Liability Relief: A Corporate Perspective (Part 2)

By Chris Olson

Many underutilized corporate lands never see the light of day from a market standpoint due to corporations’ actual or perceived lack of regulatory certainty and finality on contaminated sites. Part I of this series looked at the wide spectrum of sites commonly referred to as brownfields — from the poster child orphan sites to non-strategic, idled corporate assets. In this part, we investigate regulatory closure and what that means, as well as what liability relief might need to look like to encourage more industrial properties to reach the marketplace.

No Further Action … Well, Maybe …

You probably don’t need to be reminded how incredibly long the regulatory closure process can be on contaminated properties. While the advent of risk-based remediation standards has unquestionably helped accelerate the sunset of projects, completion seems to always come with strings attached.

Terms such as “no further action” (NFA), “no further remediation determination,” or “certificate of completion of remedy” seem to ring clear with the sound of finality. The trouble is, federal and state closures come with exclusions, exceptions, caveats and conditions dangling from them, which loosely translate as re-openers.

Imagine how proud you might feel at a site closure ceremony hearing the words “Congratulations, here is your NFA.”  In fact, those words probably really translate as, “Here is your NFA, subject of course to continued operations and maintenance or groundwater monitoring and cap inspections or maybe maintenance of institutional controls, but certainly covering only the constituents that you investigated or were known at the time the work was done.”  The bottom line is that ten years later, if a pile of irradiated chicken carcasses is found on the site, all bets are off. Not very reassuring, is it?

Brownfield Buyers — Can They Cure the Pain? 

There is rarely a complete agency release for corporate owners of impacted properties. They are seemingly condemned to be forever chained to liabilities that arose out of past operational practices. Since brownfield buyers and developers don’t have the bolt cutters that can cut links to the chain of title, they don’t have the ability to exonerate corporate owners through a transaction.

Contractual agreements between brownfield buyers and corporate sellers certainly can be established along with indemnities and “as-is, where is” language, but brownfield purchasers often conveniently look to cut their own risks by structuring purchasing entities as limited liability companies (LLCs), often capitalized around a single asset … yours!

For corporate owners, this seems to only magnify the need for an agency release of liability. The inability to achieve this release underpins the main reason that many corporate properties never reach the marketplace. Why should corporate owners take the risk of handing off contaminated properties to developers or end users, yet still have to remain on the hook not only for the initial liability, but also additional environmental issues that might arise out of new site ownership?

A company might account for this as a contingent liability that requires environmental reserves to be maintained. Externally, corporations ultimately remain liable for past and future use risk. Internally, contingent liability remains, keeping environmental provisions locked up rather than being freed up and redeployed to core business activities.

Taking Brownfields to the Next Level 

Clearly, to bring more brownfield properties to the market, and to take brownfields to the next level, certain reforms are necessary. But what might this reform look like? In the final part of this series, we’ll look at some areas of needed reform and investigate some ideas that might help accelerate the redeployment of former industrial properties.

Maybe, as the antacid ad goes, relief is on the way! BFN

Chris Olson is manager of real estate reuse for Atlantic Richfield Company (a BP-affiliated company).

Liability Relief — A Corporate Perspective Part I of this series.