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By: Ned Abelson
After years of debate and consideration, Massachusetts has enacted Brownfields legislation. The legislation is intended to encourage the redevelopment of Brownfields, both through liability reforms and financial assistance. The legislation does not contain any radical provisions to achieve its objectives; however, in most cases it does represent the next step in the right direction. Lenders are probably the biggest winners, while current owners and operators who had some connection to the contamination at a site received very little in the way of benefits under the new statute.
A number of different types of parties, who without the legislation could have been considered “Potentially Responsible Parties,” have been provided specific liability protection to encourage these parties to take on Brownfields sites. They include so-called “Eligible Persons” (partially defined as owners or operators who did not cause the relevant release, and did not own or operate the site at the time of the release); so-called “Eligible Tenants” (similarly defined as persons who acquire occupancy, possession or control of a site after a release has been reported to the Massachusetts Department of Environmental Protection (the “DEP”), and who did not cause or contribute to the release); secured lenders; and owners and operators of property that is downgradient of an off-site source of contamination.
Eligible Persons are given liability relief under Chapter 21E, and under common law with respect to property damage (but not personal injury) claims, for contamination for which a cleanup has been performed. Specifically, site closure under the Massachusetts Contingency Plan (the “MCP”) must have been achieved through either a permanent solution or remedy operation status, as those terms are defined in Chapter 21E and the MCP. If the contamination affected soil, the relevant party must achieve that cleanup standard for the property that person owns or operates. If groundwater contamination is the issue, then the cleanup must be performed for the entire MCP site, the point being that such a site could extend beyond the property lines of the parcel owned or operated by the relevant party.
While the above description is intended to be easily understood, it shows that the new statutory provisions are complicated and often are not particularly easy reading.
Another important aspect of the legislation from a transactional perspective concerns the extent to which an Eligible Person can transfer a site before a
cleanup is complete and still get liability protection. An Eligible Person can achieve this goal if they comply with the requirements of the MCP, transfer the site to another Eligible Person, and meet a number of other specific requirements set forth in the new statute. The transferring Eligible Person only gets this liability protection, however, after the required MCP cleanup has been performed.
Similar incentives are created for new tenants to encourage them to enter leases at Brownfields sites. To qualify for liability protection, Eligible Tenants must prevent exposure to contamination at the portion of the site under their control and, if there is an imminent hazard, take immediate action to control the associated risk. Also, if the tenant uses oil or hazardous materials similar to those identified at the site, the tenant needs to be able to show that it has not contributed to the contamination.
Secured lenders did the best under the new legislation. With some thanks to Pennsylvania for setting the right example, Chapter 21E now provides that lenders are not liable under the statute unless they cause or contribute to a release or make the release worse in some manner. Also, the lender cannot require its borrower to take any action which causes a release. (Lenders have not been seen doing this very often in the past, and can be expected to do so even less in the future.)
While on the one hand this is a significant improvement from the prior rule under Chapter 21E, it is remarkable that this is a significant change: the result is that if the lender did not do it, the lender is not liable for it.
There are additional requirements that lenders must satisfy and, not surprisingly, the statute does not relieve lenders of liability for releases that first begin to occur after the lender has ownership or possession of the site. Many of these specifics relate to what a lender must do after acquiring ownership or possession of a site: the lender must notify DEP if there has been a release; take reasonable steps to prevent exposure of people to the release; and, if an imminent hazard is present, take those actions that are necessary under the MCP to address the situation. This last item is a new requirement for lenders. Lenders must also still act diligently to sell or otherwise divest themselves of these properties.
One other new requirement is that, if a lender has knowledge of a release at a site on which the lender intends to foreclose, the lender must notify DEP no later than the commencement of the public foreclosure auction, and the lender must notify prospective bidders at the public foreclosure auction. These requirements should be added now to the appropriate checklists.
Protection is also provided for so-called downgradient owners and operators, provided they did not cause or contribute to the relevant release. If the off-site source of the contamination is known, the downgradient owner or operator is exempt from liability. If the source is unknown, however, a defense if provided. The idea is that the burden of proof shifts depending on the situation. Here also, the new statute lists a number of requirements that must be satisfied to maintain protection from liability.
The most troubling provisions in the new legislation concern Activity and Use Limitations (“AULs”). These title documents restrict the use of properties subject to the MCP (for example, no residential uses or no growing fruits or vegetables at the site), so that the cleanup can be focused on the intended future use of the site. By making it so that all sites do not need to be cleaned up to residential standards, these tools have allowed a great number of additional cleanups to be performed, which would otherwise have been too expensive to initiate or complete.
Quite remarkable is a provision added to the bill the second to last day of the legislature’s session. This provision requires DEP to audit all sites at which an Activity and Use Limitation has been implemented. The wording in the new statute appears to indicate that any site with an AUL will now be audited. While some parties may welcome such an audit because it will provide a DEP sign-off (and now it appears that, if a party wants a DEP sign-off on a site, this is the way to get it), most parties involved with the MCP see this as potentially a big step backwards. The current MCP was designed to rely on a privatized system because everyone involved recognized that DEP did not have the resources to take care of every site in the system. While DEP has been given $10,000,000 to implement this provision, it will be important to watch how DEP goes about doing so. In any event, deciding whether to use an AUL now requires more thought and consideration.
The new legislation creates three primary vehicles to provide funding for Brownfields sites. They are the Redevelopment Access to Capital Fund, the Brownfields Redevelopment Fund, and tax credits for Eligible Parties.
The Redevelopment Access to Capital program is intended to encourage private sector lending on contaminated sites. Private sector loans for MCP response actions necessary for redeveloping sites will be backed by environmental insurance. The insurance will be used to pay for unanticipated costs associated with the relevant MCP work. If there is a default on a loan involved with the program, the insurance is available as well. The insurance is backed by the Redevelopment Access to Capital Fund, for which $15,000,000 has been appropriated. This program is available to all borrowers, and not just Eligible Parties.
The Brownfields Redevelopment Fund has been created and funded with $30,000,000. This program provides targeted financial assistance for site assessments and cleanups in “economically distressed areas” (a defined term). An applicant must be an Eligible Person under Chapter 21E. Most projects are subject to a $500,000 limit for cleanups and a $50,000 limit for site assessment work. Both grants and loans are available, grants being available only to municipalities, redevelopment authorities, community development corporations and the like.
Tax credits are also offered, but only for Eligible Parties, as defined in the statute. There are a lot of details in the statute concerning these credits, but the general concept is that they apply to cleanup costs for properties in so-called economically distressed areas. The credit is for a maximum of 50% of those costs if the MCP cleanup has been completed and does not involve the use of an AUL; if an AUL is used to achieve MCP closure, then the credit is for 25% of the cleanup costs.
Massachusetts now finally has its own Brownfields legislation. The legislation is not a panacea, but it should still help a number of projects go forward and help get a number of sites cleaned up. You do have to pay attention to the details in the new law, however.
The legislation should make it so that a lot more deals involving contaminated property are doable, especially when combined with other available risk reduction techniques such as environmental insurance. We think the legislation will further the trend we have already seen in both the private and public sector of successfully redeveloping environmentally challenged properties.
See the resume of H. Edward Abelson: Resume
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Last Updated: 9/16/98