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Chapter 11
Brownfields Redevelopment:
Creative Solutions to
Historical Environmental
Liabilities
Todd S. Davis
When you look at a picture of an abandoned industrial site, what do you see? Economic
opportunity, or environmental contamination and financial disaster? For most, interpretation is a matter of perspective.
Defining the Brownfields Problem
If you own a site where a manufacturing plant operated for decades unencumbered by environmental regulations, you may have to contend with “smoking guns” or “dead bodies”
buried deep beneath the surface. Corporate real estate owners are typically advised by their
lawyers to keep such property under wraps, a permanent fixture in their real estate portfolios. Individual property owners take these white elephants to the grave, leaving their
children to untangle a solution for their final disposition.
If you are a regulator, you may view the site as a threat to human health, safety, and the
environment, as a potential battleground for protracted litigation involving hordes of lawyers and technical consultants. Sites like this are exactly what motivates some to become a
regulator—to save future generations from years of corporate abuse.
If you are a lender, you hope that you were not responsible for recommending the loan
on this property. If you are the actual loan officer, you pray that there is enough cash flow
for a period of time sufficient to pay off the note. Confronting a workout, or worse yet,
foreclosure, on a site plagued by environmental issues would do little to further your career.
A portion of this chapter was adapted from Brownfields: A Comprehensive Guide to Redeveloping Contaminated Property (Todd S. Davis & Scott A. Sherman eds., 3d ed. 2010).
Excerpted from Environmental Aspects of Real Estate and Commercial Transactions (James B. Witkin ed., 4th ed. 2011).
Copyright © 2011 by the American Bar Association. All rights reserved.
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If you belong to an environmental interest group, this property could represent yet
another example of why government needs to tighten, rather than relax, environmental
regulations. Who knows what environmental nightmare lurks behind those gates? Without
vigilance, corporate America will continue to abuse the environment. The individual or
corporation that owned this plant during its heyday probably racked up millions of dollars
in profits—the former owners should be held responsible for cleaning up the mess, no matter what the cost.
If you are a neighboring homeowner, you may look at an abandoned industrial lot
such as this one and reminisce about how your father worked at that plant for 30 years.
You recall the site as it was then, a thriving enterprise that supported your family and your
friends’ families. Yet you may feel that today it looks more like a potential hazard, a dangerous vacant lot where your children might be harmed should they wander there to play.
What if you are the mayor of the community in which this formerly productive plant
has sat idle for years? Instead of problems, you may see opportunity, a potential asset—the
opportunity to attract new business, to create hundreds of new jobs and add millions of
dollars to the city’s tax coffers. This property embodies the promise of urban revitalization
and continuing economic development, not mere historical significance.
Finally, suppose that you are a developer. Perhaps you also can see economic opportunity, but through a different lens. You believe the property could have potential, provided
that you could
• convince the property owner that you can address and eliminate its environmental
liabilities;
• work your way through the maze of federal, state, and local laws and regulations
governing potentially contaminated properties;
• see eye to eye with the mayor’s office;
• assure regulators that the site is not a toxic time bomb;
• appease skeptical citizens groups; and
• prove to your lender beyond the shadow of a doubt that it is worth taking the risk to
fi nance this project.
If you could accomplish these things, the sole remaining challenge would be to earn a
sufficient rate of return to compensate you and your company for all the risk, time, money,
and effort associated with bringing such a project to fruition.
Given these many diverging viewpoints, individuals trying to create momentum for
developing abandoned industrial sites, or “brownfields,” face a formidable task. Yet interest
in brownfields redevelopment is more active than ever. In fact, brownfields redevelopment
has emerged as more than merely a national trend, but as the most common and pragmatic
state-based approach to addressing historical environmental liabilities. Further, after years
of political wrangling, Congress finally passed federal legislation, entitled the Small Business Liability Relief and Brownfields Revitalization Act (Public Law No. 107-118), which
amends several liability provisions of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and provides other federal support to enhance state
voluntary cleanup programs. A summary of the Brownfields Act’s major provisions is contained in this chapter.
What is fueling the interest in brownfields redevelopment is pure economics. The
brownfields issue is the anchor weighing down the ship of today’s urban redevelopment
movement. While this analysis may oversimplify the problem, the fact remains that brownfields redevelopment must be regarded as an integral component of successful and sustainable urban redevelopment. However, the numerous and complex issues associated with
brownfields redevelopment are so formidable as to discourage otherwise would-be interested parties.
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Brownfields redevelopment requires extensive knowledge of the law, environmental
assessment and remediation, finance, real estate, insurance, and economic development.
The purpose of this chapter is to clarify and demystify certain fundamental issues surrounding the successful redevelopment of brownfields.1
What Is a Brownfield?
The term “brownfield” has evolved from an informal definition into a regulatory definition
over time. Currently, the U.S. Environmental Protection Agency (EPA) defines brownfields
as “property, the expansion, redevelopment, or reuse of which may be complicated by the
presence or potential presence of a hazardous substance, pollutant, or contaminant.”2
The U.S. Office of Technology Assessment (OTA) provides a similar, albeit broader,
definition. The OTA description of a brownfield includes a site whose redevelopment may
be hindered by potential contamination but also by poor location, old or obsolete infrastructure, or other less tangible factors often linked to neighborhood decline.3 Brownfields
are sometimes defined as the opposite of “greenfields”—property that has not previously
been used for commercial or industrial activities and thus is presumed free of contamination. However, the federal Small Business Liability Relief and Brownfields Revitalization
Act4 defines the term “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.”5
Brownfields are routinely associated with distressed urban areas, particularly central cities and inner-ring suburbs that once were heavily industrialized but have suffered
a steady decline in their industrial bases, which have relocated to greenfield sites in the
suburbs, requiring a duplication of infrastructure to support the new development. This
process has been identified as “urban sprawl,” a condition that brownfields redevelopment
actively combats.
Brownfield sites can be divided into four categories:
1. Sites that despite needed remediation remain economically viable, owing to sufficient
market demand
2. Sites that have some development potential, provided that financial assistance or
incentives are available
3. Sites that have extremely limited market potential even after remediation
4. Currently operating sites that are in danger of becoming brownfields because historical contamination will ultimately discourage new investment and lending6
A brownfield can be as small as an abandoned gas station on a one-acre plot or as
expansive as a steel manufacturing operation extending over a thousand acres.
Why Are Brownfields Demanding Attention?
The sheer enormity of the brownfields dilemma has drawn it into the national spotlight,
provoking the U.S. Conference of Mayors to declare the situation an emergency.7 There are
an estimated 450,000 to 1,000,000 contaminated commercial and industrial sites around
the country, according to the U.S. Government Accounting Office.8 No community is
immune. Officials in Cook County, Illinois, have identified 329 polluted industrial sites
within county boundaries. A survey of Toledo, Ohio, businesses found that 62 percent of
the area’s commercial and industrial real estate transactions are encumbered by environmental issues.9
Although these numbers are impressive, the real impact of brownfields is more dramatically summed up in dollars and cents. Current estimates place the cost of cleaning up
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the nation’s brownfields at $650 billion. That is only the initial cleanup tab. Brownfields
also represent billions of unrealized tax dollars and lost wages.10 Their presence contributes
to reduced economic development and job creation in urban areas, particularly in central
cities and older suburbs.11
In a survey by the U.S. Conference of Mayors in 2008, 98 cities estimated that they
could increase tax revenue by a cumulative $3.6 billion by redeveloping brownfields in their
jurisdictions. In the same survey, 56 cities report a $408 million increase in cumulative tax
revenue from brownfield redevelopment projects. This data suggests that more than 20,000
cities and other municipalities nationwide could be losing billions of dollars each year in
local tax receipts resulting from their failure to restore brownfields to economic viability.12
Most of the nation’s brownfields are caught in a vicious cycle of decline, which can be
summarized as follows:13
1. A property owner, unwilling or unable to sell contaminated property, mothballs it,
thus undermining the local tax base.
2. Vacant facilities deteriorate and invite arson, illegal dumping, and vandalism, including stripping of parts and materials.
3. Unaddressed contamination may spread, further eroding the property value, escalating the cleanup cost, and threatening the economic viability of adjoining properties.
4. Potential investors, faced with uncertain costs and legal liabilities, seek development
opportunities elsewhere.
5. Brownfield sites become unwanted legal, regulatory, and financial burdens on the
community and its taxpayers.
The impacts on communities are manifold. Potential investors, concerned about liability, shy away from developing abandoned industrial sites. Real estate buyers are reluctant
to invest in brownfields, which further diminishes their value. Communities lose out on
property tax revenues. Public services become less available, and area unemployment rates
soar.14 The convergence of these real estate, economic development, and environmental
issues comes at a critical time for local officials struggling to craft community revitalization
strategies targeting older industrial areas in the battle against urban sprawl.
Assessing the Barriers to Brownfields Redevelopment
Former Cleveland Mayor Mike White has cited contamination as the number one obstacle
to urban redevelopment. In large part, the frustration of Mayor White and other officials
stems from the ambiguity surrounding brownfields—ambiguity related to legal issues,
cleanup standards, liability, and the unavailability of financing.
Brownfields redevelopment is not a zero-sum game. It should result in economic growth
for all parties involved. Until recently, however, the many barriers to brownfields redevelopment have discouraged progress. These barriers include the following:
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ambiguous legal liability
lack of concentrated expertise
potentially substantial capital costs
insufficient fi nancing
nebulous federal, state, and local environmental and legal policies
the absence of a consistent redevelopment framework
public opposition
limited demand for redeveloped sites
competition from greenfields
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Ambiguous Legal Liability
Fear and uncertainty with respect to liability are the greatest obstacles to brownfields redevelopment. The daunting complexity, ambiguity, and overlapping nature of CERCLA, also
known as Superfund, and other environmental laws preclude an accurate appraisal of the
actual risk of liability.15 One court has referred to the Resource Conservation and Recovery
Act (RCRA) as “mind-numbing.”16 CERCLA has been called much worse.
Property owners potentially responsible for contamination of a site cannot completely
shift their liability to buyers, including redevelopers. As a result, they often mothball property that might otherwise be redeveloped. While the Brownfields Act has targeted this
barrier by providing liability relief under CERCLA for new purchasers of contaminated
properties, these liability protections are not absolute; each comes with qualifications and
exceptions. Thus, while the mere existence of these safe harbors is a significant step toward
encouraging brownfields redevelopment, the impact of these provisions will depend on the
EPA’s approach to implementing these safe harbors, as well as the EPA’s work toward integrating its cleanup programs, particularly CERCLA and RCRA. To many practitioners in
the redevelopment industry, there is no good reason that one comprehensive set of cleanup
regulations (the so-called One Cleanup Program) should not be the law.
Lack of Concentrated Expertise
Key players involved in commercial and industrial site reuse—including property owners,
lawyers, environmental consultants, real estate professionals, economic development representatives, insurance specialists, lenders, and regulators—have little or no experience in
working collectively toward a common goal. In fact, they often engage in counterproductive behavior when it comes to brownfields redevelopment. They are only now realizing
that to advance each others’ interests, cooperation must replace antagonism.
Potentially Substantial Capital Costs
Available data on typical brownfields cleanup costs is limited. However, the price tag can
be substantial. Worse yet, potential liability issues make it difficult to project what the final
remediation costs will be.
Assessment and remediation costs can range from a few thousand to millions of dollars, depending on the site. A significant investment, usually for due diligence purposes,
may be required merely to estimate the anticipated cost of remediation and development.
In many cases, potential due diligence costs prohibit the assessment of smaller sites deemed
unworthy of the investment.
Once developers arrive at an estimated cost for assessment and remediation, they cannot assume that the cost is finite. In some cases, the remediation process uncovers unanticipated areas of contamination, which can send what was originally deemed an economically
viable project deep into the red. Further, since public and private resources for brownfields
assessment and remediation are limited, large front-end capital costs are just one more
deterrent for would-be developers.
Insufficient Financing
The effect of environmental liabilities on lenders has been dramatic. According to one
study, more than 40 percent of commercial mortgage bankers polled said that they had
backed out of mortgage deals on potentially contaminated properties. About 87 percent of
those bankers said that fear of environmental liabilities had delayed transactions. Approximately 70 percent of the survey respondents said that environmental problems had actually
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materialized on properties for which they had arranged mortgages.17 Ultimately, the prospect of foreclosing on contaminated collateral in the event of default dampens lender interest in brownfield loans.18 Adding the specter of environmental liability with currently
tight or nonfunctioning credit markets makes the task of brownfield financing even more
challenging.
Nebulous Government Policies
Historically, federal, state, and local policies have done little to spur industrial redevelopment. Rehabilitation tax credits offered during the mid-1970s provided incentives to invest
in real estate and redevelopment. These tax incentives helped stem the exodus of businesses
from long-established neighborhoods and made reuse more economically attractive. The
tax advantages, however, effectively vanished under the 1986 tax code revisions limiting
passive losses. As a result, investors turned to potentially more lucrative sources of return,
such as Wall Street, and many rehabilitation projects failed to materialize.19 Despite this
history, Wall Street’s recent debacles actually may spur additional interest in brownfield
investment. However, the need for clear, permanent financial incentives to spur meaningful, market-based brownfield redevelopment projects nationwide remains unsatisfied.
Entrenched Attitudes among Regulators
The latest trend at the legislative level has been to adopt a more user-friendly approach to
redeveloping brownfield sites, including attempts to be more flexible and creative in addressing historical environmental liabilities. Yet despite these efforts, significant differences of
opinion and philosophy with respect to redevelopment, environmental risk, and liability
persist within state and federal environmental regulatory agencies. In many instances, the
belief that the polluter must pay at any cost continues to reign supreme. Yet when the most
successful model brownfield redevelopment projects are analyzed, the results undoubtedly
demonstrate that cooperation between the redeveloper and regulators was the key not only
to successfully remediating the site, but to putting the site back to productive use as well.
Consequently, these goals are not mutually exclusive!
Absence of a Consistent Redevelopment Framework
The absence of clear and coordinated federal and state guidelines for redeveloping brownfields—a deficiency closely related to ambiguous legal liability issues—has hindered redevelopment. Meanwhile, the failure to establish local brownfields redevelopment programs
presents an often overlooked barrier. While many local politicians have elevated the brownfields issue within their communities, few communities or cities have taken positive, concrete steps toward implementing a meaningful brownfields redevelopment strategy. In
fact, most communities lack the concentrated expertise necessary to design and implement
such programs effectively. As a result, developers attempting to work their way through
the maze of city programs and permitting processes frequently abandon the process out of
sheer frustration.
Public Opposition
Although certain community groups voice an interest in promoting the cleanup and redevelopment of neighborhood brownfields, their members understandably expect some assurance that remediation will adequately protect their health and the environment. Some are
intent on ensuring that traditional, heavy manufacturing-type industry is replaced with
nontraditional industries perceived as less harmful to the environment. Unfortunately, this
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perspective often creates a conflict between potential developers and community groups
who want the government to ensure the absolute environmental safety of their neighborhoods without due consideration for the costs involved. Additionally, many communities
continue to insist on redevelopment end-uses for brownfield sites that simply do not make
economic sense.
Limited Demand for Redeveloped Sites
There is no question about the inventory of brownfields for potential redevelopment. As
previously noted, there are hundreds of thousands of these sites nationwide. However, even
if all these sites were identified and completely remediated, the evidence suggests that there
is insufficient market demand for many of these properties due to other market forces (e.g.,
poor location, high crime, decaying infrastructure). Therefore, it is unlikely that investors
would rush in to develop a large number of these brownfields even if the liability issues
were resolved.
Competition from Greenfields
Fierce competition from greenfield communities intent on attracting new development has
contributed to urban sprawl—the practice of building on previously undeveloped land outside of the city limits. Urban sprawl is costly. It allows a city’s existing roads, bridges, water
lines, sewer systems, and rail spurs to go unused, while similar infrastructures are duplicated elsewhere. For the community populated by numerous brownfields, billions of dollars
in previous public and private investment may go to waste.
Yet many developers choose urban sprawl over brownfields redevelopment, in part
because greenfield communities can offer financial incentives, such as tax abatement and
low-cost financing, equal to incentives available from cities where brownfields predominate. To counteract this trend, communities truly interested in meaningful brownfields
redevelopment must go beyond leveling the playing field—they must tilt it significantly in
favor of brownfields reuse.
Understanding Owner Liability under Superfund
The 1970s and 1980s saw the enactment of the nation’s major environmental statutes, most
of which were a response to specific environmental or ecological disasters. The appalling
Love Canal episode in Niagara Falls, New York, was the primary impetus for the enactment of the Superfund statute. It bears noting that the name Superfund may be somewhat
misleading. Although there is a “fund” of federal dollars to pay for a portion of the cleanup
of the sites listed on the National Priorities List and to respond to emergency situations,
CERCLA places responsibility for most of the cost of cleanup on the owners and operators of these sites. 20 In addition, the law is not limited, as might be assumed, to large,
high-profile Superfund sites. Instead, it creates liability for the owner and operator at any
site where there has been a “release” of hazardous substances, regardless of the degree of
contamination. The phrase “hazardous substances” means any substance on a specific set
of lists identified in the statute, regardless of quantity. 21
CERCLA’s reach is broad and unforgiving, in part because of the historical context in
which it was enacted. Clearly, Congress sought to prescribe strong medicine for the environmental maladies suffered by the nation. Judicial interpretation of the statute reflects the
policy assumption that cleanups are best achieved by sending a clear message to site owners and operators that polluters must not only pay but pay dearly for their poor disposal
practices. 22
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Before the Brownfields Act’s changes to purchaser liability in 2002, those parties
acquiring real estate where hazardous substances are present were almost always liable
under Superfund. This liability is joint and several, and it will accrue to most new owners
even if they did not cause any part of the pollution in question. In short, CERCLA gave
new meaning to the term “buyer beware.” In many cases, the liability or cost of defending
unwarranted claims of liability may greatly exceed the value of the property itself. Accordingly, the law has effectively limited the market for many categories of industrial properties.
Bringing Down the Barriers
Leaping the hurdles to the successful redevelopment of brownfields can be an arduous process. Nonetheless, stakeholders across the nation are attempting to do just that. State voluntary cleanup programs have emerged as the gold standard in this area. These programs
have been designed specifically to address the many obstacles to brownfields redevelopment. The goals of these programs include integrating issues involving legal liability, technical requirements, and economic incentives. Many of these programs provide technical
assistance from regulators, liability assurances through covenants not to sue, and financial
incentives, including tax abatement, not available through other state regulatory programs.
Voluntary programs have exploded in popularity because they allow private parties to
initiate cleanups and work cooperatively with state agencies, thus avoiding some of the costs
and delays that would likely occur if the sites were subject to enforcement-driven programs.
These programs have effectively set the stage for meaningful brownfields redevelopment.
The Brownfields Act: A New Federal Commitment
to Brownfields Redevelopment
The Brownfields Act modifies CERCLA in several significant ways, including granting liability relief to small businesses, as well as creating a municipal solid waste exemption.23
For purposes of this discussion, however, the Brownfields Act’s main emphases are (1) to
encourage brownfields redevelopment by providing federal liability relief to prospective
purchasers of brownfield properties and to persons who undertake cleanup of these properties under state law; and (2) to provide funding both to state brownfield programs and to
local governments who seek to return brownfield properties to productive use.
The Brownfields Act serves two functions. First, it creates a funding mechanism to
assist state and local government efforts to redevelop specific brownfield sites and to aid
states in administering their voluntary cleanup programs. Second, it provides relief from
liability under CERCLA for new purchasers of contaminated properties, property owners,
and others who conduct cleanups under voluntary cleanup programs, as well as the owners
of properties that are affected by contamination migrating from contiguous sites.
In the past, concerns about CERCLA liability have discouraged many property owners
and developers from getting involved with brownfield projects. The Brownfields Act’s liability reform provisions, however, are intended to allay those concerns by providing substantial protection for new purchasers and property owners undertaking voluntary cleanup. But
the liability reform protections are not absolute: each comes with qualifications and exceptions, so that the federal government may take enforcement action in unusual cases. Nonetheless, the very existence of these protections (even though incomplete) should encourage
purchasers and developers to undertake brownfield projects.
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Summary of the Brownfields Act’s Major Provisions
The major provisions of the Brownfields Act include the following:
BONA FIDE PROSPECTIVE PURCHASER DEFENSE . Protection from CERCLA liability for purchasers (and their tenants) of contaminated properties, as long as they meet certain requirements, including taking appropriate care with respect to prior releases.24
CERCLA ENFORCEMENT BAR PROTECTING PERSONS UTILIZING STATE VOLUNTARY CLEANUP
PROGRAMS . A bar against federal enforcement of CERCLA against any person, including a
party who owned or operated property at the time of a release, who cleans up a contaminated property under a state voluntary cleanup program. This enforcement bar is limited to
eligible properties that do not include any site that has been already designated for cleanup
under CERCLA or other federal programs. Also, this enforcement bar is not absolute; in
certain exceptional instances, the federal government could bring enforcement proceedings
against a party who had completed a voluntary cleanup under state law. 25
LIABILITY PROTECTION FOR CONTIGUOUS LANDOWNERS . Protection from CERCLA liability for the owners of property that has become contaminated only through the migration
of pollution from other property under separate ownership. In particular, owners of property contiguous to sites with contaminated groundwater cannot be required to undertake a
groundwater investigation or cleanup if the contamination flows under the property, except
in unusual circumstances. 26
“APPROPRIATE INQUIRY” STANDARD FOR THE INNOCENT LAND Clarification of the “all appropriate inquiry” standard required to establish the innocent landowner defense under CERCLA. 27
MODIFICATIONS TO THE
OWNER DEFENSE .
FEDERAL FUNDING TO SUPPORT STATE VOLUNTARY CLEANUP PROGRAMS .
Providing $50
million a year in federal grants to state voluntary cleanup programs. 28
INCREASED FEDERAL FUNDING FOR BROWNFIELD PROJECTS .
Providing eligible entities,
such as local governments, regional authorities, and states with grants of $200,000 (or in
exceptional circumstances, $350,000) for the characterization and assessment of brownfield properties, and up to $1 million for remediation.29 Additionally, the American Recovery and Reinvestment Act of 2009 will provide EPA with an additional $100 million for
cleanup and revitalization projects. 30
While a detailed discussion of the Brownfields Act’s major provisions is beyond the
scope of this chapter, a discussion of the key liability provision added by the act to encourage brownfields redevelopment is contained below.
Prospective Purchaser and Innocent Landowner Liability Protection
Perhaps the most important provision in the Brownfields Act for encouraging the redevelopment of brownfield properties is the one providing immunity from CERCLA liability
for purchasers of contaminated property. Many recyclable brownfield properties remain
unused because of the potential buyer’s fear of acquiring CERCLA liability along with the
property. Historically, CERCLA imposed liability on the current owner of contaminated
property, regardless of whether that owner contributed to the contamination. Although
Congress created an innocent landowner defense when CERCLA was amended in 1986, 31
that defense was available only to property owners who did not know of the presence of
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hazardous substances when they bought the land;32 therefore, the defense did not protect a
knowing buyer of a contaminated brownfield site.
Thus, to encourage new owners to buy and redevelop brownfield sites, the Brownfields Act creates an express exemption from liability as an owner or operator under section
107(a)(1) of CERCLA, 33 for “bona fide prospective purchasers.”34 To qualify as a bona fide
prospective purchaser under the Brownfields Act, a person must acquire property (or be the
tenant of a person who acquires property) after the date of enactment of the proposed new
law, and must be able to prove, by a preponderance of the evidence, each of the following:
• All disposal of hazardous substances occurred prior to that person’s acquisition of
the property.
• Prior to acquiring the property, the purchaser made “all appropriate inquiry” about
the ownership and uses of the property in accordance with the standards applicable
for the “innocent landowner” defense of section 101(35) of CERCLA. In the case of
the purchase of property in residential use by a nongovernmental or noncommercial
entity, appropriate inquiry may be satisfied by a facility inspection and title search
that reveals no basis for further investigation. With respect to nonresidential property, this requirement initially was met by following the American Society for Testing
and Materials (ASTM) due diligence standard (E1527-97) until the EPA promulgated
new regulations establishing standards and practices for due diligence. Now, the purchaser must follow the “all appropriate inquiry” standard.35
• The purchaser provided all legally required notices with respect to the discovery or
release of hazardous substances at the facility.
• The purchaser exercised “appropriate care” with respect to hazardous substances
found at the facility by taking reasonable steps to stop continuing releases; prevent
any threatened future release; and prevent or limit human, environmental, or natural
resource exposure to any previously released hazardous substances.
• The purchaser provided full cooperation, assistance, and access to governmental or
private parties authorized to perform response actions or natural resource restoration
at the facility.
• The purchaser complied with any land use restrictions established or relied on in
connection with a response action, and does not impede the effectiveness of any institutional controls.
• The purchaser complied with any government request for information or subpoena
issued under CERCLA.
• The purchaser has no corporate affi liation or family relationship with another person
who would be liable.
Although some of these requirements apply at the time the property is acquired (e.g.,
the purchaser must conduct appropriate inquiry into the history and use of the property),
many of these provisions relate to the purchaser’s conduct after acquiring the property.
Specifically, the bona fide prospective purchaser continues to have the obligation to cooperate with the government with respect to the property, including providing information and
legally required notices, allowing access to the government or private parties to perform
cleanups, and complying with land use restrictions and institutional controls.
The most significant of these ongoing obligations is the purchaser’s responsibility to
undertake “appropriate care” with respect to hazardous substances on its property. A bona
fide prospective purchaser is not expected to undertake the full-scale cleanup obligations
of a responsible party under CERCLA; otherwise, there would be little purpose in creating
the defense. Rather, the new law requires the prospective purchaser to take “appropriate
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care” of the hazardous substances on the site by taking reasonable steps to stop ongoing
releases, prevent threatened releases, and limit human and environmental contact with
hazardous substances. This “appropriate care” standard is intended to impose less stringent obligations on a prospective purchaser than the “due care” standard demanded of
defendants seeking to establish the third-party defense of section 107(b)(3) of CERCLA.36
Purchasers qualifying for this protection are expected to undertake short-term, less expensive measures that could be performed expeditiously and cost-effectively by a property
owner, not to undertake the type of long-term measures that would be part of a cleanup
program.
There is some confusion, however, whether Congress intended in the Brownfields Act
to use the appropriate care standard in this way. Although the Senate Committee Report
describes the concept of appropriate care as a more modest level of care in connection with
the defense created for contiguous property owners, there is no discussion in the report
of what is meant by the concept of appropriate care with respect to the prospective purchaser defense.37 Further complicating the issue, Congress in the Brownfields Act revises
the preexisting innocent landowner defense of CERCLA, so that a person who qualifies
for that defense has to meet both the appropriate care standard and the due care standard
required under prior law. 38 Because innocent landowners have to meet both care standards,
the implication could arise that the new appropriate care standard is more stringent than
the due care obligation under prior law. Such a construction, however, would be inconsistent with the original concept behind the appropriate care standard and the discussion of
that standard in the Senate Committee Report.
Although the Brownfields Act protects a purchaser from liability under CERCLA, it
does not protect against liability under the RCRA. 39 In the House, the Republicans had
proposed expanding the Brownfields Act’s liability protection to cover the underground
storage tank provisions of RCRA40 and RCRA’s imminent and substantial endangerment
provisions,41 but not provide protection against liability under RCRA’s hazardous waste or
corrective action requirements. But this approach was not incorporated into the final bill.
This omission is significant because many brownfield sites have been contaminated solely
or principally through leaks from underground storage tanks (USTs). Providing prospective purchasers with protections only from CERCLA liability, but not from liability under
the provisions of RCRA relating to USTs, would do little to encourage purchasers to buy
UST sites.
Also, while the Brownfields Act protects the purchaser of contaminated property from
CERCLA liability, the act does not allow the purchaser to reap the financial benefit of
a government-funded cleanup that enhances the value of the property.42 Rather, the act
authorizes the federal government to recoup its unrecovered response costs by imposing a
“windfall lien” on the property. The lien would last until the prospective purchaser resold
the property, at which time the government would receive from the proceeds of the sale the
amount of its unrecovered costs, not to exceed the increase in the fair market value that is
attributable to the government’s response action. Thus, if the government spent $5 million
on cleanup at the property, but the cleanup increased the property’s fair market value by
only $2 million, the maximum amount the government would recover on its lien would be
$2 million. This approach prevents the prospective purchaser from reaping a windfall at the
government’s expense because the government cleanup improved the value of the property;
at the same time, it prevents the government from reaping a windfall at the owner’s expense
if the property appreciates because of owner-funded improvements or other real estate
factors unrelated to the cleanup on the property. The determination regarding whether a
windfall lien applies to a particular site and when the lien is perfected should be carefully
considered.
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Case Studies
Assuming a prospective purchaser is comfortable with the potential legal liability associated with the acquisition, the next logical step is to add a motivated team of professionals
to these projects—professionals who are savvy in the various areas of brownfields redevelopment—who will facilitate the process. Two examples of sophisticated brownfields redevelopment projects, presented in the following sections, demonstrate the dramatic benefits
that can be achieved by adopting a proactive approach to environmentally distressed sites,
using cutting-edge strategies and new state voluntary cleanup programs.
Northcliff: From Abandoned Brownfield to Thriving Retail Center
Demonstrating the tremendous potential for effectively using progressive approaches to
historical environmental problems, the recent redevelopment of the Northcliff project in
Brooklyn, Ohio, has incorporated all the elements of the new state voluntary cleanup programs. The Northcliff project serves as a model for sophisticated brownfield redevelopment
transactions across the nation.
Project History
The Northcliff project entailed redeveloping a 25-acre site located in an inner-ring suburb
of Cleveland, Ohio. Numerous attempts to investigate and redevelop the site had been made
over a period of approximately 15 years. Before entering the project, four environmental
consulting firms had previously conducted both Phase I and Phase II environmental site
investigations at the property. These expensive investigations each led to the conclusion
that the environmental issues at the site involved too great a cost to resolve and created too
great a risk of future environmental liability. As a result, the site remained an underutilized
industrial property, in a largely residential and commercial retail area. In essence, the property’s environmental issues precluded any serious attempts at site redevelopment.
With the enactment of Ohio’s Voluntary Action Program (VAP), the development team
reconsidered the acquisition and redevelopment of the site. The more flexible approach to
environmental cleanup, termination of future environmental liability through the issuance
of a state covenant not to sue, and financial incentives provided by the VAP contributed to a
new regulatory environment that encouraged the project team to move forward with a plan
for site acquisition and redevelopment.
Environmental Issues
By any definition, the site would be identified as a brownfield site. Since 1914, the site
had been used by a variety of commercial and industrial businesses. A large manufacturing building on the site was abandoned years ago by a bankrupt manufacturing company.
The building foundation of a burned-out metals refurbishing manufacturer rested near this
abandoned structure. Former tenants at the site included a plastics manufacturer, an asphalt
plant, warehouses, and several machine shops. While a few tenants still occupied several
older structures on the property, the vast majority of the site was vacant and underutilized.
Historically, the site was used to dump foundry sand, construction debris, and other
fill materials. The primary environmental issues at the site included
• historical fi ll material (foundry sand deposited throughout the site that contained
lead and other heavy metals);
• perched groundwater in several well-defi ned areas of the site impacted by solvents
and dissolved metals; and
• asbestos contained in building materials throughout the site.
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Redevelopment of the site involved converting the property into a major commercial
shopping center with a number of significant tenants. The project’s total size is approximately 240,000 square feet, constituting an investment of approximately $30 million in
demolition, environmental remediation, and construction activities at the site. The project
created nearly 400 full-time and part-time jobs at the developed site. In addition, approximately 350 tradespersons were involved in different aspects of site work and construction.
Risk-Based Remediation Activities
Based on the litany of previous environmental site investigations, anticipated cleanup costs
associated with the project were estimated at up to $13 million. Under the VAP, the environmental team used a risk-based approach to remediation. This risk-based approach demonstrated that remediation could be conducted through both engineering and institutional
controls, resulting in savings of approximately $11 million in anticipated remediation costs.
Creative Financing and Investment Incentives
Project financing has involved a sophisticated public-private partnership. The development team secured a low-interest loan for all remedial activities provided by two different
Ohio public agencies: the Ohio Water Development Authority and the Ohio Environmental Protection Agency’s Water Pollution Control Loan Fund. The public funds are available at a substantially below-market interest rate and were subordinated to the first major
private brownfield loan provided by one of Ohio’s largest construction lenders. The financial mix included approximately 20 percent equity, 10 percent low-interest public financing, and 70 percent traditional private financing. This blend of investment demonstrates
a significant investment by the developer and appropriate level of encouragement by governmental authorities, while still providing adequate security to the traditional lending
source on the project. Further, it allows the government to leverage its limited investment
funds dedicated to brownfield redevelopment by a factor of nearly 15 times. This type of
coordinated financing effort should serve as a model for future brownfield redevelopment
projects.
Other financial incentives available with the project included an income tax credit of
up to $200,000 to the developer. In addition, the project took advantage of a guaranteed
10 years of tax abatement on the increased value of the real estate due to the remediation.
The development team coordinated and manuscripted a package of environmental
insurance to cover all contractors working on the project during the development process.
Environmental insurance coverage protected against third-party toxic tort suits and would
pay for the incremental cost of remediating on-site environmental liabilities that were not
identified by the Phase II investigation but were discovered during site work. This package of insurance also incorporates environmental liability coverage to address the threat
of contingent liabilities after the development process was completed. In fact, several state
brownfield programs have actually encouraged the broader use of environmental insurance
by establishing state subsidized insurance programs to reduce the costs of obtaining environmental insurance on brownfield redevelopments within their states.43
Dramatic Results
With a comprehensive approach to the environmental issues, the results of the project were
dramatic. They included
• a release of liability from the state of Ohio in the form of a covenant not to sue;
• an indication from the EPA, in the form of an EPA “comfort” letter, of its intent not
to “second-guess” Ohio environmental regulators;
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• significant fi nancial incentives for the project in the form of low-interest loans and
tax abatement; and
• the creation of 400 full-time and part-time jobs and 350 construction jobs.
Collinwood Yards
After decades of decay, the Urban Land Institute (ULI) was contacted to perform a study on
what affirmative actions could be implemented to redevelop one of Cleveland’s most notorious brownfield sites. The ULI Advisory Council prepared a report that helped to jump-start
this particular development effort. The city of Cleveland invited a team of expert ULI members to recommend land use strategies that would achieve “the development objectives of
the Collinwood community.”44
ULI’s Analysis and Recommendations
Collinwood is a classic story of industrial decline, experiencing a loss of two-thirds of the
community’s manufacturing jobs since 1970, with about 14,000 of those jobs lost during
the early 1980s alone. The ULI report noted that in 1996 about 42 percent of the community’s adult population was not part of the labor force, which compares to a national average in 1996 of 33 percent. The report also included city estimates that 160 of the area’s 780
acres, or 20 percent of the industrial property in Collinwood, was vacant. Nevertheless, the
panel argued that the community had much to offer potential investors, including valuable
access to rail lines and highways, access to established labor markets, and a substantial
existing industrial base. Collinwood also had surplus land suited for industrial use and,
perhaps most importantly, a strong commitment to the community by local residents and
businesses.
The ULI report focused in on the rail yards—historically part of Conrail’s property—
as the appropriate catalyst for a broader redevelopment effort. The 47-acre Collinwood
Yards had been a railroad facility for more than one hundred years. Actual and perceived
environmental liabilities had been estimated as high as $20 million. The panel identified
“big-box” retail as the highest and best use for the property but suggested beginning with
an industrial park to build community and municipal support.
Less than two years later, the ULI recommendations were implemented at the Collinwood Yards. A Cleveland developer purchased the site and retained a team to resolve the
environmental aspects of redevelopment. While active remediation of certain parts of this
site was necessary, the focus of the environmental remedy was an assessment of the true
risks posed by contaminants at the site in accordance with the requirements of Ohio’s VAP.
A first step toward reclamation of this site was the demolition of a variety of obsolete
industrial buildings. By February 1998, two prominent smokestacks, visible from the entire
Collinwood area, had been demolished. As these landmarks tumbled to the ground, the
Collinwood community took stock of the dramatic historical and cultural changes represented by this project. Throughout demolition, a coordinated and strategic environmental investigation was staged at the site. This investigation was tailored to the development
plans for the site, the expected goals of the risk assessment, and sign-off by the state of
Ohio through the issuance of a covenant not to sue. The covenant not to sue will provide to the developer and future owners of the site a release of liability for environmental
contamination.
The demolition began the implementation of a multifaceted development strategy for
the Collinwood Yards site. The development team envisioned the railroad property functioning as a gateway to the rest of the redevelopment project. The 47-acre site has three
separate land uses. Thirteen acres were sold to a Collinwood-based manufacturing and distribution company, Jergens, Inc., where a 90,000-square-foot expansion facility was devel-
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oped. Seventeen “back acres” were developed as part of a $10 million intermodal transfer
facility. The remaining 17 acres have been redeveloped into the main warehouse and headquarters for the Cleveland Foodbank and a major industrial laundry facility operated by
Sodexho.
Environmental and Financing Challenges
The development panel recognized that environmental cleanup issues would need to be
resolved in a way that would build confidence in the project from the financial community
and local neighborhood organizations. Indeed, the ULI report noted levels of contamination in some portions of the Collinwood area that may have encouraged current owners
to mothball their sites. The Collinwood Yards property does, in fact, suffer from actual
and perceived environmental liabilities. Accordingly, the current owner is working with
future users to address the contamination issues through Ohio’s VAP, encouraged in that
effort by changing technologies and public policy aimed at making cleanups faster and
more efficient. The specific environmental issues at the site included the presence of asbestos and lead paint in the demolished buildings, as well as the presence of underground storage tanks. The site was also affected by soil and groundwater contamination.
This project has been addressed proactively and in cooperation with the Ohio EPA, the
city of Cleveland, and the state of Ohio. The Ohio EPA has worked with the development
team as it has designed and implemented the environmental investigation and remediation
strategy for the site. The city of Cleveland and the state of Ohio provided up to $2 million
for infrastructure and environmental costs related to this project to level the playing field
with suburban greenfield sites. The cooperative effort spurred the redevelopment of the
Collinwood Yards site, which in turn is expected to stimulate other development in the Collinwood area. In essence, the public-private partnership forged between the developer, the
city, and the state has made this project possible and economically viable. Therefore, the
Collinwood Yards project and the Northcliff project stand as models for urban economic
revitalization.
Food for Thought
The environmental and liability issues surrounding brownfields have had the same chilling
effect on real estate developers and lenders as the movie Jaws has had on swimmers. We
know the sharks are out there, and, as is the case with certain sharks, some environmental
liabilities will eat you alive. Being ripped to shreds in the jaws of a ferocious beast is a gruesome way to die. It is not unlike the experience of the unsuspecting loan officer who has
extended credit on property that is subsequently identified as a Superfund site. Yet do we
allow the knowledge that sharks exist to intimidate us into staying out of the water? Shark
experts say that few people actually die from shark attacks.45
Whether you decide to swim or not will depend on how much you know about a given
situation. Are these waters typically shark-infested? If so, what kinds of sharks lurk beneath
the surface? Man-eaters or those that dine on plankton? Can you build a steel cage to protect you from the jaws of death?
Clearly, where you swim—or whether you swim—will depend in great part on your
knowledge of both sharks and the waters in which you intend to swim. It is hoped that new
approaches to environmental liabilities will encourage interested parties to dive into the
waters once more.
A dedicated development team and a creative plan can spark new opportunities through
state voluntary cleanup laws, which will undoubtedly encourage the successful redevelopment of brownfield sites. Recently adopted federal laws and policies also will add to the
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momentum in favor of brownfield redevelopment. Thus, developers and property owners
need not view these projects as “environmental nightmares” but instead as merely another
form of sophisticated real estate transaction.
Notes
1. For a detailed discussion of issues involved in effectively redeveloping brownfield properties,
see Brownfields: A Comprehensive Guide to Redeveloping Contaminated Property
(Todd S. Davis & Scott A. Sherman eds., 3d ed. 2010).
2. EPA Region 5 Office of Public Affairs, Basic Brownfields Fact Sheet (1996); EPA, Brownfields
and Land Revitalization, About Brownfields, http://www.epa.gov/brownfields/about.htm.
3. U.S. OTA, State of the States on Brownfields: Programs for Cleanup and Reuse of
Contaminated Sites, at 8 (1995) [hereinafter State of the States on Brownfields].
4. Pub. L. No. 107-118, 115 Stat. 2356 (2002).
5. See 42 U.S.C. § 9601(39)(A).
6. State of the States on Brownfields, supra note 3.
7. U.S. Conference of Mayors, Brownfields Redevelopment Action Agenda Initial Framework
(Jan. 25, 1996).
8. U.S. Gen. Accounting Office, GAO-05-94, Brownfield Redevelopment; Stakeholders Report
That EPA’s Program Helps to Redevelop Sites, but Additional Measures Could Complement
Agency Efforts (2004).
9. Charles Bartsch, Restoring Contaminated Industrial Sites, 10 Issues Sci. & Tech. 74 (1994).
10. Northeast-Midwest Inst., Coming Clean for Economic Development 1–2 (1996)
[hereinafter Coming Clean].
11. State of the States on Brownfields, supra note 3, at 4.
12. U.S. Conference of Mayors, Brownfields, Recycling America’s Land 2008 Brownfields Survey,
vol. 7 (Jan. 2008).
13. Coming Clean, supra note 10, at 1–2.
14. Steven Lerner, Brownfields of Dreams, Amicus J., Winter 1996, at 17.
15. State of the States on Brownfields, supra note 3, at 6.
16. See Am. Mining Cong. v. EPA, 824 F.2d 1177, 1189 (D.C. Cir. 1987).
17. Environmental Warranty, Inc., Survey of 30 Top Commercial Mortgage Bankers
Nationwide (1995).
18. State of the States on Brownfields, supra note 3, at 8–9.
19. Id.
20. 42 U.S.C. § 9607.
21. 42 U.S.C. § 9601(14).
22. Thus, courts have long read CERCLA to impose joint and several liability on owners and operators found liable under CERCLA. See United States v. Chem-Dyne, 572 F. Supp. 802, 80510 (S.D. Ohio 1983); United States v. Monsanto, 858 F.2d 160 (4th Cir. 1988). Accordingly,
any person falling within any of the four categories of responsible parties is liable for the total
cost of cleaning up the entire site. Liability is not necessarily apportioned equitably among the
various sources of the problem. Further, CERCLA liability is retroactive in that owners and
operators whose disposal practices may have been legal at the time they occurred (e.g., before
enactment of Superfund and related federal and state environmental statutes) may also be found
liable under CERCLA.
23. This discussion is based on and contains excerpts from David B. Hird, Federal Brownfields
Legislation, ch. 4 in Brownfields, supra note 1.
24. See 42 U.S.C. § 9601 (40).
25. See 42 U.S.C. § 9628(b)(1)(A) and (B).
26. See 42 U.S.C. § 9607(9)(1)(A).
27. See 42 U.S.C. § 9601 (35). See also 40 C.F.R. pt. 312 et seq.
28. See 42 U.S.C. § 9604(k).
29. See 42 U.S.C. § 9604(k).
30. EPA, Brownfields Program Activities Under the Recovery Act, http://www.epa.gov/brownfields/
eparecovery/index.htm.
31. CERCLA § 101(35), 42 U.S.C. § 9601(35).
32. 42 U.S.C. § 9601(35).
33. 42 U.S.C. § 9607(a)(1).
34. H.R. 2869 § 222, creating new CERCLA §§ 101(40), 107(r), 42 U.S.C. §§ 9601(40), 9607(r).
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35. See 40 C.F.R. pt. 312 et seq. See also U.S. EPA website at http://www.epa.gov/swerosps/bf/
regneg.htm#final_rule.
36. 42 U.S.C. § 9607(b)(3).
37. S. Rep. No. 107-2, 107th Cong., 1st Sess. 10–13 (Mar. 12, 2001), accompanying S. 350.
38. H.R. 2869 § 223, revising CERCLA § 101(35), 42 U.S.C. § 9601(35).
39. 42 U.S.C. §§ 6901 et seq. Sometimes called the Solid Waste Disposal Act.
40. 42 U.S.C. §§ 6991 et seq.
41. RCRA § 7003, 42 U.S.C. § 6973.
42. H.R. 2869 § 223(b), creating a new CERCLA § 107(r), 42 U.S.C. § 9607(r).
43. A number of states have studied the benefit of establishing state-subsidized insurance programs
for brownfields redevelopment. States with such programs include Massachusetts.
44. Copies of the report, “Collinwood Neighborhood, Cleveland, Ohio: Retooling an Older Industrial Community,” are available from the Urban Land Institute.
45. National Geographic News estimates that sharks kill fewer than one person every two years
in United States waters. Meanwhile, on average lightning kills more than 41 people each year
in coastal states. Brian Handwerk, Shark Facts: Attack Stats, Record Swims, More (June 13,
2005). Independent studies confirm this finding; between 1984 and 1994, sharks killed just
seven people in U.S. waters-three each in Hawaii and California, and one in Florida. To put this
number in perspective, according to certain mathematicians, the odds of being hit by lightning
are 600,000 to 1; the chances of winning the Florida Lottery are 13,000,000 to 1; and the odds
of being attacked by a shark are roughly 300,000,000 to 1. Steve D’Oliveira, Odds Against
Shark Attacks, Sun-Sentinel (Fort Lauderdale), Sept. 27, 1995, at 1-E.
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