By Bowen Ota

Brownfields as defined by EPA, are abandoned, idled, or under-used industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. The EPA’s Brownfields Initiative goal is to assist communities in revitalizing these properties, (both environmentally and economically), mitigate potential health risks, and restore economic vitality to areas where Brownfields exist. While this Initiative assists communities it can also help developers, as well as, owners and/or PRPs of these sites through the use of Prospective Purchaser Agreements (PPAs).

Guidance on settlements with prospective purchases of contaminated property (e.g., Brownfields) has been provided by EPA in its 1989 document entitled "Guidance on Landowner Liability Under Section 107(a) of CERCLA, De Minimis Settlements Under Section 122 (g)(i)(B) of CERCLA, and Settlements with Prospective Purchasers of Contaminated Property" ("the 1989 guidance").

Nevertheless, the recent May 1995 guidance by EPA restates much of the 1989 guidance, but revises the original criteria used to determine whether a PPA is appropriate. According to the revised guidance, the following criteria should be met before an agreement is made between the Agency and the prospective purchaser:

  • Ensure that EPA does not become unnecessarily involved in private real estate transactions, therefore, an EPA action at the facility must have been taken, is ongoing, or anticipated to be undertaken by the Agency. Consideration should also be given to information from CERCLIS, a state agency through submissions from the prospective purchaser, such as results of an environmental audit or site assessment.
  • Encourage a more balanced evaluation of both direct and indirect benefits to the government and public, rather than the previous guidance where benefit was measured only in cost reimbursement or work performed.
  • Continue operation of the facility or new site development with due care not to aggravate or contribute to the existing contamination or interfere with EPA’s response action.
  • Continue operation or new development of the property without posing health risks to the community and those persons likely to be present at the site.
  • Demonstrate that the prospective purchaser is financially viable.

This revised criteria allows the Agency greater flexibility to consider PPAs with Covenant Not To Sue and is extremely helpful to those entities wishing to sell their contaminated land to a prospective purchaser. Under this new guidance, the prospective purchaser would be protected by the Covenant Not To Sue for liabilities related to the existing contamination. This makes the property more viable for the purchaser, and in turn, increases the value for the seller. The funds generated from the sale of the land could then be used to offset any remediation costs and the seller would be free of long-term operation and maintenance costs.

However, there are aspects of the current Brownfields Initiative, which need some refinement in order to be more attractive to both the buyer and the seller. For example, according to the guidance, once the seller sells the property to the prospective purchaser, the seller relinquishes control of the property, yet retains all liability associated with both past, present, and future issues related to the contamination on site. Barriers of EPA’s present guidance that may be discouraging the prospective purchaser include: EPA’s stringent clean-up standards, financial return on investment, bureaucratic delays in cleanup and redevelopment, and liability for third party claims.

These important points have been outlined to EPA by the Environmental Financial Advisory board along with possible solutions to these issues. At the present time, EPA has not decided whether to address the issues or adopt the issues and possible remedies to the real or perceived barriers of Brownfields redevelopment.

Criteria (and example PPA structure agreement) for entering into PPAs/Covenants Not To Sue with prospective purchasers of contaminated property, along with the barriers of Brownfields development, can be found in the Environmental Links section (under U.S. EPA Brownfields). Also of note is the upcoming Brownfields ‘98 Conference: The Basics and Beyond Showcasing Successful Partnerships which will be taking place November 16-18, 1998 at the Los Angeles Convention Center.

C2REM is currently working with developers, law firms and financial institutions on Brownfields development projects. Please contact C2REM with any questions regarding the above issues or should you need assistance with a specific Brownfields project.

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