A Primer on Environmental Due Diligence and Remedial Programs that Can Save a Real Estate Transaction

Transcription

1 A Primer on Environmental Due Diligence and Remedial Programs that Can Save a Real Estate Transaction I. Why is Environmental Due Diligence Necessary? A. Potential Legal Liabilities from Becoming the Landowner Owner or Operator, and Available Defenses The risk of incurring environmental liabilities merely from acquiring title to contaminated property arises primarily from the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERLCA or Superfund. 42 U.S.C et seq. CERCLA was enacted to address the public health and other threats posed by sites where hazardous substances have been, or may be, released into the environment. In addition to establishing the Superfund - a fund to cover the cost of cleaning up sites for which no responsible party can be made to pay, CERCLA gives the federal Environmental Protection Agency ( EPA ) broad powers to clean up facilities contaminated by hazardous substances, either by arranging for the cleanup itself or ordering a responsible party to do so. 42 U.S.C. 9604, A broad range of chemicals and wastes that are toxic or otherwise harmful to human health or the environment are included within the scope of hazardous substances governed by CERCLA. 42 U.S.C. 9601(14). Petroleum and other oil products, however, are excluded from the definition of hazardous substances. Id. A release of petroleum or other oil products are governed by state law. See e.g., North Carolina Oil Pollution and Hazardous Substances Control Act, N.C. Gen. Stat et seq.

2 A facility under CERCLA includes any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located. 42 U.S.C. 9601(9). Section 107 of CERCLA imposes strict liability for the costs of responding to a release or material threat of a release of hazardous substances on a wide range of potentially responsible parties or PRP s. In general, anyone who incurs cleanup costs, whether it is EPA, a PRP or other private party, can sue PRP s to recover those costs, or a fair contribution of those costs. 42 U.S.C. 9607(a), 9613(f). The PRP s are: 1. the owner and operator of the facility; 2. any person who at the time of disposal of any hazardous substance owned or operated the facility at which such hazardous substances were disposed of; 3. Any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility owned or operated by another party and containing such hazardous substances; and 4. Any person who accepts or accepted hazardous substances for transport to disposal or treatment facilities. 42.S.C. 9601(a)(1)-(4)(emphasis added). The current owner and operator of the facility are liable pursuant to Section 107(a)(1), even if no disposal of hazardous substances has taken place during their ownership, unless they qualify for the defenses discussed below. Again, environmental due diligence is conducted to try to qualify for those defenses. 2

3 The Fourth Circuit Federal Court of Appeals, whose jurisdiction includes North Carolina, has broadly interpreted the term disposal as used in Section 107(a)(2) to impose liability not only for active involvement in the dumping or placing of hazardous substances, but for ownership of the facility at a time that hazardous substances were spilling or leaking. Nurad, Inc. v. William E. Hooper & Sons, Inc., 966 F.2d 837, 846 (4 th Cir. 1992). Thus, for example, if a tank, pipe or other vessel that is no longer actively used on the property contains hazardous substances that continue to leak from the tank, pipe or vessel, anyone who owned or operated the property during this passive leaking qualifies as an owner or operator during time of disposal. This may be true even if someone bought the property unaware of the existence of the underground tank or piping that is the source of this passive leaking. The term owner or operator as used in defining who may be liable does not include a unit of State or local government which acquires ownership or control of the facility involuntarily, through bankruptcy, tax delinquency, abandonment. 42 U.S.C. 9601(20)(D). 1. Defenses to Federal Superfund Liability For anyone who meets any of the criteria stated above, the defenses to CERCLA liability are very limited. Those are the release of hazardous substances was caused solely by an act of God, an act of war, or by a third-party in certain circumstances. 42 U.S.C. 9601(b). The innocent landowner defense is technically just the third-party defense asserted by a current landowner. Essentially, an innocent landowner is one who bought the property after the disposal took place, did not know or have reason to know of the prior disposal of hazardous substances after making appropriate inquiries about the property, exercised due care with respect to the 3

4 hazardous substances once detected, and took precautions against foreseeable acts or omissions of the responsible third party. 1 There is also a new defense for one who qualifies as a bona fide prospective purchaser or BFPP. There are similarities and differences between an innocent landowner and a BFPP. A BFPP, like an innocent landowner, must have acquired the property after the disposal took place, and must have conducted appropriate inquiries about the property. Unlike an innocent landowner, however, a BFPP does not have to show that they did not know or have reason to know of the prior release of hazardous substances. This defense was just added in 2002, and many questions about it remain to be resolved by the courts. However, one should be able to qualify as a BFPP even if they learn about the prior release of hazardous substances during their due diligence, provided they meet the qualifications of a BFPP. Both the innocent landowner and BFPP requirements are set forth below. Notably, conducting due diligence is required for either of these defenses to apply. i. The Third-Party Defense for an Innocent Landowner. To qualify as an innocent landowner, the current owner of the facility must show: 1 These defenses are set forth in Section 107(b) of CERCLA, which in relevant part provides: There shall be no liability under subsection (a) of this section for a person otherwise liable who can establish by a preponderance of the evidence that the release or threat of release of a hazardous substance and the damages resulting therefrom were caused solely by-- (1) an act of God; (2) an act of war; (3) an act or omission of a third party (other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant (except where the sole contractual arrangement arises from a published tariff and acceptance for carriage by a common carrier by rail, if the defendant establishes by a preponderance of the evidence that (a) he exercised due dare with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances, and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions. 42 U.S.C. 9607(b). 4

5 1) The release or threat of a release of a hazardous substance was caused solely by a third party; 2) The third party is not an employee or agent of the current owner; 3) The acts or omissions of the third party did not occur in connection with a direct or indirect contractual relationship to the current owner, or if there was a contractual relationship (e.g., the one who sold the property to the current owner is a PRP), the current owner acquired the property after the disposal of placement of the hazardous substance, and one or more of the following were true: at the time the current owner acquired the facility, they did not know and had no reason to know that any hazardous substance which is the subject of the release or threatened release was disposed of, in, or at the facility, the current owner is a government entity which acquired the facility by escheat, or through any other involuntary transfer or acquisition, or through the exercise of eminent domain authority, or the current owner acquired the facility by inheritance or bequest; and 4) The owner exercised due care with respect to the hazardous substances, and took precautions against foreseeable acts or omissions of the third party. 42 U.S.C. 9607(b), 9601(35)(A) (emphasis added). To establish that the property owner had no reason to know of a prior disposal of hazardous substances, Congress indicated it must have undertaken, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial and customary practices in an effort to minimize liability. 42 U.S.C. 9607(35)(B)(emphasis added). 5

6 Until CERCLA was amended in 2002, confusion understandably remained over exactly what level of due diligence constituted all appropriate inquiry... consistent with good commercial and customary practices. In 2002, Congress directed EPA to adopt regulations establishing the standards and practices for conducting all appropriate inquiries by January 11, EPA has not yet published proposed regulations on this subject. In the interim, however, for any property acquisition that occurred after May 31, 1997, the procedures of environmental due diligence established by the American Society for Testing and Materials ( ASTM ), including, Standard Practice for Environmental Site Assessment: Phase 1 Environmental Site Assessment Process, satisfy the all appropriate inquiries requirement. 42 U.S.C. 9601(35)(B)(iv)(II)(2002). 2 The relevant ASTM procedures are discussed in Section IV below. ii. The New Bona Fide Prospective Purchaser Defense. In 2002, Congress amended CERCLA by adding a new defense. The relevant provision provides that a bona fide prospective purchaser ( BFPP ) whose potential liability for a release or threatened release is based solely on the purchaser being considered to be an owner or operator of a facility shall not be liable as long as the BFPP does not impede the performance of a response action. 42 U.S.C. 107(r)(1). A bona fide prospective purchaser is a person that: 1) Acquired ownership of the facility after the date of enactment of the 2002 Act (signed into law January 11, 2002); 2) All disposal of hazardous substances at the facility occurred before the acquisition; 2 In the case of property for residential use or other similar use purchased by a nongovernmental entity, a facility inspection and title search that reveal no basis for further investigation is considered to satisfy the all appropriate inquiries requirement. 42 U.S.C. 9601(35)(B)(v). 6

7 3) Made all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices.... 4) Provided all legally required notices with respect to the discovery or release of any hazardous substances; 5) Exercised appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to stop any continuing release, to prevent any threatened future release, and to prevent or limit human, environmental or natural resource exposure to any previously released hazardous substance; 6) Provided full cooperation, assistance, and access to persons that are authorized to conduct response actions; 7) Is in compliance with any land use restrictions established applied to the property; 8) Complied with any request for information or administrative subpoena; 9) Is not potentially liable, or affiliated with any person who is potentially liable for response costs through any familial relationship, any contractual, corporate or financial relationship (other than a contractual, corporate or financial relationship that is created by the instruments by which title to the facility is conveyed), or the result of a reorganization of a business entity that was potentially liable. 42 U.S.C. 9601(40). As with the pre-existing innocent landowner provisions, all appropriate inquiries, for all acquisitions occurring after May 31, 1997, means compliance with ASTM procedures on an interim basis, until EPA publishes its anticipated regulations on what constitutes all appropriate inquiries. Id. at 9601(40)(B)(ii). 7

8 So due diligence is required to qualify for the third-party defense as an innocent landowner, or as a BFPP. The difference is the BFPP defense appears to be available even when the buyer learns of a prior release of hazardous substances during its due diligence, provided it meets the other criteria of a BFPP. In contrast, the pre-existing third-party defense for an innocent landowner is only available if the buyer shows that it did not know or have reason to know of a prior release after making appropriate inquiry. 2. Defenses under State Law. a) Inactive Hazardous Waste Sites Act b) Groundwater Rules B. Practical Reasons for Environmental Due Diligence Besides minimizing the risk of incurring liability for environmental conditions on a site, conducting environmental due diligence may be essential if redevelopment of the site will involve any significant degree of digging for installing underground utilities or other earth-moving. The additional costs of properly handling contaminated soils can blow a development budget, not to mention the risk arising from workers on site being exposed to contaminated soils. 3 C. Utility of an Access Agreement. Particularly if the prospective buyer will be conducting any phase 2 investigation (soil or groundwater sampling), the parties will be well-served by having a written access agreement governing the parties rights and responsibilities from such activities on site. This is particularly true for the seller if, as typical, the buyer can terminate the purchase agreement if it is not comfortable with the results of such an investigation. 3 For local governments who may seek brownfield grant funds, having conducted all appropriate inquiry before acquiring title to the site is also a prerequisite for qualifying for such grant funds. 8

9 A typical access agreement will address- When on-site sampling may take place, and what advance notice is needed; Whether the seller will be allowed to monitor the sampling, and split samples and at its own expense; An indemnity from the buyer to the seller for any property damage resulting from the sampling; A warranty that the property will be restored to its prior condition, and the buyer will at its own expense properly handle any soil borings or cuttings that are produced during well installation or other sampling activities; Whether the seller will receive a copy of any sampling results, which is important given the parties respective responsibilities for reporting any evidence of a past release of oil or hazardous substances on the property, which is discussed in the next section. D. Who Has Duty to Report Environmental Findings from Due Diligence? Who has a duty to report evidence of a past release of oil or hazardous substances found on a tract of land can be a gray subject. Under a relatively recent amendment to the North Carolina Inactive Hazardous Waste Sites Act, any owner, operator or responsible party must report any findings of a inactive hazardous waste site (i.e., a past release of a hazardous substance), and provide a copy of any relevant sampling data, to DENR within 90 days of receipt of the information. This reporting requirement thus applies to a property owner or operator, even if they are not a responsible party for the contamination. The result of such a report 9

10 is the property will be included on DENR s list of Inactive Hazardous Sites, and will remain on that list until corrective action is completed. For that reason, if a buyer needs to conduct soil or groundwater sampling, the seller may want to put in the access agreement a provision by which the buyer: (a) only uses the resulting data for its own purposes and does not disclose it to any third-party (e.g., regulatory agency), and (b) will not communicate the results of the sampling to the seller unless the seller requests it. Does a prospective buyer have a duty to report evidence of a past release of oil or a hazardous substance? Assuming they had no responsibility for causing the contamination, in the opinion of this author, the answer is no, at least not a legal duty. If they take title, then such a duty would arise under G.S. as discussed above for a hazardous substance. There are environmental consultants who still presume that their sampling results must be reported, even if their client is not yet in the chain of title. II. Remedial Programs Available to Buyers of Property with an Environmental Impediment The remainder of this paper provides an introduction to the various programs available for reimbursement of environmental investigation and clean up costs, or that allow application of risk-based cleanup standards that can substantially reduce the costs of reaching closure for a past release of oil or hazardous substances into the environment. Buyers of contaminated property can utilize these programs to limit their liability for environmental investigation and cleanup costs. [not tort liability] A. Brownfields. 10

11 The purpose of federal and State brownfields programs is to give prospective developers and their lenders comfort that any costs the developer must incur to address contamination can be defined and limited. Also, while no direct government funding is available to developers, there are tax credits available, which are discussed below, that may offset all or good portion of any environmental costs the developer agrees to incure in a brownfields agreement. The intent is to give developers incentives to redevelop sites that are idle or under-utilized because of an environmental impairment, and make it possible for them to get the necessary financing to do so. And, both the liability protection and tax credits are transferrable to a subsequent owner of the property. While federal brownfields legislation provides a framework for addressing brownfields sites generally, a brownfields agreement is entered with DENR, which suffices for purposes of liability protection. 4 The specifics for such an agreement are discussed below. For more information, DENR has a nice webpage and links for its brownfields program at 1. Eligibility of Applicant and Site. Under the Brownfields Property Reuse Act of 1997, DENR is given discretion to enter into a brownfields agreement with a prospective developer who satisfies the Act s requirements. N.C. Gen. Stat. 130A (a). A prospective developer eligible to enter into a brownfields agreement with DENR is any person with a bona fide, demonstrable desire to either buy or sell a 4 The federal brownfields program provides funding to states to operate a brownfields program, and grant funds to local governments for identifying and assessing brownfields sites in their jurisdictions. 11

12 brownfields property for the purpose of developing or redeveloping that brownfields property and who did not cause or contribute to the contamination at the brownfields property. N.C. Gen. Stat. 130A (10). In addition, to be eligible for brownfields agreement, the applicant must show, among other things, that: As a result of the implementation of the brownfields agreement, the brownfields property will be suitable for the uses specified in the agreement while fully protecting public health and the environment instead of being remediated to unrestricted use standards. There is a public benefit commensurate with the liability protection provided under this Part. The prospective developer has or can obtain the financial, managerial, and technical means to fully implement the brownfields agreement and assure the safe use of the brownfields property. N.C. Gen. Stat. 130A (a)(2)-(4). While a current landowner who is a responsible party for the contamination is not eligible for applying for a brownfields agreement, DENR has been piloting a Ready-For-Reuse program where, in cooperation with the current owner, DENR will develop a draft brownfields agreement that can be entered for the site with a future prospective developer. This is an option for making a contaminated site more marketable. A brownsfield property or site means abandoned, idled, or underused property at which expansion or redevelopment is hindered by actual environmental contamination or the possibility of environmental contamination and that is or may be subject to remediation under any State 12

13 remedial program or that is or may be subject to remediation under the Comprehensive Environmental Response, Compensation and Liability Act of The prospective developer must have an intent to redevelop the property. If a buyer simply intends to continue pre-existing manufacturing operations on a site, they and/or the site may not qualify for a brownfields agreement. 2. Process of Applying For and Negotiating a Brownfields Agreement. The first step is submitting an application to DENR for a determination that a party that a party qualifies as a prospective developer for the site. The application must include information about the site conditions, and intended uses of the property once it is redeveloped. There is no cost for this, and a response can be obtained in a manner of weeks. It is not required, but much easier if the eligibility determination is received before the developer acquires title to the site, particularly if any waste remains stored on site or any manufacturing or other operations will continue on site for any period of time after the acquisition. That is because of the applicant s burden of showing that they did not contribute to the contamination. Assuming eligibility is confirmed by DENR, DENR then produces a draft Agreement based upon the information submitted in the application. DENR can first require additional 5 The only exception is any site listed on EPA s national priorities list of sites contaminated with hazardous substances are exempted from this definition, and cannot be the subject of a state brownfields agreement. N.C. Gen. Stat. 130A (1). There are only about 50 such sites currently in North Carolina. 13

14 investigation if it perceives there are any gaps in needed data about site conditions. Once an agreement is finalized, the Act requires a 30 day public comment period before DENR can sign it. N.C. Gen. Stat 130A If a site is in the normal pipeline with the brownfields program unit, this process can take a long time due to limited staffing. DENR currently projects it could take 18 months. For that reason, for the additional fees discussed below, an applicant can participate in the Redevelopment Now Program that helps fund dedicated staff to review the project and expedite the process. And, as noted, the process can be expedited by a prospective seller by utilizing the Ready-For-Reuse program. 3. Costs of Program. For a site in DENR s usual pipeline, the fees for a brownfields agreement are currently $8,000, though DENR reserves the right to increase that fee if the project takes what DENR deems to be excessive staff or attorney time. A $2,000 fee is due when the eligibility determination is made. When the $6,000 balance is due is addressed in the brownfields agreement. The fee for expedited review under the Revelopment Now program is $30,000. The fee for the Ready-For-Reuse program is currently $15,000, payable in two installments: (i) half upon receiving an eligibility determination, and (ii) the other half when the draft Agreement is completed. 4. Tax Credits. G.S is entitled, Taxation of improvements on brownfields. It provides: (a) Qualifying improvements on brownfields properties are designated a special class of property under Article V, Sec. 2(2) of the North Carolina Constitution and shall be 14

15 appraised, assessed, and taxed in accordance with this section. An owner of land is entitled to the partial exclusion provided by this section for the first five taxable years beginning after completion of qualifying improvements made after the later of July 1, 2000, or the date of the brownfields agreement. After property has qualified for the exclusion provided by this section, the assessor for the county in which the property is located shall annually appraise the improvements made to the property during the period of time that the owner is entitled to the exclusion. (b) For the purposes of this section, the terms "qualifying improvements on brownfields properties" and "qualifying improvements" mean improvements made to real property that is subject to a brownfields agreement entered into by the Department of Environment and Natural Resources and the owner pursuant to G.S. 130A (c) The following table establishes the percentage of the appraised value of the qualified improvements that is excluded based on the taxable year: Year Percent of Appraised Value Excluded Year 1 90% Year 2 75% Year 3 50% Year 4 30% Year 5 10%. There is an application process with the Dept. of Revenue for obtaining these exclusions. These exclusions may be transferred to future owners of the property, provided they also complete that application process. 5. Liability Protection under a Brownfields Agreement, and its Limits. Besides the tax credits, the other major benefit of a brownfields agreement is the liability protection it offers not just the prospective developer, but also its lender, leasors or future property owners. See N.C. Gen. Stat. 130A (a). The Act provides that a prospective developer who enters into a brownfields agreement with the Department and who is complying with the brownfields agreement shall not be held liable for remediation 15

16 of areas of contaminants identified in the brownfields agreement except as specified in the brownfields agreement, so long as: (i) the activities conducted on the brownfields property by or under the control or direction of the prospective developer do not increase the risk of harm to public health or the environment, and (ii) the prospective developer is not required to undertake additional remediation to unrestricted use standards pursuant to certain re-openers discussed below. N.C. Gen. Stat. 130A (a). Because of these re-openers, a brownfields agreement does not provide ironclad protection against having to conduct further investigation or clean up beyond what is agreed to in the agreement. To the contrary, and somewhat ironically, DENR would have greater enforcement authority against the prospective developer if one of these reopeners occurs than it would had the developer not signed a brownfields agreement to begin with. The prospective developer or subsequent landowners can ensure that some of the re-openers do not occur. The relevant re-openers are: If a land use restriction applied to the property is violated, in which case the owner of the property at the time of the violation shall be liable for remediation to unrestricted use standards, which means. The prospective developer knowingly or recklessly provides false information that forms a basis for the brownfields agreement or that is offered to demonstrate compliance with the brownfields agreement or fails to disclose relevant information about contamination at the brownfields property. 16

17 Other re-openers, however, are beyond the control of the prospective developer or subsequent landowners. Those are: New information indicates the existence of previously unreported contaminants or an area of previously unreported contamination on or associated with the brownfields property that has not been remediated to unrestricted use standards, unless the brownfields agreement is amended to include any previously unreported contaminants and any additional areas of contamination. If the brownfields agreement sets maximum concentrations for contaminants, and new information indicates the existence of previously unreported areas of these contaminants, further remediation shall be required only if the areas of previously unreported contaminants raise the risk of the contamination to public health or the environment to a level less protective of public health and the environment than that required by the brownfields agreement. The level of risk to public health or the environment from contaminants is unacceptable at or in the vicinity of the brownfields property due to changes in exposure conditions, including (i) a change in land use that increases the probability of exposure to contaminants or in the vicinity of the brownfields property or (ii) the failure of remediation to mitigate risks to the extent required to make the brownfields property fully protective of public health and the environment as planned in the brownfields agreement. The Department obtains new information about a contaminant associated with the brownfields property or exposures at or around the brownfields property that raises the risk to public health or the environment associated with the brownfields property beyond an acceptable range and in a manner or to a degree not anticipated in the brownfields agreement. Any person whose use, including any change in use, of the brownfields property causes an unacceptable risk to public health or the environment may be required by the Department to undertake additional remediation measures under the provisions of this Part. 17

18 N.C. Gen. Stat. 130A (c)(2)-(4). The benefits of a brownfields agreement may outweigh the risks involved if any of these re-openers may occur. However, its important to have good, comprehensive data about environmental conditions about a site before entering a brownfields agreement, so that the risks of a re-opener can be assessed. B. Petroleum Underground Storage Tank Releases The State has specific programs for addressing releases of petroleum from underground storage tanks ( USTs ). There are funds available to defray the costs of responding to petroleum UST releases, one for commercial USTs, and one for non-commercial USTs. These funds are financed by taxes on gasoline sales, though the funds have had solvency issues. These programs have saved many deals selling corner parcels where a gasoline station was once operated. Before addressing these programs, it deserves note that liability for a past release of petroleum from a UST does not arise merely from owning the property where a UST was once located. The responsible parties are the UST owner and/or operator. N.C. Gen. Stat E(a). The operator person in control of, or having responsibility for, the operation of a UST. N.C. Gen. Stat A(5). Obviously, a party that owns the land after the UST was no longer is use does not qualify. Determining UST ownership can be more complicated. Who is the owner depends upon whether the UST was still in use as of November 8, 1984, when UST rules went into effect. For a UST in use on or after that 1984 date, the owner is any person who owns the UST. N.C. Gen. Stat A(6)a. If it is still in the ground, DENR takes the position that it is a fixture that runs with the land, and thus, a current landowner would qualify as the UST owner, even if they never used it. If the UST was no longer in use on 18

19 that 1984 date, the owner is the person who owned it immediately before discontinuation of its use. N.C. Gen. Stat A(6)b. Thus, someone who buys property well after USTs were removed will not qualify as having responsibility for a past petroleum release. Also, under these definitions, there can be old orphan USTs still in the ground that were out of use prior to November 1984, for which the UST owner or operator can no longer be identified or found. Such situations are addressed below. 1. Comfort letter from DENR s UST Section. First, DENR will upon request issue a letter confirming that a current property owner or prospective buyer do not qualify as either a UST owner or operator, upon request. Sometimes, such a letter is all that is necessary to satisfy a lender. 2. State-lead program for orphan USTs. DENR has the authority to utilize trust funds to investigate and remediate contamination from petroleum UST releases where the UST owner or operator cannot be identified or located. N.C. Gen. Stat G(a)(2). If a buyer or lender are not satisfied with a letter from DENR confirming the buyer will not be incurring liability for a past UST release in buying the site where the release took place, enrolling the incident in the State-lead program may provide the desired level of comfort. There is no formal process for petitioning for a UST incident to be addressed in the Statelead program. We typically provide the results of an investigation about the UST history to DENR via an affidavit. The information should include when the UST was last used and by whom, or testimony from someone who worked on the site for a stated period and was not 19

20 aware of the UST s existence. It helps to establish the UST was last used prior to November Once a past UST release is accepted into the State-lead program, after some initial assessment is completed, no funds are likely to be spent in further assessment or actual remediation unless the location and circumstances present a serious health risk. C. Availability of Petroleum Underground Storage Tank Trust Funds In a case where the UST owner or operator cannot be identified or located, the property owner also can step into the shoes of the UST owner or operator for purposes of qualifying for trust fund coverage. See N.C. Gen. Stat E(b1). However, such a landowner is still responsible for any applicable deductible, see id., which can be quite significant for a past release that is detected today. See N.C. Gen. Stat B(b) on deductibles. For that reason, we do not see many current landowners exercising this option. D. Dry-Cleaning There are an estimated 900 active or abandoned sites in North Carolina where releases of solvents in the environment occurred from dry-cleaning operations. The dry-cleaning solvent program was implemented to provide a fund, administered by DENR, for assessment and cleanup of such sites. It is funded by taxes on cleaning solvents used in the industry. See N.C. Gen. Stat C. This program has proven to save several real estate transactions our firm was involved in. 1. Eligibility. Any party responsible for responding to a past release of solvents resulting from drycleaning operations may apply for funding. A responsible party is defined as anyone who 20

21 may have liability for assessment, monitoring, treatment, mitigation, or remediation of drycleaning solvent contamination resulting from a release at a dry-cleaning facility, an abandoned dry-cleaning facility, or a wholesale distribution facility. N.C. Gen. Stat B(b)(21). Eligible parties would include owners of the property who took title after the release since such solvents are hazardous substances under federal law, and such landowners are among those responsible for releases of hazardous substances under CERCLA. See 42 U.S.C. 9604(a)(1). A buyer of a site eligible for this program can get into a chicken and egg situation in applying. Technically by the statute, they must have already bought the property to be eligible. On the other hand, the buyer and/or their lender may need confirmation that the site will be enrolled in the program before closing on the acquisition. In such circumstances, DENR has proven cooperative and issued a conditional eligibility, indicating the buyer will qualify once they take title. 2. Process The applicant must request that DENR certify the site for enrollment under this program. The petition for such certification must include documentation that the property is, or was the site of a dry-cleaning operation, that there was a solvent release from those operations, and for current operations demonstrate compliance with minimum management practices that apply to dry-cleaning operations. The applicant must also show they are financially capable of paying the statutory deductibles under the program, and an intent to enter an assessment agreement with DENR for the site. N.C. Gen. Stat F. After certification of a site into the program, the applicant enters an Assessment Agreement with DENR. The applicant then contracts for an initial assessment designed to 21

22 provide DENR with the information needed for it to determine the site s priority for clean up under the program. The costs of that assessment are applied to the applicant s deductible, discussed below. After preliminary investigation, DENR contracts for any further assessment and clean up utilizing money from the dry-cleaning fund, subject to any deductible that still must be paid. 3. Costs The applicant s financial responsibility is limited to the applicable deductible. The deductible ranges from $5,000 to $25,000, and depends upon the number of employees the drycleaner has for current operations. Here is a basic breakdown- No of Employees: Less than 5 full time Deductible: $5,000 plus 1% of costs over $200k, but not over $1.0MM 5-10 full time $10,000, plus 2% of costs over $200k but below $500k, and 1% of costs over $500k but not exceeding $1.0MM More than 10 $15k, pluse 3% of costs over $200k but not over $500k, and and 1% of costs over $500k but not exceeding $1.0MM For wholesale or abandoned facilities $25k, plus 3% of costs over $200k but not over $500k, and 1% of cots over $500k but not exceeding $1.0MM 22

23 N.C. Gen. Stat F(f). Otherwise, the assessment agreement provides the applicant with liability protection for any costs beyond the deductible. 23