By Malcolm C. Weiss and Tim Martin In September 2004, Assembly Bill 389 was signed into law by Gov. Schwarzenegger. Known as the California Land Reuse and Revitalization Act (Act), it is codified at California Health and Safety Code section 25395.60 et seq., and became effective Jan. 1, 2005. The Act provides immunity from regulatory agency and third party liability to qualified purchasers (and contiguous landowners) of contaminated properties. Although the Act applies broadly to many environmentally impaired properties, some “brownfield” properties are expressly excluded from its scope (for example, a site contaminated by a petroleum release and is eligible for money from the UST Cleanup Fund). According to the U.S. Environmental Protection Agency (EPA), it is estimated that more than 450,000 “brownfields” exist in the United States. While it is too early to assess the practical importance of the Act in actually promoting “brownfield” redevelopment, in theory the Act provides eligible purchasers with substantial assurances that will allow them to make successful investments in environmentally impaired properties. Eligible Parties The Act creates three categories of eligible parties: (1) innocent purchasers, (2) bona fide purchasers, and (3) contiguous property owners. First, an “innocent purchaser” is a purchaser that performed “all appropriate inquiries” concerning the prior use and ownership of the property, prior to acquisition of the property, and did not know or have reason to know of contamination at the property. “All appropriate inquiries” is defined as compliance with the American Society for Testing and Materials (ASTM) Standard Practice for Phase I Environmental Site Assessments (ESA), though the ASTM standard may eventually be supplanted by new Phase I ESA standards and practices currently being developed by the EPA. Second, a “bona fide” purchaser is a purchaser that conducts “all appropriate inquiries” into the previous use and ownership of the property and knew of (or had reason to know of) the existing contamination at the time of the acquisition. Third, a “contiguous property owner” means a person who owns property adjacent to another site contaminated by a release or threatened release of a hazardous material. In order to take advantage of the Act’s protections, such a person must demonstrate that he did not cause, contribute, or consent to the release, and that at the time he acquired his adjacent property, made “all appropriate inquiries” and did not know (and had no reason to know) of the release or threatened releases from the subject property. Requirements To obtain the protections afforded by the Act, one must also meet additional requirements. Importantly, the eligible party must enter into an oversight agreement with the Department of Toxic Substances Control (DTSC), the State Water Resources Board, or the applicable Regional Water Quality Control Board (RWQCB) (collectively, “Agency”) to perform a site assessment and, if required, to remediate the property. A response action is required when the site investigation shows an “unreasonable risk.” Compliance with this agreement allows the party to demonstrate that it has exercised “appropriate care” with respect to the contamination at issue. The Act defines “appropriate care” as either the performance of an Agency mandated “response action” (after completion of the site assessment) or the receipt by the party of a “no further action” determination from the Agency. An eligible party must also be able to demonstrate that it did not cause or contribute to the contamination, and must not be affiliated with any party responsible for the contamination. The eligible party must cooperate with and provide access to those parties performing any required response action at the property, and remain in compliance with controls that restrict the use of the property (e.g., a deed restriction). If you conduct a Phase I assessment and do not find contamination, you should consider entering an oversight agreement with an agency to satisfy the innocent purchaser’s elements. Benefits An eligible party that meets these criteria receives a broad grant of immunity under the Act from both third party actions and Agency mandates related to past contamination at the subject property. Specifically, the Act provides that the party “is not liable under any applicable statute for a claim made by any person, other than an agency, for response costs or other damages associated with a release of threatened release or a hazardous material at the site characterized in the site assessment... .” Additionally, the Act states that an Agency “shall not take any action under an applicable statute” to require the party to take a response action, other than an action required in an approved response plan, with respect to a release of hazardous materials characterized in the site assessment. Significantly, the Act specifically allows a property owner that has established immunity under the Act to recover attorneys’ fees from lawsuits relating to the contamination. Typically, in California, attorneys’ fees are otherwise very difficult to recover. Exclusions These broad immunities are subject to several narrow exclusions. In particular, liability for personal injury or wrongful death, as well as liability for response costs incurred by a redevelopment agency under the Polanco Redevelopment Act are excluded. Additionally, the Act does not provide immunity from liability under any federal environmental statute, such as the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). However, since the Act’s requirements are closely modeled on CERCLA’s defenses, compliance with the Act may allow a party to establish a viable CERCLA defense. Conclusions The Act’s ultimate substance and scope was a result of lengthy and extensive negotiations among the State’s environmental regulatory agencies and various stakeholders, including developers, environmental groups and local governments. Whether the intended balance between maintaining environmental protection and promoting the redevelopment of “brownfield” sites was reached in practice remains to be seen. For example, one obvious concern is that the Act will sunset in five years, if not extended by the Legislature (although the immunity gained from it will continue). Clearly, a party that seeks to purchase a contaminated property must still carefully evaluate the various legal, technical and business challenges and risks that exist, despite the adoption of the Act. However, the Act appears to provide prospective purchasers with a clearer path by which to manage those risks, and to eventually maximize the return on investment. For more information on the California Land Reuse and Revitalization Act and related issues, please contact Malcolm C. Weiss, Esq. at 310.712.6822, mweiss@jmbm.com. |
