ If the challenge is successful, the committee must specify what additional actions the applicant must undertake before the certificate may be issued.²⁵ This process often involves larger and more complicated sites than the VCP. Therefore, and because of the greater need for inter-agency coordination, the AB2061 program is often slower and more expensive than the VCP

• Prospective Purchaser Agreements

Unlike the Voluntary Cleanup and AB2061 programs discussed above, prospective purchaser agreements ("PPAs") are designed to lock in agency protection before the applicant acquires the brownfield. USEPA,²⁶ DTSC²⁷ and the California State Water Resources Control Board ("SWRCB," the state-wide body that oversees the nine RWQCBs)²⁸ each have policies that enable them to enter into PPAs with brownfield buyers. The protection afforded by the agreement is substantial: a covenant by the government not to sue the buyer for existing contamination and contribution protection against cleanup cost recovery suits by private parties.

The USEPA PPA program applies only to sites on the federal Superfund list or where USEPA has undertaken, is undertaking or plans to undertake a cleanup action. In the agreement, the applicant must provide either (1) a substantial direct benefit to USEPA in terms of cleanup or funds for cleanup or (2) a lesser direct benefit to USEPA coupled with a substantial indirect benefit to the community (such as the creation of jobs, preservation of green-space or infrastructure development).²⁹ For example, a brownfield buyer in Arizona obtained USEPA’s covenant not to sue in exchange for $75,000 and an agreement not to abandon a monitoring well, saving USEPA some construction costs.³⁰

DTSC’s PPA program is similar to USEPA’s but more flexible in that it applies to sites where any financially viable party (not just the government) undertakes the cleanup.³¹ The SWRCB’s PPA program requires the buyer to pay for a complete cleanup, although there is nothing to prevent the buyer from obtaining some or all of the funding from a reduction in the purchase price or otherwise from a cooperating party responsible for the contamination.³² The SWRCB’s program also enables the current owner to purchase similar – and transferable – protection to enhance the marketability of the property.

PPAs require substantial technical work and negotiations and are therefore generally slower and more expensive than the other governmental tools discussed above. Their potent protections and their availability prior to acquisition can make them the tool of choice, however, particularly for larger sites with costlier cleanups.

• De Minimis Landowner Settlements

USEPA also has a program whereby a current landowner who had nothing to do with the contamination can, for a price, obtain protection against liability under CERCLA.³³ Such "de minimis" settlements are available if the landowner (1) did not conduct or permit the generation, transportation, storage, treatment or disposal of hazardous substances at the property; (2) did not contribute to the release of hazardous substances, and (3) did not have actual or constructive knowledge at the time of purchase that the property was used for the generation, transportation, storage, treatment or disposal of hazardous substances.³⁴ The settlement may take the form of an administrative consent agreement or a judicial consent decree.

Similarly, if the landowner owns property contaminated only by groundwater, the owner may be entitled to a de minimis settlement if (1) the landowner did not cause, contribute to or exacerbate the release or threat of release of hazardous substances; (2) the person who caused the contamination is not an agent or employee of the landowner and was not in a direct or indirect contractual relationship with the landowner; and (3) there is no alternative basis for the landowner’s liability.³⁵ In the absence of exceptional circumstances, USEPA will not consider the failure to remediate groundwater contamination to be an exacerbation of the release or threat of release of hazardous substances.³⁶ Further, if the landowner was in a direct or indirect contractual relationship with the party that caused the contamination, USEPA may nevertheless enter into a settlement if the landowner did not know or have reason to know of the disposals giving rise to the groundwater contamination.³⁷

Like PPAs, de minimis settlements resolve the owner’s liability to the government and bar contribution claims by private parties.³⁸ Also, the consent decree or administrative settlement agreement can be made to run with the land so a brownfield owner can use it to enhance the marketability of the property.

Nevertheless, obtaining a de minimis settlement can be time-consuming and costly. Negotiations with USEPA for an administrative agreement can be lengthy, and the judicial consent decree process – also involving the Department of Justice – can be lengthier still. In addition to transaction costs, USEPA generally requires some payment from the owner. Nevertheless, for a frustrated seller of a large brownfield, a de minimis settlement can breathe new life into a property that has been dying on the vine for months or years.

• Comfort Letters

In addition to the governmental tools discussed above, most environmental regulatory agencies have policies authorizing them to provide comfort letters to owners or buyers under certain circumstances.³⁹ The policies typically authorize the agencies to issue comfort letters to clarify the likelihood of agency involvement at a site or identify whether the owner is protected by a statutory provision or discretionary enforcement policy.

Letters may be issued by agencies upon the request of the property owner if they may facilitate redevelopment of potentially contaminated property, and there is a perception of potential liability that might otherwise inhibit such redevelopment.⁴⁰

The comfort letter is the fastest, cheapest and least protective of the governmental tools discussed, but, depending on the circumstances, it may be all that is necessary to complete a package that makes a brownfield redevelopment project possible. Such packages may also include private tools, which include insurance and contractual indemnity provisions.

PRIVATE PROTECTIONS AGAINST SURPRISES

• Insurance

Insurance can be used to reduce the uncertainty associated with the environmental risks of brownfield redevelopment. Most conventional liability policies issued since 1984 have included what the insurance industry refers to as "absolute pollution exclusions." Since then, however, a number of insurers have developed specialty products specifically designed to cover environmental risks. For a price, these environmental insurance policies can protect a brownfield redeveloper against risks of liability for unexpected cleanup costs and third parties’ property damage and personal injury claims.

Two of the most common of environmental insurance products are "cost cap" (or "stop loss") and "pollution liability" coverage, both of which were discussed in a recent article in California Real Property Journal.⁴¹

Cost Cap Coverage

Cost cap coverage protects against cleanup cost overruns. The coverage is typically based on a study and cleanup cost estimate prepared by an environmental consultant.⁴² Cost cap coverage is generally written on a "claims made" basis, and terms of up to ten years are available. Most insurers require a minimum "buffer" (i.e., some initial amount of cost overrun borne by the insured), but many are also willing to reduce premiums if the insured agrees to a larger buffer or some other means of sharing in cost overruns. Some insurers require that a cleanup plan be approved by the relevant environmental regulatory agency before they will issue a policy; others do not. Some will cover cost overruns due to regulatory change; others will not. Most insurers offer coverage for cleanup costs relating to contamination that is unknown at the time the policy is written. Hence, a variant of cost cap coverage is available to protect an unwitting brownfield buyer against unexpected cleanup cost liability when the due diligence investigation indicates the property is clean.

Pollution Liability Coverage

Pollution liability coverage protects the insured against future third party claims for on-site and off-site personal injury and property damage. Coverage is available with respect to both known and unknown contamination. Covered claims could include neighbors’ suits for cleanup costs arising from a trespassing contaminated groundwater plume and for personal injuries arising out of drinking the groundwater. Like conventional liability policies, these policies generally cover legal defense costs. However, unlike conventional policies, currently available pollution liability policies provide that such costs are charged against the policy limits.

Other Coverage

Other environmental insurance products are also available to protect against liabilities arising out of contamination caused by errors and omissions of consultants and cleanup contractors, as well as specific risks relating to asbestos, lead paint, storage tanks and hazardous waste hauling. Many environmental insurance policies can also be made transferable or made to cover "additional insureds," e.g., lenders and sellers, in addition to the primary insured (often the buyer of the property).

A word of caution about environmental insurance products: while they are valuable tools for brownfield redevelopment, they are not, standing alone, a panacea. They reduce uncertainty, but they do not reduce known cleanup costs. If known cleanup costs doom a brownfield project (by making it uneconomic), insurance will not resuscitate it.⁴³

• Contractual Protections from the Seller

Environmental insurance – contractual indemnity from an insurer – may be supplemented or supplanted by contractual indemnity from the seller. Where the seller is willing to indemnify the buyer against contamination-related liability, this relatively simple addition to the purchase and sale agreement may be and for years has been the buyer’s most cost-effective tool for dealing with the issue. Careful drafting is essential, lest the indemnity cover cleanup costs but inadvertently omit third party tort liability. Also, the indemnity is only as good as the indemnitor, whose financial information should be reviewed before great reliance is placed on this tool.

• Contractual Protections from Historic Responsible Parties

In addition to or in place of contractual protections from insurers and sellers, brownfield buyers can sometimes obtain indemnities from historic responsible parties. Recently, some large companies, particularly in the oil industry, have come to the conclusion that it is in their interest to provide brownfield buyers with indemnities, for free, in order to avoid sellers’ claims for diminution in property value. The typical site is a former gasoline station, where the cleanup costs are relatively low or there is no cleanup and a significant chance that none will ever be required (for example, where petroleum contamination is biodegrading and safe levels have nearly been reached already).

The advantages of this private tool are that it is inexpensive and available prior to acquisition of the brownfield. The disadvantages are the uncertain availability and limited scope of the protection. Indemnities, when available, typically cover only contamination attributable to the historic responsible party. However, where due diligence shows there is no other contamination on the site, this protection may be all the buyer needs.

CONCLUSION

Private tools like indemnities from historic responsible parties have theoretically been available for centuries, but they have only been added to the brownfield toolbox relatively recently because legal developments have made such parties’ liability clearer.⁴⁴ Other tools, like RBCA, are newer in origin and arose as a consequence of technical developments in the field of risk analysis. It is likely that this evolutionary process will continue, leading to more new tools, new uses for old tools and new combinations of tools to facilitate the cleanup and redevelopment of brownfields.⁴⁵

Whatever happens in the future, the days when knowledge or suspicion of contamination automatically spelled the end of a project’s prospects are now behind us. Environmentally impaired properties still present challenges, some of which remain insurmountable, but the tools available now can help revitalize many sites that seemed beyond hope not very long ago.

Endnotes

Under CERCLA, the current owner of contaminated property is, with certain narrowly construed exceptions, strictly liable for cleanup costs. 42 U.S.C. § 9607(a)(1). There are numerous state and federal laws under which a current owner can be compelled to clean up the contamination even though it was caused by someone else. See, e.g., 42 U.S.C. §§ 6928(a), 6972(b), 9606; Cal. Water Code § 13304; Cal. Health & Safety Code §§ 58009, 58010; Cal. Civ. Code §§ 3479-81, 3483, 3491, 3501; Cal. Civ. Proc. Code § 731. Also, the current owner may be liable for personal injuries and property damage caused by unchecked contamination. See, e.g., Cal. Civ. Code §§ 3484, 3501.
American Soc’y of Testing & Materials ["ASTM"], Standard Guide for Risk-Based Corrective Action Applied at Petroleum Release Sites, Standard E 1739-95 (1995), at 188.
Id. § 6.4.
Id. § 6.7.
Id. § 6.9.
Id. § 6.10.
California law expressly authorizes such restrictions and makes them run with the land to bind successor owners of the site. Cal. Civ. Code § 1471.
Under CERCLA, the current owner, who is generally strictly liable for cleanup costs, may avoid liability by showing: (1) the owner acquired title after the disposal of the subject hazardous substances occurred; and (2) at the time of acquiring title, the owner did not know or have reason to know that the subject hazardous substances had been disposed of at the property. Guidance on Landowner Liability under Section 107(a)(1) of CERCLA, De minimis Settlements under Section 122(g)(1)(B) of CERCLA, and Settlements with Prospective Purchasers of Contaminated Property, 54 Fed. Reg. 34,235, 34,237 (1989) ["USEPA De minimis Guidance"]. To establish that the owner had no reason to know, the owner "must have undertaken, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability." 42 U.S.C. § 9601(35)(B). California’s CERCLA analog, the Hazardous Substance Account Act ("HSAA") has incorporated the same defense. Cal. Health & Safety Code §§ 25300 et seq. Cal. Health & Safety Code §§ 25323.5(b), 25358.3(a)(1) (repealed effective January 1, 1999). The defense is most useful where the previously unknown contamination discovered after acquisition (1) presents no significant risk to site users and (2) is being cleaned up by others, either voluntarily or at the direction of a governmental agency. In these circumstances, the property owner can use the defense to avoid expensive entanglement in the cleanup and cost allocation process, while reasonably relying on the on-going cleanup as a means to abate the nuisance. Otherwise, as a practical matter, the owner may be well-advised to undertake the cleanup – despite the defense’s protection – to avoid project delays and potential tort liability.
ASTM, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, Standard E 1527-97, § 1.1.
Id. § 1.1.1.
Id. § 3.3.11. Care should be taken in choosing the consultant. Because environmental lawyers often oversee the work of the Phase I consultant, they are among the best sources to contact when shopping for a good consultant. In addition to Phase I experience, quality and price, consultants should also be evaluated for their abilities to undertake Phase II assessments, if necessary, to estimate cleanup costs and to identify creative uses of RBCA (see Section II) to increase projects’ profitability.
These may include governmental and commercial paper and electronic files containing permitting, release reporting and response action information, as well as records indicating past uses of the property, such as title records, aerial photographs and historic fire insurance maps.
Failure to disclose known environmental problems can make a seller liable under CERCLA (42 U.S.C. § 9601(35)(C)), not to mention common law fraud.
ASTM, supra, note 9, § 8.4.2.5.
Id. § 9.
Id. § 11.5.
See Cal. EPA Dept of Toxic Substances Control ["DTSC"], The Voluntary Cleanup Program: Policy and Procedure for Managing Voluntary Site Mitigation Projects (1997) ["DTSC Voluntary Cleanup Program"].
Cal. Health & Safety Code § 25355.5.
See DTSC Voluntary Cleanup Program, supra note 17 (requiring VCP actions be consistent with the national contingency plan).
Cal. Health & Safety Code §§ 25260 et seq.
"’Responsible party’ means any person, except for an independent contractor, who agrees to carry out a site investigation and remedial action at a hazardous materials release site for one of the following reasons: (1) The person is liable under a state or local law, ordinance, or regulation for the site investigation or remedial action. (2) The site investigation or remedial action is required by a state or local law, ordinance, or regulation because of a hazardous materials release." Cal. Health & Safety Code § 25260(h).
Cal. Health & Safety Code § 25262(a).
Cal. Health & Safety Code § 25261(b).
Cal. Health & Safety Code §§ 25264(c), 25265.
Cal. Health & Safety Code § 25265(c).
See Guidance on Settlements with Prospective Purchasers of Contaminated Property, 60 Fed. Reg. 34,792 (1995) ["USEPA PPA Policy"].
See DTSC, Prospective Purchaser Policy, #EO-96-005-PP (1996) ["DTSC PPA Policy"].
See Walt Pettit, State Water Resources Control Board, Prospective Purchaser Agreements and Agreements with Current Owners for Cleanup of Polluted Property (1996) ["SWRCB PPA Policy"].
See USEPA PPA Policy, supra note 26.
See United States Environmental Protection Agency, South Indian Bend Wash Federal Superfund Site Prospective Purchaser Agreement with JPI Texas Development, Inc., EPA Region IX Docket 97-01 (March 5, 1997) http://www.epa.gov/region09/waste/brown/ppa.html.
See DTSC PPA Policy, supra note 27, § 5.2.
See SWRCB PPA Policy, supra note 28, § III.B.3.
42 U.S.C. § 9622(g).
USEPA De minimis Guidance, supra note 8, 54 Fed. Reg. at 34,238-39. USEPA views the statutory definition of "release" (42 U.S.C. § 9601(22)) more narrowly for the purpose of the innocent purchaser defense and landowner de minimis settlements than it does for other purposes. For this narrow purpose, a release does not include on-going leaking, leaching, etc. Id. at 34,237, n.8.
Policy Toward Owners of Property Containing Contaminated Aquifers, 60 Fed. Reg. 34,790 (1995).
Id.
Id.
42 U.S.C. §§ 9613(f)(2) and 9622(g)(5).
Policy on the Issuance of EPA Comfort/Status Letters, 62 Fed. Reg. 4,624 (1997); see also DTSC PPA Policy, supra note 27, Appendix VI and SWRCB PPA Policy, supra note 28, § II., Appendix B.
Id.
Jon K. Wactor, ‘Environmentally Challenged’ Property: Is Environmental Insurance the Answer?, Cal. Real Prop. Jour., Vol. 16, No. 4, Fall 1998, at 20.
In fact, some consultants and insurers have combined forces to offer insurance-backed, guaranteed fixed-price cleanups. These "turn key" products normally entail significant underwriting charges to the customer, and the "guarantee" is only as good as the entity (often a limited liability company) providing it.
The authors thank Timothy N. Criss and Gregory E. Schilz of J&H Marsh & McLennan, Inc. for their comments on the insurance section of this article.
For example, the development of the law of continuing nuisance in California has made it easier to hold historic responsible parties liable for contamination originating decades ago. See, e.g., Newhall Land & Farming Co. v. Superior Court, 19 Cal.App.4th 334 (1993).
For example, there have been discussions about amending the HSAA to provide a mechanism for public funding of "orphan shares," that is, cleanup costs attributable to responsible parties who no longer exist or cannot be found

Former Landels Ripley & Diamond, LLP attorney Hope Schmeltzer contributed to this article.

These materials are provided for information purposes only and are not intended as and cannot be considered legal advice. Before taking action based upon this information, you should consult your legal counsel.

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