Revitalization-Ready Guide - Appendix A, Risk Management Tools and Approaches

Activities | Statutory/Regulatory Protections | Transactional Activities | Insurance

Activities

Meeting with Federal and State Regulators

Unless a local government is already an owner or responsible party for the property, there is probably little downside for the local government in discussing potential property disposition strategies with the regulatory agencies. These discussions can help identify potential pitfalls and other considerations that might keep the local government from making costly and avoidable mistakes. 

Federal and state agencies have considerable expertise in the environmental laws and programs that might relate to a particular project, and although they cannot provide specific legal and technical advice, they can help explain and guide local governments through the regulatory process. If the agencies have had direct involvement with the property, they also should be able to discuss the nature of that involvement, known environmental conditions, the need for additional studies and cleanup, future plans for the property, potential EPA and state environmental liens, and other issues. In addition, they may be able to point the local government toward funding and other resources that can be used for reuse planning, environmental assessment and cleanup. 

To make the most of these discussions, local government officials should first carefully consider the material contained in this guide and how it might apply to their project.

Due Diligence and All Appropriate Inquiries

As described in Chapter 3, due diligence helps a local government to define the potential issues, costs and risks associated with a property. Eliminating data gaps through due diligence can significantly reduce uncertainty.

An all appropriate inquiries investigation is necessary to potentially qualify for certain liability protections under CERCLA.

Environmental Investigation

Under many cleanup programs, Phase I and II ESAs are conducted to determine whether serious environmental issues exist or could exist on the property. 
Environmental investigations typically go beyond Phase I and II ESAs and provide the basis for making actual cleanup decisions. As a result, environmental investigations generally provide a higher level of confidence that the environmental conditions have been adequately characterized. This reduces uncertainty regarding the cost and duration of cleanup activities, the likelihood of unanticipated events complicating the cleanup, and other factors that could have an adverse impact on a redevelopment project. For these reasons, developers and investors are generally more willing to consider properties where environmental investigations have been conducted. 

Cleanup Action Planning

Cleanup action planning that takes into account future land use often allows the cleanup and private-party property development efforts to be better coordinated. This can provide a number of risk management benefits, including:

• Ensuring that future use of the site does not undermine the protectiveness of the cleanup.
• Minimizing unnecessary impediments to reuse.
• Reducing the costs of both cleanup and redevelopment by addressing them in the same construction event.
• Designing buildings and other planned redevelopment infrastructure to be compatible with cleanup activities.

The reuse assessment, described in Chapter 3, can be a useful resource document to help inform the cleanup action planning process.

Reasonable Worst-Case Scenario Planning

Reasonable worst-case scenario planning is essentially used to answer the question: What is the worst thing that could happen by moving forward with a particular property disposition strategy? This process helps the local government to better understand the upper limits of its potential risk and liability. Further, it helps to focus management efforts on the environmental issues that could have a large impact on the project schedule and costs. Reasonable worst-case analysis also can help determine appropriate insurance limits.

The worst-case scenario should be based on available information with reasonable, but conservative, assumptions about the risks and liabilities that may be encountered. In some cases, several scenarios may need to be evaluated to more fully assess potential risks.

Engaging Stakeholders

As discussed in Chapter 2, proactive stakeholder engagement will help ensure that community issues are identified and addressed early in the redevelopment process. Reuse planning that involves community stakeholders is a primary strategy for understanding and addressing community and environmental justice issues prior to soliciting requests for proposals from developers. Developers typically want to understand the interests of the community so they can determine without great expense whether their development idea will be acceptable. In addition, once stakeholders have bought into a neighborhood or community plan, they can be influential advocates for achieving that vision.

Financial Analysis

As discussed in Chapter 4, financial risk is an essential consideration for a local government involving itself in the cleanup and reuse of a brownfield property. Some level of financial analysis, commensurate with the magnitude of financial risk, should be performed. That financial risk will likely depend on the property disposition strategy and the specific nature of the activities contemplated.

Timing Local Government Involvement

The timing of local government involvement is a strategically important determination that can dramatically impact project risk. Sometimes a situation necessitates a more immediate response by the local government. In other situations, the local government may have the time to allow certain events to play out or to take additional steps to identify and manage risks before proceeding with a potential acquisition or other property disposition strategy.

Examples of such steps include:

• Allowing EPA- or state-mandated assessments or cleanup activities to proceed, thereby reducing uncertainty regarding a property’s environmental conditions.
• * Working with the community and other stakeholders to gain consensus around future uses of the property and performing comprehensive investigations that more completely characterize risks. 
• Developing a plan for phased cleanup and redevelopment activities on larger properties.
• Identifying potential funding sources for cleanup, demolition, infrastructure replacement and other activities.
• Negotiating partnership agreements with the current owners or potential developers.

The local government should also consider the possibility that delaying or foregoing action on a property, even if the property is still privately owned, could in itself create unacceptable risks for the local government.

Interim Cleanup Action

In some cases, it may be necessary or beneficial to undertake an interim cleanup action to address imminent hazards on a property. Examples of these interim actions include the removal of abandoned drums, cleanup of spills, and construction of security fences.

Performing interim cleanup actions to address the worst environmental problems or stabilize the environmental conditions at the site also will make the property more marketable and possibly allow a developer to obtain financing and insurance at more favorable rates. 

Interim actions can be used to control cleanup costs (e.g., reducing the volume of material to be treated or removed by taking steps to prevent the further spread of contamination). Interim actions also may help guard against claims that a local government caused or contributed to a release through its inaction. For reasons such as these, a local government may sometimes consider initiating interim cleanup actions at a property. 

Before taking any interim cleanup actions, however, a local government should ensure that it understands any risks associated with the action, including the incurrence of liability. The interim actions must be taken in a manner that does not worsen the environmental conditions at the site. The action also must be in compliance with federal, state and local environmental requirements. To provide proper coordination between federal, state and local authorities, most federal and state environmental cleanup programs require proper notification prior to conducting interim cleanup actions.

After the completion of an interim cleanup action, additional environmental investigation, monitoring and/or further cleanup action may be needed before a comprehensive, final cleanup is achieved.

Cleanup Action

As discussed in Chapter 3, a cleanup, or remedial, action is conducted primarily to reduce or eliminate real or potential exposures to hazardous substances and other regulated materials. From a development standpoint, cleanup actions can help manage project risk by reducing uncertainty associated with the environmental conditions. The extent to which this is true will depend on the specific nature of the cleanup action.

If a local government is contemplating conducting a cleanup action or evaluating a property at which cleanup actions have already taken place, it is important to consider how those cleanup actions are likely to influence redevelopment efforts. Cleanup actions that remove all contaminants are generally more desirable to developers but are not always technically feasible or cost-effective. Long-term management of some waste in place is therefore often the best choice for many properties (see the Environmental Condition Impact Analysis section in Chapter 3).

With effective planning between the entity conducting the cleanup action and the entity seeking to facilitate the redevelopment of the property – which in some cases may be the same entity – potential barriers to redevelopment and therefore project risks can be minimized.

Many factors can impact how well a cleanup action reduces project risk. Apart from non-cleanup-related issues (e.g., the economy), these may include permanence (e.g., have contaminants been completely removed? Have they been converted to a physical or chemical form that effectively prevents leaching or reduces toxicity?). Other factors include the need for long-term operation and maintenance (see Appendix A.1.12), the need for institutional controls (see Appendix A.1.13), the time it takes to complete the cleanup action, and any physical barriers that might limit future uses (e.g., treatment buildings, monitoring wells).

EPA does not have the authority under CERCLA to conduct or to require responsible parties to conduct actions that are solely intended to provide enhancements or betterments to the property. An example of a potential enhancement might be the construction of a parking lot that is not needed to implement the cleanup. An EPA memorandum, Considering Reasonably Anticipated Future Land Use and Reducing Barriers to Reuse at EPA-lead Superfund Remedial Sites, (March 17, 2010), further discusses when actions taken to facilitate reasonably anticipated future land use may be within the scope of CERCLA authority. With proper planning, it may be possible for the local government or developer (if one already exists) to fund and/or construct enhancements in coordination with the cleanup activities.

Voluntary Cleanup

State response programs, commonly referred to as voluntary cleanup programs (VCPs), play a significant role in assessing and cleaning up brownfields and other lower-risk sites. Many states have VCPs to encourage and facilitate the cleanup of brownfield properties. The specific details of these programs vary from state to state, but they are often designed to provide more flexibility to parties performing investigation and cleanup activities. This flexibility potentially allows such parties greater control over the conduct and scheduling of those activities and helps to reduce the associated costs.

EPA does not oversee cleanup activities at brownfield sites. Instead, EPA can support state VCPs through grant funding to establish and enhance VCPs and may enter into non-binding memoranda of agreements (MOAs) with individual states that include general enforcement assurances to encourage the assessment and cleanup of sites addressed under VCP oversight. Further, at certain sites being addressed under a state VCP, the 2002 Brownfields Amendments provide that EPA may not take a CERCLA enforcement action against parties at the site, absent special circumstances. This provision creates an important incentive for performing voluntary cleanups of brownfields under state VCP oversight.

EPA has entered into non-binding MOAs with most states that clarify the general roles and responsibilities of each agency regarding cleanups under the state VCP. While an MOA, or absence of an MOA, does not alter EPA’s or a state’s legal authority, the MOA may provide the general public and development community with some confidence that EPA and the state agency are working in a coordinated manner.

Links to state VCPs can be found in the Cleaning Up Brownfields under State Response Programs - Getting to 'No Further Action' report.

Maintenance and Monitoring of Remedial Systems and Structures

Many brownfield properties can have residual contamination after the completion of a cleanup action. To ensure continued protection of human health and the environment, engineering controls (such as pavement that acts as a cap over contaminants) and monitoring (such as measurements of contaminant levels in groundwater or indoor air) are often required. The engineering controls generally necessitate some sort of maintenance. For example, where pavement will be serving as a soil barrier or cap, periodic inspection for cracks and repaving are common maintenance activities.

Site monitoring serves to verify the results of environmental investigations, reveal trends in contamination levels, and monitor the performance of remedial systems and structures. Site monitoring may include the collection and analysis of groundwater, soil, air or other media. Generally, the cleanup action plan or closure report will identify the required maintenance and monitoring activities.

Likely and known maintenance and monitoring requirements should be identified early on in planning for the redevelopment. This includes determining which parties will be responsible for fulfilling these requirements. If a local government takes on management responsibilities of a property through acquisition or leasing, it should prepare a plan for meeting any obligations it might have regarding the operation, maintenance and monitoring of the remedial systems and structures. This includes establishing a routine schedule for inspecting engineering controls and conducting monitoring to identify deficiencies and other developing problems before they become more serious.

Failure to perform the required maintenance or monitoring can allow the property conditions to deteriorate and endanger human health and the environment, and may result in potential liability (see discussion under CERCLA in the Project Liabilities and Risks section in Chapter 4[AP6]). In addition, most post-closure environmental insurance policies require fulfillment of maintenance and monitoring requirements as a condition of coverage. Failure to properly conduct maintenance and monitoring can result in denial of insurance coverage claims.

Institutional Controls

Institutional controls typically include easements, environmental covenants or deed notices, which notify property users and future owners about the presence of residual contaminants that remain after the completion of the cleanup action and of any restrictions on future uses of the land, surface water and groundwater. (See Chapter 3 for further discussion of institutional controls.) Generally, the cleanup action plan or the closure report for the cleanup action will identify the required institutional controls.

Oversight of the Environmental Contractors

Performing appropriate oversight of the site assessment, cleanup action and construction contractors can potentially help reduce the local government’s common law liability if something goes awry with the redevelopment. The local government can include work out and mediation clauses in its contracts if there is doubt as to the contractor’s ability to fully perform the agreed obligations. The contracts also can be staged or drafted with contingency clauses to reduce uncertainty on complicated development projects.

Forward commitment contracts can sometimes be used to provide the certainty that a local government needs to proceed with a project while providing flexibility if conditions change as the project progresses.

Following Accepted, Good Commercial Practices

The local government can potentially minimize the risk of contractual- and negligence-based liability by following accepted good commercial and customary practices and by fulfilling the terms of the contracts to which it has agreed.

Statutory/Regulatory Protections

Statutory exclusions and defenses can often be the first layer of protection for local governments or other entities considering the acquisition or leasing of a potential brownfield property because they are embodied directly into the law. Although sometimes subject to interpretation and legal challenges, they can provide a solid foundation for building a risk management strategy. Government enforcement discretion policies, while they do not carry the same weight as statutory exclusions and defenses and do not bind private parties, also can potentially provide important protections for the local government.

Potential liability protections under federal and state cleanup statutes may or may not apply to a specific property depending on the method of acquisition and other site-specific facts. A clear understanding of potential statutory liabilities and the available exemptions and defenses to them is needed for the local government to evaluate the various types of acquisition and control options. It also is critical to fully understand the threshold conditions and continuing obligations that are necessary to qualify for and maintain these liability protections.

CERCLA Liability Protections for Local Government Acquisitions 

In 2018, Congress enacted the Brownfields Utilization, Investment, and Local Development Act of 2018 (BUILD Act). The BUILD Act amended CERCLA’s Section 101(20)(D) liability protection for state and local government acquisitions of brownfield property by adding a new category of exempt acquisitions and by removing a requirement that the properties must be acquired “involuntarily.” To assist local governments and to clarify its enforcement discretion intentions, EPA developed guidance to provide an overview of CERCLA’s liability framework and protections and EPA’s enforcement discretion policies that may apply to local governments (see EPA: Superfund Liability Protections for Local Government Acquisitions after the Brownfields Utilization, Investment, and Local Development Act of 2018).

Liability protections that may apply to local government acquisitions of brownfield property are provided in Appendix A.2.2 to Appendix A.2.4 and summarized in the table below. 

State and Local Government Acquisitions of Brownfield Property  

CERCLA § 101(20)(D) now provides that “[t]he term ‘owner or operator’ does not include a unit of State or local government which acquired ownership or control through seizure or otherwise in connection with law enforcement activity, or through bankruptcy, tax delinquency, abandonment or other circumstances in which the government acquires title by virtue of its function as sovereign.” EPA generally treats a “unit of State or local government” to mean any unit of government within a state, including a: (a) county; (b) borough; (c) local government; (d) city; (e) town; (f) township; (g) parish; (h) local public authority, including any public housing agency under the United States Housing Act of 1937; (i) special district; (j) school district; (k) intrastate district; (l) council of governments, whether or not incorporated as a nonprofit corporation under state law; and (m) any other agency or instrumentality of a multi-regional or multi-intrastate local government. In addition, EPA generally intends to exercise its enforcement discretion and treat a local government acquisition as “by virtue of its function as sovereign” only when a local government acquires title to a property via a function that can be effectively performed only by governments using a mechanism available only to governments. (See the table below for a list of these functions.)

Bona Fide Prospective Purchaser Provision 

The bona fide prospective purchaser liability protection may be available for a local government that purchases or leases a brownfield property if it establishes its bona fide prospective purchaser status prior to acquisition and maintains its status after acquisition. It protects parties from certain CERCLA liability as long as certain threshold conditions and continuing obligations, including all appropriate inquiries, are conducted prior to acquiring the property, the purchaser does not contribute to hazardous substances on the property, and the purchaser is not potentially liable or affiliated with a liable party for cleanup on the property.

If there are concerns about state environmental liability, the appropriate state regulators should be contacted to determine the availability of prospective purchaser agreements under state law.

Third-Party and Innocent Landowners 

CERCLA § 107(b)(3) provides a “third-party” affirmative defense to CERCLA liability for any owner, including a local government, that can prove, by a preponderance of the evidence, that the contamination was caused solely by an act or omission of a third party whose act or omission did not occur “in connection with a contractual relationship.” CERCLA’s third-party defense also includes an “innocent landowner defense” as an exclusion to the definition of a “contractual relationship.” The “innocent landowner defense” includes "a government which acquired the facility by escheat, or through any other involuntary transfers or acquisition, or through the exercise of eminent domain authority by purchase or condemnation.”

Potential CERCLA Liability Protections for Local Governments

	Tax Lein and Delinquency Foreclosures	Bankruptcy	Escheat	Eminent Domain	Transfer	Purchase	Inheritance or Bequest	Abandonment	Gift/Donation
State and Local Government Acquisitions	⚫	⚫	⚫	⚫	⚫			⚫
Bona Fide Prospective Purchasers	⚫	⚫	⚫	⚫	⚫	⚫	⚫	⚫	⚫
Third-Party and Innocent Landowners			⚫	⚫		⚫	⚫

Reference:
EPA: Superfund Liability Protections for Local Government Acquisitions after the Brownfields Utilization, Investment, and Local Development Act of 2018 

Other Determinations of Completion

States with voluntary cleanup programs provide no further action determinations or other documents to verify when cleanup requirements under voluntary cleanup programs or other regulatory programs have been adequately met. Each state will impose its own limitations on the scope of the document and on the nature of any disclaimer and reopener language; however, in general, these determinations can provide some level of closure and comfort to the various parties with a potential financial stake in the property and its redevelopment (e.g., lenders, insurers, investors, tenants). In addition, some states provide liability protections from state regulatory enforcement to purchasers that generally meet all appropriate inquiries requirements and other requirements under the state voluntary cleanup program. State determinations of compliance do not resolve issues of federal liability at the site.

Transactional Activities

Escrow Accounts

Escrow accounts can be used to cover issues not resolved in the purchase and sale of a property. Whatever purpose the escrow agreement has usually occurs after the closing. This may include escrow funds for remediation, long-term monitoring and fees associated with closure.

Purchase Price Adjustments

If the buyer agrees to complete remediation or meet some other obligation in the future related to the remediation or other activity identified during the due diligence, the seller can offer an adjustment to the purchase price rather than pay for that expense directly.

Grants

Although not normally thought of as a risk management tool, grants can reduce the local government’s financial exposure or provide the funds necessary for the successful completion of the project. Local governments may be eligible for certain types of EPA brownfield grants, including property-specific grants for Phase I and Phase II ESAs, even though they are not the owners of a property. The 2018 BUILD Act expanded brownfields assessment grant eligibility to nonprofit organizations organized under Section 501(c)(3) of the Internal Revenue Code. Nonprofits are now eligible for both EPA Brownfields Assessment and Cleanup Grants.

Tax Benefits and Credits

Federal and state tax incentives exist to help reduce the financial risk associated with redeveloping brownfield properties. EPA has a discussion of various tax incentives that can be used in brownfields redevelopment on its website, including Opportunity Zones, New Market Tax Credits, Low Income Housing Tax Credits, Historic Rehabilitation Tax Credits, and Energy Efficiency and Renewable Energy Tax Credits (see EPA: Supporting Brownfields Redevelopment using Tax Incentives and Credits). A number of states also have created tax incentives specifically targeted to brownfield properties (see ASTSWMO: 2020 State Brownfields Program Analysis). State brownfield program coordinators should be contacted for information regarding those incentives.

Private Investors

Investors put money into a redevelopment project in return for a share of the profits from the project. Because their money is fully at risk, private investors carefully consider the risks associated with redeveloping brownfield properties. Many private investors understand that it is generally in their best interests to work with local governments to help ensure a successful outcome and, therefore, may help the local government identify areas of potential risk that the local government had not anticipated or fully understood. At the same time, the interests of the private developers and the local government may not always be aligned, so the local government should be cautious of overly relying on that advice and assistance.
Private investors also often provide the initial, partial financing that provides enough certainty that other more traditional financing sources can feel comfortable financing the remaining amount.

Specialized Loans

Loans are generally secured by collateral that the lender can seize if the borrower defaults on the loan. Redevelopment projects for brownfield properties have historically been perceived as too risky for traditional bank loans, but there are lenders that have established expertise in these projects. They are often familiar with the government and private grants that can help fund a project, and they understand brownfield properties and cleanup action projects. Like the private investors discussed in Appendix A.3.5, some of the specialized lenders can help guide the local government’s reuse evaluation process because of their experience with these types of projects.

In some cases, these specialized lenders will provide early, partial financing that gives enough certainty that other more traditional lenders can feel comfortable financing the remaining amount.

Redevelopment Authorities

In general, redevelopment authorities are public administrative units charged with redeveloping blighted areas within a particular jurisdiction. Many were created initially in response to the post-World War II housing shortage and the availability of federal money to address urban redevelopment. The specific powers of a redevelopment agency are spelled out in the enabling legislation from which it derives its authority. Examples of specific powers include buying and selling property, acquiring property through the exercise of eminent domain, granting tax concessions to encourage commercial and/or residential development, receiving loans and grants from the federal government, borrowing money, and entering into contracts.

It is not unusual for a local government to transfer property that it owns to the redevelopment authority for that same jurisdiction. Based on the enabling legislation, there can be important legal and policy reasons to make such a transfer. However, if a local government is liable under CERCLA as an owner/operator at the time of disposal or as a generator or transporter, it does not lose its status as a liable party by transferring the property to a redevelopment authority. Similarly, the redevelopment authority may not be able to qualify as a bona fide prospective purchaser if it is found to be affiliated with a liable party (for example, the local government transferring the property) through any corporate, contractual or financial relationship other than the relationship created by the mechanism transferring title to the property.

Under CERCLA, a redevelopment authority also may be liable as the current owner of a brownfield property, or as the owner/operator at the time during which hazardous substances were disposed of at the property, or as the generator or transporter of the hazardous substances disposed of at the property.

A redevelopment authority also may find itself liable under CERCLA if EPA concludes that the redevelopment authority and a liable local government are one and the same entity. In reaching that conclusion, EPA will review the enabling legislation creating the redevelopment authority, as well as other factors specific to the situation, including the level of control the local government exerts over the redevelopment authority. (See The Environmental Liability section in Chapter 4[AP8] and the Statutory/Regulatory Protections [AP9]section in this Appendix for an explanation of potential liability protections under CERCLA.)

Land Banks

An increasing number of states and local governments are passing legislation to develop land banks. Land banks can be an effective tool in redeveloping and reusing properties in areas suffering from abandonment and blight. Land banks differ from redevelopment authorities. Generally speaking, redevelopment authorities are created to use significant governmental powers to develop or redevelop particular properties for a particular purpose. In contrast, land banks are created to acquire the growing number of privately or public-owned urban parcels that are not being reclaimed or redeveloped by market forces.

Land banks are governmental or non-governmental entities created to assemble, temporarily manage and develop vacant, abandoned and tax-delinquent properties in order to convert them to a productive use. While most land bank properties may not be contaminated, local governments should be aware of the potential for contamination prior to acquiring the property.

Whether a local government acquiring a land bank property qualifies for liability protection under the CERCLA involuntary acquisition exemption, bona fide prospective purchaser provision, third-party defense, or other statutory provisions will be determined on a case-by-case basis depending on the specific facts at issue. (See The Environmental Liability section in Chapter 4[AP10] and the Statutory/Regulatory Protections [AP11]section in this Appendix for an explanation of the liability protections under CERCLA.)

References:
EPA: Land Revitalization Fact Sheet: Land Banking
Additional information can be found on the U.S. Department of Housing and Urban Development Land Banks and Land Banking website.

Contractual Provisions

Reducing exposure to common law liability begins with following the accepted, good commercial practices of due diligence. Performing proper oversight of contractors also can help reduce the local government’s common law liability. Representations, warranties, indemnification agreements and other specific contractual language between the responsible parties, redevelopers, cleanup action contractors and the local government can sometimes further reduce the local government’s financial exposure when conducting due diligence, environmental investigations, cleanup action and construction. This contractual language can, for instance, define conditions for taking possession of the property by the local government, describe schedules, and identify and assign liability responsibilities. Local governments can be either a buyer or a seller depending on the property disposition strategy selected. The following are examples of contractual provisions that may apply to brownfield properties. These provisions are most commonly included in transactional agreements (e.g., lease, purchase and sales agreement), although some also may be applicable to other agreements. For example, indemnifications are often found in service contracts for conducting due diligence, cleanup action, or the operation and maintenance of equipment. Private contracts may transfer financial responsibilities between parties but do not affect statutory liability.

The local government should consult with legal counsel when evaluating the uses and benefits of contractual provisions. The following descriptions are intended to better inform discussions with legal counsel and should not be relied upon to make decisions regarding their applicability to a given set of circumstances.

Indemnification

An indemnification in a contract can sometimes be used to obtain a release from liability for certain future legal claims, liabilities and lawsuits, and also for compensation for any loss the local government may incur. This can include liabilities associated with known environmental conditions or possibly an unknown environmental condition that may have been associated with prior use of the property. As with many contractual agreements, the value of the indemnity is only as good as the financial viability and longevity of the party giving the indemnity. Local governments should seek expert legal advice regarding the use of indemnities and should be aware that, depending on the circumstances of their use, they may undercut the ability to meet the requirements of some CERCLA liability defenses.

Representations and Warranties

Representations and warranties can be used to define certain facts and provide assurances about the property or its environmental condition (e.g., all underground storage tanks have been removed and no further action is warranted). Specific remedies or consequences can be included if the representations and warranties are not accurate or not fulfilled (e.g., the seller or responsible party will remove an underground storage tank discovered subsequent to the property transfer and conduct any corrective action required by the regulatory agency). As with many contractual agreements, the value of the representations and warranties is only as good as the financial viability and longevity of the party giving the indemnity.

 “As Is” Provisions

An ”as is” provision can sometimes be used to avoid liability by the seller for defects in the land and liability for potential contamination. In this case, the buyer could be accepting liability for known, or possibly unknown, contamination on a property. The use of an “as is” provision requires a good understanding of the risks and liabilities associated with the property. This provision is typically used where the buyer determines that the potential risk and liabilities are well defined, acceptable and economically feasible.

In accepting an “as is” provision, the local government is relying on the representations and warranties of the seller. It is important to note that an “as is” provision does not always completely relieve the seller of its duty to disclose defects in the property to the buyer. Under many state laws, the seller is required to disclose known facts that may adversely affect the value of the property.

Environmental Covenants

A covenant can sometimes be used to obligate one party to engage in or refrain from specific actions, such as a deed restriction prohibiting certain types of activities or construction on a property by the property owner or lessee. Many states have implemented environmental covenants, which are agreements between the regulatory agency and a responsible party that define responsibilities for long-term stewardship of engineering and institutional controls (see Appendix A.1.13). These covenants may include property owners or lessees of a property. Additional information on environmental covenants is available in the Environmental Covenants Act.

Assumption, Retention and Release Provisions

The buyer and seller of a property can allocate risk or liability for certain conditions through a provision where the buyer accepts, or the seller retains, responsibility for known or unknown environmental conditions and releases the other party from liability for current and future claims arising from the specified conditions. This approach is typically used to allocate risk of future liability for a currently existing but unknown condition. The provision should be structured to ensure that the seller is protected from risk or liability caused by future buyers of the property or tenants of the property.

Schedule of Included or Excluded Liabilities

Where the buyer and seller have agreed to the transfer or retention of certain liabilities, the contract should include a schedule or list of liabilities that are going to be assumed by the buyer or retained by the seller.

Post-Signing and Pre-Closing Conditions

Post-signing and pre-closing conditions are agreements between the parties of a property transfer that allow certain actions to be taken or certain conditions prior to closing or during some pre-determined timeframe after signing an intent to purchase. Typically, these provisions can provide an opportunity for the buyer or seller to back out of the deal, adjust the purchase price, or seek other remedies if conditions are not met. These provisions can be used to allow a buyer to conduct environmental investigations or other activities and terminate or modify a transaction if certain unacceptable conditions or thresholds are found. These conditions also can include cost-sharing provisions for environmental investigations and property access agreements.

Fixed Price or Performance-Based Contracts

Fixed price and performance-based contracts can be used to control financial risk by reducing uncertainty in the cost of assessment and cleanup action activities. For example, fixed price and performance-based contracts with environmental cleanup contractors can help clearly define the costs of assessment and cleanup activities. These types of contracts are routinely used in the construction industry and increasingly in the environmental field.

Insurance

Obtaining insurance coverage for certain risks may be worth considering if a local government is actively managing the property or leading the redevelopment effort. Alternatively, or in addition, the local government can ask to be named as an additional insured on developers’ and cleanup action contractors’ environmental liability policies.

The following are examples of insurance provisions that may apply to brownfield properties. These and other insurance products are discussed in EPA’s Environmental Insurance Helps Ensure Redevelopment fact sheet. The underwriting of brownfield properties is a specialized and evolving area of insurance, and local governments should consult with a qualified expert and legal counsel to discuss the benefits and limitations of these products for a given set of circumstances.

Comprehensive General Liability Insurance

Comprehensive general liability insurance generally provides broad protection against situations in which an entity must defend itself against lawsuits or pay damages for bodily injury or property damage from third-party claims. These claims are enforced and interpreted based on state law. Comprehensive general liability insurance can be used to address general redevelopment issues and other potential liabilities; however, it has become more restrictive over time and rarely covers environmental liabilities.

Pollution Liability Insurance

Pollution liability insurance can sometimes be used to protect the local government against third-party claims for bodily injury, property damage, and off-site and on-site cleanup costs. In addition, it can be used to provide some protection against newly discovered contaminants, natural resource damage claims, regulatory reopeners, and other contamination-related costs. These policies are typically short-term, averaging from one to five years and often not more than 10 years. Regulatory reopener coverage usually begins when the project has achieved a “No Further Action” status and extends coverage for 10 years.

A specialized form of pollution liability insurance is contractor’s pollution liability insurance. This type of insurance covers contractors against the possibility that their activities on the property will make the pollution worse or cause third parties to be harmed. It is usually purchased on an annual basis by the contractors providing cleanup action services. For large, complex projects, contractor’s pollution liability insurance can be purchased on a project basis, with limits dedicated to the specific project. It is important for the local government to make sure that all of the contractors and subcontractors involved in the project have adequate pollution liability insurance limits and that they maintain this coverage throughout the project and for some period after completion.

Errors and Omissions Insurance

Errors and omissions insurance can sometimes be used to protect the local government from errors in professional services. Generally, this insurance is purchased on an annual basis by the consultant or attorney providing services to the redevelopment project. The local government should make sure that the professionals involved in a project have adequate errors and omissions insurance coverage that is maintained throughout the project and for some period after completion.

Cost Cap Insurance

Cost cap insurance can sometimes be used to reduce financial risk by providing the insured an upper limit on the costs of cleanup action. Costs over budget are paid by the insurer, with limitations. Cost cap insurance can address issues such as cost overruns for cleanup action expenses, changes in regulatory standards/laws, and newly discovered contaminants. Policies are based on the cleanup action cost plan and terms typically based on the anticipated length of the cleanup action.

Secured Lender Insurance

A secured lender insurance policy can sometimes be used to provide coverage to the lender for the outstanding loan balance in the event of a default on projects where environmental contamination exists. Typically, a secured lender policy allows the insurer to either pay off the outstanding loan balance or pay for cleanup action costs and certain other damages.

Finite Risk Insurance

Finite risk insurance can sometimes be used to transfer broad financial liabilities from the insured to the insurer. Typically, the insured pays the insurer the entire expected cost of the cleanup action — plus a risk premium to cover potential cost overruns, unanticipated cleanup action, and third-party liability — before redevelopment begins, and the insurer assumes financial responsibility for the cleanup action. In many finite risk policies, the insurer also provides oversight of the cleanup action program. This type of insurance is generally applied to longer-term and more costly cleanup actions. These policies also can be negotiated in a manner that allows the return of unspent monies at the end of the project.

Institutional Controls and Post-Remedial Care Insurance

These insurance provisions may potentially be used to reduce financial risk associated with institutional controls (see Appendix A.1.13) and post-remedial maintenance and monitoring activities (see Appendix A.1.12). The insurance would typically cover cost overruns related to the design and establishment of the institutional control and damages resulting from an error in the design, or establishment of the institutional control, an error or omission on the part of the parties maintaining the control, or failure of the control.

The policy terms are typically renewable in multi-year increments, based on the anticipated length of the post-cleanup action monitoring and maintenance. (See the Due Diligence section in Chapter 3 for a general discussion of institutional controls.)