Selling property that has been impacted by previous industrial use – a brownfield – has been difficult ever since our society has recognized the risks posed by soil and groundwater contamination, and introduced regulation. Banks, lenders and insurers would often refuse to get involved, sometimes for fear that they could be held responsible if the bill for the required cleanup is much more than expected.
Yet several trends are making lenders and other stakeholders more willing to work with owners of contaminated sites, says lawyer Rosalind Cooper, who recently partnered with the international law firm Fasken Martineau as part of her “Environmental Law Update” presentation in Toronto on March 25, 2010. (Cooper is also a contributing editor to Solid Waste & Recycling magazine.)
For members of the solid waste sector, this issue may come up if they want to sell property that has been used as a landfill, but which has the potential for leachate migration. For industry generally, it could be a former transfer site where spilled hydrocarbons may have flowed into the soil. There are many other examples.
There have been many developments in remediation technology, and also in techniques for managing the risks associated with contamination.
Cooper says that “generic” criteria used to be considered the only acceptable option – cleaning up the soil or groundwater so it meets defined regulatory levels.
Now, she says, there is greater acceptance of Risk Assessment criteria, which consider the purposes to which the property may be put, and seek site-specific ways to manage the risk. This might include isolating the contamination and leaving it in place.
Cooper says she has found that financial institutions are increasingly aware of risk assessment principles and willing to accept their application to sales of impacted properties. Often, this will change the market value of a property to the point that a transaction that was not viable before becomes so.
Legislative changes may help drive an increase in risk assessment methodology as well.
In her presentation, Cooper said that new laws in Ontario, due to take effect in July 2011, are already being felt in property transactions in that province. These regulations involve new rules for completing Phase I and Phase II Environmental Site Assessments.
Under the new regulations, standards for some products will become more stringent (benzene and trichlorethelene), while other standards will become less rigid – for example, vinyl chloride.
These new regulations are casting a long shadow in that parties to property transactions are looking ahead to their implementation, and accepting or refusing deals based on what the regulations will be, rather than the present regulatory environment.
In general, the new regulations mean that it will become more difficult to achieve generic criteria, possibly causing more property owners to accept risk-assessment methodology, Cooper says.
She adds that another trend in property transactions has to do with the use of environmental reports by a third-party environmental consulting firm, commissioned by the property’s current or previous owner. Parties involved in property transactions involving impacted soil need to understand whether or not they can rely on such an existing environmental report.
In an increasing number of cases, third-party environmental consulting firms are adding long lists of conditions under which their work can be used, says Cooper.
In many cases, these conditions state that the report has been written specifically for the current property owner and no other parties are allowed to use it.
In some cases, the environmental firm will issue a letter permitting the report by another party, but there have been an increasing number of scenarios where a significant fee has been levied in addition to the issuance of such a letter.
Carl Friesen is Principal of Global Reach Communications, which helps business professionals demonstrate their expertise through getting published in magazines and books.