Managing Environmental Risks Through Brownfield Programs When Buying or Leasing Real Estate in the United States | Arnall Golden Gregory LLP

US environmental laws can be intimidating for a foreign investor. For example, federal and state laws may impose strict liability, that is, liability regardless of fault or intent, on the owner or tenant of contaminated property, sometimes referred to as “contaminated property”. . Such liability could result in the imposition of penalties, the obligation to carry out clean-up work, the obligation to reimburse another party for its damages or the restriction of the use of the property itself, even if the contamination occurred before the acquisition or rental of the property or if the contamination was not caused by the owner or the tenant. However, there are various methods an entity can use to limit or avoid such liability, as well as unforeseen costs, time and expenses. The purchaser or new tenant of a property likely to be contaminated can protect themselves by exercising due diligence and taking advantage of one or more of these methods.

A frequently used method of managing environmental liability is participation in a “Brownfield program”. Brownfield programs provide liability protection and other benefits to a buyer or new tenant of real estate and have been adopted by several states. Typically, brownfield programs require a party to apply for acceptance before or within a short period of time after acquiring a real estate interest. Both the property and the applicant must meet the particular criteria for this program. In the state of Georgia, for example: (1) the property must have a pre-existing release of a hazardous substance, but it cannot already be subject to cleanup requirements under other environmental laws; and (2) the plaintiff must not be a person who contributed to the contamination or have a close relationship with a person who contributed to the contamination, and the plaintiff must not be in violation of any order or environmental law. The applicant must agree to adequately assess the environmental conditions of the property, if not already done, and to address any discharge that exceeds regulatory cleanup levels; the proposed assessment and remediation work is presented in the application as part of a proposed remedial action plan. Finally, the applicant must certify to the agency that they have completed their corrective action plan tasks after all work has been completed.

In return, an applicant will receive a “Limitation of Liability” under the Brownfields Act for any contaminants they have assessed and/or treated. Limitation of liability is generally granted as soon as a claim is approved, subject to full execution of the corrective action plan. The limitation of liability becomes final upon approval of the applicant’s certification of compliance. The scope of a limitation of liability varies by state, but generally includes protection against any claim by the government for additional cleaning as well as by a third party, such as a neighboring property owner.

Participation in a brownfields program also offers several other benefits. Remediation requirements may be reduced depending on the specific intended use of the property and the likely risks of exposure to human health or the environment. Residential use will require stricter sanitation than industrial use; therefore, the cost of cleaning up a property for an industrial plant will be much less than the costs of cleaning up a property to make it into a housing estate. A potential buyer or tenant will have a good estimate of how much they will need to spend and how long it will take to address environmental issues before acquiring the property, allowing for better budgeting and costing. A very important benefit is that the Brownfields Limitation of Liability applies to the land, meaning the protections pass from the original claimant to all subsequent owners and tenants of the property. The existing brownfield protection is a significant advantage when marketing the property if and when the owner wishes to sell or re-let it.

As with the extent of liability protection, other brownfield benefits may also vary from state to state. Using the example of the Georgia program, a buyer or new tenant in the brownfields program is exempted from treating any groundwater contamination (which is often the most expensive type of remediation work), and the plan Corrective action can be executed on its own, only requiring government intervention when the entity submits its final certification of compliance with the corrective action plan. Not being required to obtain government approval at various stages will save the landlord or tenant considerable time in completing the project.

Many states also offer tax benefits. The Georgia Brownfields Program incorporates property tax abatements up to the amount of eligible brownfield costs incurred. Eligible brownfield costs include nearly all expenses related to valuing the property, working with consultants, cleaning up the property, preparing and submitting all required documents, and finalizing limitation of liability; legal fees and actual construction costs are not eligible. Essentially, a new landlord or tenant can be reimbursed for all of their environmental costs through tax savings while recouping brownfield liability protection, expense and time limitation and certainty, and marketing benefits for resale.

In short, a potential buyer or tenant might want to give a contaminated property a second look. Such an investment can yield higher returns than settling on own property.

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