June 28, 2007

What to know when buying a contaminated site

  • Sellers, buyers and government agencies can enter into agreements so that they all benefit.
    Jordan Schrader


    A newspaper headline in The Columbian caught my eye last year and I have thought about it often. It read: “Deal for Kyocera Site Falls Apart. VHA (Vancouver Housing Authority) Balks Due to Polluted Groundwater.” The story described how the perception of a problem, rather than knowledge of a potential solution, can block or delay a project that has obvious public and private benefits.

    The prospective buyer, the city of Vancouver’s low-income housing agency, had reason for concern. Under existing federal and state environmental laws, the property owner can be liable for environmental injury. And, local governments that purchase and operate sites are not exempt.

    There are many good reasons for such an aggressive strict liability scheme. The alternative is to risk adding to an already large number of abandoned or “orphaned” contaminated industrial sites, the public costs of such vacancies, and public exposure to contaminants. Making current owners of contaminated properties strictly liable for such costs protects taxpayers and encourages cleanups.

    At the same time, state and local governments have imposed urban growth boundaries and defined growth management areas to direct and manage the pressures that arise from new growth. We are also faced with rising energy costs, and are becoming increasingly aware of how the distance we travel for work and to transport goods all contribute to concerns about the environment. All these factors direct us to use and reuse our existing urban core properties. Yet, finding uncontaminated parcels of land that can be developed for industrial or mixed uses is becoming very rare.

    Brownfields programs have evolved in response to this dilemma. A solution is available. Many buyers and sellers are still working under an old paradigm, so, a little education is in order.

    Buyer protections

    Washington and Oregon each have laws on their books that allow their responsible state environmental agencies to enter into agreements with “potentially responsible parties.” Agencies in each state now have a variety of tools that can protect a buyer from future liability that could otherwise arise from an existing environmental condition.

    In some cases, the buyer can be immunized from claims by the state, and in others, the buyer can even be immunized from potential claims by third parties. A prospective buyer of real property is, by definition, only “potentially” responsible for environmental contamination. Thus, the key to purchasing a known contaminated property is to plan ahead, talk to the appropriate regulators, and be ready to trade some positive environmental services for complete protection against future liability.

    The MJB case

    MJB Associates recently purchased the highly contaminated former CHJ Lilly site in northeast Portland. A condition of that purchase for the buyer was transactional immunity for existing herbicide, pesticide, and fungicide contamination in soil and groundwater. The seller had limited assets and was financially unable to address the existing environmental contamination. Our client, MJB, was interested in the property because of its location, building configuration, land-use classification and access to transportation. The subsurface contamination was a significant concern, and closing a transaction in the normal course would have resulted in MJB’s becoming liable to the state and neighbors for known off-site contamination.

    The seller wanted to sell, MJB wanted to buy, and Oregon’s Department of Environmental Quality was very interested in seeing an inactive contaminated industrial property in Portland’s urban core cleaned up and put back into positive use.

    The purchase agreement dedicated a portion of the purchase price to cleaning up subsurface soils, abandoning a storm drain groundwater injection system, and constructing a stormwater containment and treatment system. All the work was done by MJB after closing, with the scope of work negotiated by all the parties and approved in advance by an Oregon court. In return, MJB obtained by court order complete immunity from claims from the state and third parties, including neighbors impacted by contamination that had migrated off-site.

    This marriage of three motivated parties, with different interests, resulted in a win for all involved:

    • The seller’s potential future liability for untreated contamination and off-site contamination was unchanged by the transaction. However, the seller converted a liability into an asset, saw funds dedicated to cleanup which reduced its financial exposure for the problem, and obtained additional resources with which to continue to constructively address unresolved environmental issues.

    • MJB obtained the real estate for its market value and put it to its best use. In addition, MJB obtained immunity from future contamination claims from state government and third-party neighbors who might otherwise have claimed both injury and liability.

    • Oregon’s Department of Environmental Quality made progress toward cleanup using private dollars, and is assured that the seller has additional money to fund more work.

    MJB’s transaction involved the participation of Oregon’s Economic and Community Development Department, which served as a low-interest lender for a portion of the initial purchase price. The state’s investment will be returned, both by repayment of the loan and by a net positive impact on the local environment. Washington’s enabling statutes and rules provide similar protections and incentives.

    Christopher L. Reive is a resident of Vancouver and a shareholder in the law firm of Jordan Schrader. He assists businesses, individuals and local governments in Washington and Oregon to recognize and solve the many issues that arise from environmental concerns.

    Other Stories:

    Copyright ©2009 Seattle Daily Journal and DJC.COM.
    Comments? Questions? Contact us.