When Life Gives You Lemons, Make Lemonade! Risks and Rewards of Brownfields Development in Virginia

The Commonwealth of Virginia supports brownfield redevelopment. Returning contaminated or potential contaminated property to productive use is the intelligent thing to do for businesses and the environment. To make this happen, Virginia  has enacted laws that establish supportive programs and provide incentives to persons and businesses to successfully undertake brownfield redevelopment.1 This quote is taken from the guidance manual issued by the Virginia Department of Environmental Quality (DEQ) to assist its staff in conducting the business of the commonwealth's Brownfields Program. It provides the foundation for a regulatory program that has the unusual privilege of being recognized and respected by environmental protection and business interests alike.

The redevelopment of former industrial or commercial property creates a multitude of benefits-not only will it bring an idle piece of property back into productive use, but it also can protect natural resources by eliminating a source of contamination, take the place of the development of (and, thus, preserve) virgin land and, frequently, reduce urban sprawl.  The DEQ's Brownfields Program is intended to promote this redevelopment while limiting the liability for those who undertake it.

We are fortunate to have access to an excellent program. Virginia was recognized for its pioneering brownfields legislation at Brownfields 2004, a conference in St. Louis where the commonwealth was acknowledged as having one of the most innovative statutes in the country.  Delegate Terrie L. Suit, a sponsor of this legislation, and Chris M. Evans, DEQ brownfields coordinator, described Virginia 's statute and regulatory program at the conference.2

How does one take advantage of this program? And, how does one make certain that potential liability is truly limited?

Upon identifying a candidate property, and preferably before purchasing it, the first step should be to evaluate its environmental conditions.  This process is known in the regulatory arena as making all appropriate inquiries, or conducting Phase I and Phase II environmental site assessments.3  The information gathered during the site assessment phase determines the issues that must be resolved prior to site development.  These issues generally fall into two categories:  site remediation and limitation of liability.  The DEQ's Brownfields Program is designed to resolve both issues.

The Virginia Brownfield Restoration and Land Renewal Act4 (the Brownfields Act) establishes mechanisms similar to those created on the federal level by amendments to the Comprehensive Environmental Response, Compensation and Liability Act.5  Categories of parties to whom liability protection is made available include bona fide prospective purchasers, contiguous property owners, innocent purchasers and those who obtain property through inheritance.  The Brownfields Act specifically limits liability for entities that qualify for these categories and no review or written documentation from the DEQ is required in order to obtain this protection.  In many cases, though, a financial institution lending money for a transaction or construction will require written proof of its borrower's status.  In those cases, the DEQ will issue comfort letters to parties who meet the criteria in a given category.

Since a party can qualify for these categories without incurring any obligation to conduct cleanup activities at the site, these methods of liability protection have a certain appeal.  For sites with minimal environmental issues, this approach works well.  Care must be taken not to rely excessively on the protection these mechanisms provide, however, as the protection has some limitations.  For example, one of the conditions that must be satisfied in order to qualify for such protection requires that the landowner exercise appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance. 6   The exercise of appropriate care is defined in the questions and answers section of the DEQ Brownfields Manualas taking reasonable steps to stop any continuing release, prevent any future release, and prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substances. In other words, it is possible that, in order to maintain the liability protection obtained by fitting into a certain category, a landowner may be required to conduct the remediation that he or she thought had been avoided.

Another potential pitfall is that these categories of liability are close to, but not identical, to their federal counterparts.  Thus, a landowner may qualify for protection against enforcement on the state level, only to face federal liability.  None of these mechanisms protects a landowner against liability for claims made by nongovernmental parties such as neighbors and people who live or work on the property.  In some cases, conservative financial institutions may not be satisfied with the level of protection offered by a DEQ comfort letter when contamination remains on the property.  To obtain the greatest assurance that liability is limited, a purchaser of a contaminated property should participate in the Voluntary Remediation Program (VRP).7

The VRP was authorized by the Brownfields Act.8  The DEQ promulgated regulations implementing the VRP effective July 1, 2002.9  The process set forth in the regulations is advertised as a straightforward one by the DEQ.  But the process can be daunting.  Many of the steps involve making determinations on which reasonable minds can and do disagree.

The first and most important step required of parties wishing to participate in the VRP is the eligibility determination.10 An applicant must submit information regarding the site to the DEQ.  The VRP facilitates site cleanup outside of the DEQ's enforcement authorities.  If there is an existing violation of environmental laws on the site, however, the site will not be accepted into the VRP.  The DEQ provides amnesty from civil penalties for those who voluntarily disclose violations of state law discovered during an effort to restore a property to productive use.  However, such contamination will be addressed through the strict provisions of the solid or hazardous waste regulatory program.  The remediation of contaminated sites through the VRP is more flexible.

A definitive statement from the DEQ that there are no issues of regulatory concern on a piece of property being considered for purchase would ease a prospective purchaser's concerns about taking on potential liability.  At this time, the only method for obtaining a DEQ determination that there are no violations existing on a particular property is by seeking an eligibility determination through the VRP.  The comfort letters described above do not include an opinion stating that no violations exist on the site.  They merely state that the limitation of liability will not apply if there is a violation of the federal Resource Conservation and Recovery Act.  Historically, it was possible to obtain a letter from a DEQ regional office stating that no violations were evident.  Financial institutions, prospective purchasers and their lawyers became accustomed to seeing these letters in conjunction with real estate transfers.  To the chagrin of many citizens of Virginia , this sort of written documentation is no longer available.

The DEQ is careful to point out that the V in VRP is for voluntary and that withdrawal from the program at any time is permitted without penalty.  Clever purchasers could consider submitting a request for an eligibility determination, obtaining acceptance into the program %u2013 which constitutes a determination that there is no remediation required by law on the property-and then withdrawing.  This request could be made prior to purchase, with the purchaser serving as a representative of the seller.  Such purchasers might be too clever by half.  A conclusion could be drawn that the landowner did not want to do the right thing and thus pulled out of the program rather than completing it, leaving a contaminated site for development.  In an arena where perceptions are important, a move that could reflect badly on your reputation is generally not worth taking.

Once accepted into the VRP, the participant must prepare a voluntary remediation report, which consists of various subparts including a site characterization report, a remedial action work plan, documentation of public notice and a demonstration of completion.  The potential for regulatory flexibility exists during this step.  The scope of each element of the voluntary remediation report can and should be discussed with the DEQ's Brownfields Program staff as the steps are initiated.  One should consult with the DEQ project officer assigned to a VRP project as the elements of the voluntary remediation report are developed.  Although the report's subparts are discussed separately below, development of the separate parts often occurs simultaneously.

These discussions begin with the scope of site characterization.  Although the program requires that site characterization include the results of all investigation conducted at the site, it is recommended that the sampling methodology (including constituents to be tested, the testing protocol and the sample locations) all be approved in advance by the DEQ in order to ensure that the DEQ will accept the data.  This data will be the basis for the site risk assessment.

The risk assessment is included in the site characterization report and should include an evaluation of the human health and ecological risks posed by any releases discovered on the site. The DEQ Web site includes detailed guidance for the conduct of risk assessments.12   The assessment of risks posed by release of contaminants is the most critical element of the VRP process.  As the decision regarding site remediation is controlled by the findings of the risk assessment, technical accuracy in its performance is critical.  Accuracy is made difficult by the fact that risk assessment is more art than science, and reasonable people frequently disagree on the actual risk posed by a contaminant.  Again, consultation with the DEQ project officer and risk assessment scientist is absolutely essential to the success of this stage of the VRP process.  Note that this assessment must not only cover people who may ultimately use the property once development is complete, but also workers involved in on-site construction activities.

Once the risk assessment is complete, it can be determined whether remediation is required for the site and the remedial action work plan can be prepared.  Remediation goals in the VRP may be established based on either background levels or on risk assessments.13  If the site meets these goals, the VRP process can be completed without remediation.  The exact nature of remediation required is dependent upon the final use of the property.  Residential uses invoke more stringent remediation requirements than industrial or commercial uses.  The scope of remediation also is dependent upon whether or not the landowner is willing to accept restrictions on the use of the property, such as restrictions on the use of ground water for purposes other than environmental testing.  The few paragraphs of this paper devoted to the risk assessment, the establishment of remedial goals, and the selection of a remedial action do not adequately represent the level of time and attention that must he given to this portion of the VRP process.

At this point in the VRP, the site characterization and proposed or completed voluntary remediation must be published for public comment.  Proof of thirty-day public notice is required before issuance of the certification of satisfactory completion of remediation, the final step of the VRP process.

Once the DEQ is satisfied that the objectives of the remedial action work plan have been met and that the established cleanup standards for the site have been achieved, the DEQ director can issue the certification of satisfactory completion of remediation.  The VRP process is then complete.  This certification protects the landowner from prosecution by the DEQ under the Virginia Waste Management Act,14 the Virginia State Water Control Law,15 the Virginia Air Pollution Control Law,16 and other applicable Virginia law.  This protection is limited, however, to site conditions at the time of issuance as those conditions are described in the voluntary remediation report for the site.  Should additional releases of contaminants not addressed through this VRP process be identified at the site, they must be addressed separately.

The certification of satisfactory completion of remediation runs with the land, so that any future owner of the subject property also receives the benefit of the liability protection the certificate provides.  The DEQ has entered into a memorandum of agreement with the U.S. Environmental Protection Agency (EPA) in which the EPA indicated its intent to give deference to the Virginia VRP when identifying enforcement targets.17  Thus, completion of the VRP can also limit a landowner's liability under federal environmental laws.  The certification does not limit liability to third parties, but can be used as evidence of a good-faith effort to protect human health and the environmental in the event a third party claim is filed against a landowner.  There is a financial benefit to conducting a brownfields cleanup, in addition to the obvious increase in value of the property.  The Taxpayer Relief Act of 1997 provides a tax benefit.18 Eligible remediation costs can be claimed as a current expense.  Taxpayers can thereby reduce their taxable income by the cost of their eligible cleanup expenses.  In the interest of facilitating brownfields remediation, Virginia offers low-interest loans for these projects through the Virginia Resources Authority.

Despite the benefits associated with taking advantage of any of the liability limitation options described above, Virginia 's brownfields renewal program could be even more successful.  Many landowners are concerned that an irrevocable stigma attaches to their property once they admit that it is contaminated,19 and thus they are reluctant to participate in a public remediation program.  Other landowners are concerned that the cost of the steps required to satisfy the DEQ and obtain the certification of satisfactory completion will exceed the ultimate value of the property.  But the program is still new and the DEQ's Brownfields Program staff is mounting an impressive marketing campaign to educate the public about brownfields renewal.  If the real estate market continues along its current path, this program will develop and thrive in the coming years.

Endnotes
  1. Brownfields Land Renewal, Brownfields Manual, Virginia Department of Environmental Quality, March 12, 2004.
  2. See Brownfields 2004 proceedings at www.brownfields2004.org.
  3. Currently, the American Society of Testing and Materials's Standards E-1527-2000 and E1527-97 are recognized as the benchmark for the conduct of environmental site assessments.  The U.S. Environmental Protection Agency is in the process of codifying assessment standards, published as proposed on August 26, 2004, at 69 Fed. Reg. 52542.
  4. Virginia Code %uFFFD%uFFFD 10.1-1230 through 10.1-1237.
  5. H.R. 2869 entitled the Small Business Liability Relief and Brownfields Revitalization Act. H.R. 2869 amended the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. 9601 et seq.  The bulk of the amendment is contained under Title II of the bill %u2013 which is called the Brownfields Revitalization and Environmental Restoration Act of 2001.
  6. Virginia Code %uFFFD 10.1-1234.
  7. In some cases, it is possible to require the former owner of the property to retain responsibility for participation in the VRP, or to create an escrow fund through the purchase agreement holding back some of the purchase price to cover the costs of the new owners participation.
  8. Virginia Code 10.1-1232.
  9. 9 VAC 20-160
  10. 9 VAC 20-160-40.
  11. 9 VAC 20-160-70(A)(1)(a)
  12. www.deq.virginia.gov/vrprisk/:  The Risk Assessment Guidance was updated on July 11, 2005.
  13. 9 VAC 20-160-90
  14. Virginia Code %uFFFD%uFFFD 10.1-1400 et seq.
  15. Virginia Code %uFFFD%uFFFD 62.1-44.2 et seq.
  16. Virginia Code %uFFFD%uFFFD 10.1-1300 et seq.
  17. Superfund Memorandum of Agreement between the Virginia Department of Environmental Quality and the U. S. Environmental Protection Agency, Region III, January 11, 2002.
  18. Pub. L. No. 105-34, 111 Stat. 788 (TRA '97).
  19. Restrictions on the use of property are generally recorded in the public land records of the county.

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2017.

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