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The Redevelopment of Environmentally Damaged Property — A Less Expensive Way to Relocate or Grow

As part of your plans to expand your growing commercial business, you have found an abandoned building that is perfect for your needs.  However, the soil and groundwater at the property are contaminated.  Buying contaminated property is risky because the owner and operator of such a facility are exposed to substantial cleanup liability simply by owning or operating the property.  This liability even can exceed the value of the property.  Is there a way to make use of the abandoned building while being protected from liability? 

The North Carolina Brownfields Program has been designed to address this very problem.  A "Brownfield" is an abandoned or underutilized property, with or without structures, that suffers from historical contamination.  The Brownfields Property Reuse Act of 1997 provides special protection to "Prospective Developers" of Brownfield properties that meet certain qualifications and requirements.  Essentially, in exchange for agreeing to certain site-specific land use restrictions or other measures intended to protect facility occupants and the public, the Prospective Developer is insulated from expensive cleanup liability.  Most importantly, costly complete environmental cleanup of the site to state standards is not required.  In addition, certain tax benefits are available to the Prospective Developer. 

The protection to you as the Prospective Developer will be in the form of a "covenant not to sue" by the government, provided you abide by requirements spelled out in a Brownfields Agreement with the State.  The Brownfields Agreement sets out the restrictions that will be made applicable to the redeveloped property, such as no use of groundwater for human consumption, no excavation or construction in certain contaminated areas, or limitations on use of the property. 

Obtaining a Brownfields Agreement involves two steps.  First, you will need to submit an application to the North Carolina Department of Environment and Natural Resources ("DENR") describing the property, your intended use of it, and all available environmental information; and including evidence of community benefit and other documentation such as maps and site drawings.  Importantly, you must certify that you are not responsible under state law for causing or contributing to the contamination (i.e., you are not the "Responsible Party" as defined in the environmental laws and regulations) or affiliated with the Responsible Party.  This first step ends when DENR issues a Letter of Eligibility and accepts the site into the Brownfields Program. 

The second step involves a detailed assessment by DENR of the potential risks to public health posed by the historical contamination and identification of the measures that will make the property safe for its intended use.  In some cases, additional site assessment or cleanup may be required.  This second step also involves negotiation of the Brownfields Agreement, including the measures needed to minimize risks, as well as a 30-day public comment period. 

In the past, turnaround times for DENR to determine eligibility, complete the risk assessment, and negotiate a mutually-agreeable Brownfields Agreement have been painfully slow.  In some cases, a real estate transaction cannot survive an extended timetable, sometimes exceeding one year or more.  Recently, it appears that DENR's processing time has improved greatly, and Brownfields Agreements now are being finalized on a faster basis.  To date, about 160 Brownfields Agreements have been recorded in North Carolina. 

Conclusion

The Brownfields Program offers a potentially helpful option for putting contaminated industrial and commercial properties back into productive economic use, and provides an opportunity to obtain and utilize such property at a much reduced cost.  The economic benefits can be substantial.  However, to avoid costly delays in finalizing a Brownfields Agreement, careful planning, documentation, and coordination with DENR staff are critical.  If that "perfect facility" is your goal, the effort may be worth it. 

© 2010, Ward and Smith, P.A.

For further information regarding the issues described above, please contact Frank H. Sheffield, Jr.

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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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