Real property once perceived as having real problems may instead provide real promise to those who take advantage of the ever-evolving tools available to proactively structure successful real estate transactions. As more impacted properties become incorporated into redevelopment endeavors, more innovative programs become available to construct a transaction that can address a variety of environmental site conditions and circumstances. Buyers, sellers, developers, brokers and their real estate attorneys can work with environmental attorneys to incorporate these concepts into a transaction tailored to address a particular site’s needs and conditions. This writing is an update for real estate practitioners on some of the more recent environmental programs and protections that practitioners may consider when structuring real estate transactions to realize the full real promise of real property.

Ready for Reuse Program. The Environmental Protection Agency’s Ready for Reuse program provides potential buyers, lenders and others with a written determination that an impacted property is ready for reuse.1 Through this initiative, EPA and/or the state can provide the property owner with a Ready for Reuse determination letter and certificate which is intended to be an acknowledgement that environmental conditions on the property are protective for its current and anticipated future use. The goals of the Ready for Reuse process include defining the environmental liability in terms of the intended reuse of the property so that prospective purchasers, lending institutions and the public may be more willing to reuse previously owned/operated property rather than focusing attention on already-clean properties.

The Ready for Reuse concept is particularly suitable for properties with historical contamination. For appropriate properties, EPA and/or the State of Texas can make an affirmative statement that the environmental conditions of a property are protective of human health and the environment based on the current or planned future use(s), accompanied by a straightforward summary of relevant site investigation/cleanup activities and documents upon which the Ready for Reuse determination is based.2 Ready for Reuse determinations are voluntary and intended to be available for consideration for use on all sites (except federal Superfund Sites) where actual or perceived contamination has been investigated and cleaned up where necessary such that human health and the environment are protected based on current or planned future uses. A determination can even be issued at any point during the remedial process if there is sufficient information to show that a property can support a specific use while being protective. EPA’s guidance clarifies that even if the property is subject to a permit, compliance plan, order or enforcement mechanism, it can still qualify for a Ready for Reuse determination if it meets the other criteria. The Agency views the initiative as a unifying measure that can be used in conjunction with other regulatory programs, such as voluntary cleanup programs, brownfields programs and other remedial programs. However, that determination is no substitute for state or federal regulations and does not by itself impose legally binding requirements. Rather, that determination is a tool to facilitate the reuse of property by providing a more flexible and streamlined way to achieve a written acknowledgement that environmental conditions on a property are protective of human health and the environment based on its current and anticipated future use. The Ready for Reuse Determination and certificate may provide lenders or other parties interested in a transaction with some assurance regarding site conditions and the Agency’s perspective, thereby potentially facilitating the property transaction.

Brownfields Relief. Tools exist to enhance the ability to revitalize impacted properties, including potential relief under the Small Business Liability Relief and Brownfields Revitalization Act.3 Through this statute, the EPA grants money available for the purpose of assisting with redevelopment efforts to reuse impacted properties. Parties involved with structuring development projects can consider whether grant money could be available for use in addressing environmental issues encountered in their redevelopment efforts. For example, petroleum-impacted properties may be eligible for brownfields assessment and cleanup grant funding. Specifically, EPA must make available 25 percent of the total brownfields grant funds each year for the assessment and/or cleanup of petroleum sites. The availability of petroleum brownfields grants provides an avenue for private partners to work together with federal, state and local organizations to foster the reuse and subsequent economic recovery of petroleum-contaminated sites.

In addition to the issue of potentially available funding to revitalize petroleum sites, potential issues regarding underground storage tanks need to be evaluated in conjunction with all of the other aspects of structuring a property for redevelopment, particularly taking petroleum contamination into account in determining the use of property to be revitalized. For properties that may have been closed with residual contamination in place from former tanks and are now sought to be redeveloped, the issue of institutional controls and their impact on desired future uses of the property becomes an issue that requires evaluation. To the extent that institutional controls already in place preclude a change in site conditions or use of the property which would change the exposure conditions, any redevelopment or revitalization should factor in the potential need to perform additional remediation to address potential site risks and/or to engage in a re-risk analysis to determine how institutional controls could be affected. In some cases, property usage can be designed around institutional controls currently in place. In other cases, regulatory interaction and re-negotiation of remedy standards and land use may need to occur before redevelopment can readily be undertaken.

Municipal Setting Designations. In the last year, the City of Houston adopted a procedural ordinance to allow properties in Houston to utilize a state statute authorizing Municipal Setting Designations (“MSDs”). This would allow property owners a potential alternative to the existing state regulations governing the investigation and cleanup of impacted groundwater.4 An MSD is an official state designation given to property within a municipality that certifies that designated groundwater at a property is prohibited from current and future use as potable water, because the groundwater contains constituents in excess of regulatory standards. Specifically, the MSD law uses a municipal ordinance or restrictive covenant instead of Texas Commission on Environmental Quality (“TCEQ”) regulations to protect the public against exposure to contaminated groundwater. The use of an MSD for appropriate properties may facilitate a faster alternative to property reuse than existing state regulations. Another article in this magazine delves more deeply into the elements and scope of the MSD program and provides a detailed discussion of this recently-available redevelopment tool.

Dry Cleaner Remediation Program. For properties that may have been impacted as a result of dry cleaning activities, another potential consideration is whether the remediation fund established under State law is available to assist with remediation of contamination caused by dry-cleaning solvents. In addition to establishing environmental standards and registration requirements for dry cleaners, State law established a remediation fund to assist with remediation of contamination caused by dry cleaning solvents.5

Use of the fund for corrective action at a dry cleaning facility in Texas can be available to an applicant if any one of the following conditions are met:

1. the applicant owns the dry cleaning facility or drop station;
2. the applicant owns the property on which the facility or drop station is or was located; or
3. the applicant previously owned property on which a dry cleaner facility or drop station was located and has entered into an agreement with the current owner that requires applicant to be responsible for any costs associated with the cleanup of contamination associated with the dry cleaner facility or drop station.

The cleanup is performed by a state lead contractor and is managed by the agency and, once the cleanup is completed, a “no further action” letter can be issued.

The primary benefits to participating in the Dry Cleaner Remediation Program is that if the facility has a release, the owner/operator is only responsible for meeting the required deductible ($5,000), with the Dry Cleaner Response Fund available to cover up to $5,000,000 of the cost of cleanup per site. The cleanup is performed by a State Lead contractor and is managed by the agency and, once the cleanup is completed, a no further action letter can be issued. In addition, if a site assessment determines there was a historic release at the property, the property is still eligible for the program.

For a site placed in the Voluntary Cleanup Program (“VCP”), by contrast, the applicant in the VCP program must hire its own contractors, is responsible for all corrective action expenses and must pay TCEQ oversight costs, in addition to a $1,000 application fee, to obtain a certificate of completion.

Other Tools. Although the various alternatives and options identified in the programs discussed above are gradually becoming known and considered in the structuring of real estate transactions involving impacted properties, other more well-known programs bear mentioning again. More traditional tools, such as the protections of the Voluntary Cleanup Program,6 the Innocent Landowner Program,7 the Bona Fide Prospective Purchaser protection8 and the packaging of transactions with appropriate environmental insurance products, remain valuable elements in structuring real estate transactions involving impacted properties. Coupled with careful drafting of environmental provisions in purchase and sale and other transactional documents, an appropriate combination of these types of tools can work together to form a proactive and productive strategy to facilitate real estate development opportunities. With the availability of such programs, real property development can hold real promise for those who seek to revitalize property while promoting environmental protection.

 

Debra Tsuchiyama Baker is a founding partner of the law firm of Connelly•Baker•Wotring LLP and a graduate of the Georgetown University Law Center. She focuses her practice on complex
environmental law issues, and has done so for more than 24 years, with an active practice associated with environmental impacts on real property and in commercial real estate transactions.

 

Endnotes

1.See “An Explanation of the ‘Ready for Reuse’ Corrective Action Measure and Determination,” EPA Region 6 Fact Sheet.   2.See EPA Region 6 “Guidelines For Preparing Ready for Reuse Determinations.”   3.See Small Business Liability Relief and Brownfields Revitalization Act (“Brownfields Amendments”), Pub. L. No. 107-118 (January 2002), amending the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. §9601 et seq.   4.House Bill 3152, 78th Legislature, effective September 1, 2003; Chapter 361, Texas Health and Safety Code, §§361.801-808.   5.Texas Health and Safety Code, Chapter 374; 30 TAC Chapter 337.   6.Texas Health and Safety Code, Chapter 361, Sec. 361.602.   7.Texas Health and Safety Code, Chapter 361, Sec. 361.751-754.   8.See Small Business Liability Relief and Brownfields Revitalization Act (“Brownfields Amendments”), Pub. L. No. 107-118 (January 2002), amending the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. §9601 et seq.