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New Law Adds Clarity to Brownfield Redevelopment -- The California Land Reuse and Revitalization Act of 2004 doesn't go far enough to please both developers and environmentalists
Real Estate Journal - Oct 25, 2004
Joseph Sorrentino By Joseph Sorrentino
CREJ Contributing Writer
SAN FRANCISCO, Calif. Gov. Schwarzenegger recently made good on one of his campaign promises - to prioritize brownfield redevelopment - by signing into law Assembly Bill 389, which will speed the cleanup and redevelopment of toxic sites known as brownfields, which often are found in poor urban neighborhoods.
With little undeveloped "green space" available in the state's urban areas, many developers are turning to former industrial sites and underutilized commercial structures for new retail, residential and other commercial uses. However, many of those sites were contaminated when environmental laws were lax and polluters have long since disappeared, putting the onus of cleanup on new owners and exacerbating development risks and liability.
Titled the California Land Reuse and Revitalization Act of 2004, the bill had undergone many iterations and revisions before its author, Assemblywoman Cindy Montanez, D-San Fernando, brokered a compromise between the real estate and environmental lobbies that balanced liability relief with environmental protections.
"It's going to end up creating the right incentives while preserving cleanup standards," said Ed Manning, a lobbyist for the real estate industry.
The construction industry didn't get the sweeping liability reforms for which they have spent the last two years fighting, but observers said the bill is a step in the right direction.
"I think that it's encouraging," said Stephanie Shakofsky, executive director of the California Center for Land Recycling. "We've made a real paradigm shift in California towards acknowledging that there is a huge problem with the liability laws."
Uncertainty about cleanup costs can be an impediment to securing financing for brownfield redevelopment. The new law will provide clarity in state law to brownfield purchasers who are willing to clean up contamination at their own expense, but are apprehensive about ongoing liability for existing contamination.
'Innocent and Bona Fide'
The California Land Reuse and Revitalization Act of 2004 streamlines regulations regarding clean up and provides additional incentives for the redevelopment of brownfields.
Under the new law, the buyer or landowner applies to the state Department of Toxic Substances Control or the regional water board and forms an agreement, which would include assessing the contamination on a site and, if necessary, implementing a response plan to clean up the property in compliance with the environmental and public-health standards.
As long as the landowner is in compliance with the agreement, he or she will receive immunity from liability under state and local laws. The bill also creates a single-agency process for entering into a cleanup agreement, which significantly reduces cost and delays.
It provides "bona fide purchasers," "innocent purchasers" and "contiguous property owners," who agree to clean up brownfield sites immunities from liability from suits by state agencies and third parties. Current law provides no such protection.
Currently, a landowner can spend millions of dollars negotiating and doing cleanups with one state agency, and then have a second or third agency with overlapping jurisdiction step in at any time and demand more investigations and more cleanups.
The bill prohibits an agency "from requiring an innocent landowner, bona fide purchaser, or contiguous property owner to take a response action under those state laws, other than a response action required in an approved response plan."
A key provision of the law is immunity from lawsuits by private parties, such as environmental groups and not-in-my-backyarders.
However, the law does not prevent private parties or agencies from suing for criminal acts, permit violations, contractual indemnity agreements and other common laws. These laws can be broadly interpreted and provide other avenues to address environmental violations.
"The bright side is that developers, who are very concerned about the government coming after them, and for the most part the government pursues statutory claims, can have a reasonable expepectation of immunity from government liability," said Shiraz Tangri, an environmental attorney with Greenberg Glusker Fields Claman Machtinger & Kinsella.
Furthermore, Tangri said, "By doing the due diligence to qualify as a 'bona fide purchaser' or 'innocent landowner,' the developer already has established some good defenses with respect to third-party lawsuits."
Another loophole in the law that the real estate lobby would have liked to see closed is that there is no specification for when an agency has to sign off on a cleanup plan.
"The bill doesn't set any firm deadlines but encourages prompt action," Tangri said. "It does put the onus on the agency to get back to the developer with an answer, which is an improvement from the current process."
The law also brings a novel approach to easing negotiations between state agencies and landowners. Purchasers can form consultative agreements with the state agencies, to get a nonbinding estimate of what to expect in terms of cleanup, similar to loan counseling.
'Million-Dollar Gamble'
A key but controversial ingredient in the bill was "re-openers," or, under what circumstances the oversight agency can force the landowner in the program to do further cleanups outside of the agreement.
In the industry, re-openers are called the developer's "million-dollar gamble." Re-openers used to be rare but have become more common in the last decade.
"It's become an increasing concern for developers and investors in recent years," said Tangri.
Tangri cited recent examples, including the discovery that the gasoline additive MTBE was leaking from underground storage tanks into ground water supplies, and the discovery of perclorate contamination in the San Gabriel Valley.
"These incidents brought the problem of groundwater contamination back into the public eye, and so now we're starting to see a lot of re-openers," Tangri said.
AB389 does not guarantee that developers will have to clean up a site once, but it does improve the odds.
The law says that an agency can only force a landowner to do further cleanups when pollutants that pose a threat to public health and safety are discovered, and only if the actual polluter cannot be found.
The Sierra Club opposed the bill, in part, because officials felt the law did not do enough to protect the environment and the public's interest by reducing the responsibility of current landowners, who may be the only responsible party available.
"In many of these situations, they won't be able to find the responsible party, and then the public will have to pay," said Bill Magavern, senior legislative representative for the Sierra Club California. "It's Lenin socialism; anything the private sector can avoid paying for gets shifted to the public."
The bill doesn't allocate funds for these environmental cleanups unless they are petroleum-based, so these sites might not get cleaned up.
In addition, the nonprofit argued that the act would lessen public participation in the mitigation process. Montanez' original bill had boosted the role of public participation for projects overseen by the water board. But in the final draft, public participation under water-board projects was reverted to the status quo.
"It's not fair to give communities so little ability to participate," Magavern said. "The provisions for the DTSC are pretty good. It doesn't make sense for the water board to have so little public participation."
However, the bill requires that the Secretary for Environmental Protection designate a brownfields ombudsman to hear concerns about projects. The ombudsman also will coordinate activities between the different state agencies.
Another large environmental group, the Planning and Conservation League, ended up endorsing the bill. The league regretted that the law did not boost public participation, but it went along because Montanez preserved the state's stringent groundwater standards and gave oversight agencies sufficient control over re-openers.
"We thought on balance the bill was sufficiently protective [of the environment] that we could support it," said Karen Douglas, a lobbyist for the Planning and Conservation League. "This was a big, complex bill and sometimes you have to balance the different parts."
- E-mail Joseph_Sorrentino@DailyJournal.com
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