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Hidden Costs of Incomplete Environmental Cleanups

January 14, 2015

It goes without saying that for the occupants of contaminated property the contamination can require significant costs to remediate.  In Pennsylvania, New Jersey, and other states, most properties that are “remediated” actually undergo little or no actual cleanup.  Instead, contamination is left in place, and “site specific standards” are created in order to prevent exposure to that contamination.  These standards rely on “institutional” controls, such as a covenant on the deed which prohibits the use of groundwater or the disturbance of soil, and “engineering” controls, such as asphalt or other barriers which prevents exposure to soil contamination and harmful vapors.  The general thought, of course, is that these controls provide the same protection as complete remediation, but at a fraction of the cost of replacing huge volumes of dirt and cleaning up groundwater.
 
Site-specific standards represent one of the major factors in bringing dormant properties back into productive use.  However, in most cases, property owners, environmental consultants, and lawyers fail to fully consider a number of complications and costs that may subsequently arise.  These include:
  1. Subordination agreements: To even impose institutional controls, the property owner generally has to identify every potential interest holder at the property, and obtain their written, recorded consent.  This may include municipal and utility owners of rights of way, adjacent owners of restrictive covenants, owners of rights of first refusal, existing lenders and lessees, and entities with whom the owner has entered into an agreement of sale.  Negotiating language with them and the regulatory agency can take upwards of eight months for complicated properties.
  2. Affirmative activity and reporting obligations: The property owner may need to conduct future groundwater sampling, and to implement a complicated plan for protecting workers, testing soil, and disposing of soil during future excavation work.  The owner will also have to submit periodic compliance reports to the agency, and advise the agency when specific activities (like construction projects, building permit applications) or property transactions (like leases, loans, or sales) are going to occur.  Implementing these activities costs time and money. 
  3. Accidents and liabilities:  The presence of affirmative obligations like those above invites repeated opportunities for accidental non-compliance and penalties.  
  4. Additional, agency-imposed cleanup obligations:  The regulatory agency’s review of periodic and activity-specific reports raises the repeated risk that the agency will take a fresh look at the entire cleanup plan and decide that something else should be done.  
  5. Delays in future transactions:  The owner will have to disclose controls and obligations to prospective purchasers, lenders, and perhaps lessees, each of whom may conduct some level of their own review, and may even require more sampling. The more complicated the cleanup and controls, the longer it takes these entities to conduct their due diligence, and the longer it takes the owner to close on deals.
  6. Additional, contractually-imposed cleanup obligations:  As with regulatory agencies, prospective purchasers, lenders, and lessees may want the owner to do something more, such as conduct some additional cleanup, as a condition of becoming involved with the property.  Alternatively, of course, they may have no tolerance for remaining contamination and decide to walk away (e.g., many prospective charter schools or day care centers). 
  7. Loss of cost-recovery opportunities: While the costs of incomplete remediation may not be enough to cause a property owner to attempt cost-recovery litigation against the entity that caused the contamination or to seek contractual indemnification from the prior owner, the costs of future, additional remediation may tip that scale – but by then, the period for bringing a claim may long have passed.
Paul M. Schmidt, Esq. is Chair of the Environmental Practice Group at Zarwin Baum.  He can be reached at (267) 765-9636 or at pmschmidt@zarwin.com.  This article contained legal information and should not be construed as legal advice.  It is not a complete presentation, and its applicability to individual circumstances will vary.

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