Environmental Law in Real Estate

October 16, 2018

6:00 p.m. – 8:00 p.m.

CBA Law Center

New Britain, CT

CT Bar Institute Inc.

CT: 2.0 CLE Credits (General) NY: 2.0 CLE Credits (AOP)

No representation or warranty is made as to the accuracy of these materials. Readers should check primary sources where appropriate and use the traditional legal research techniques to make sure that the information has not been affected or changed by recent developments.

Page 1 of 122 Lawyers’ Principles of Professionalism

As a lawyer I must strive to make our system of justice work fairly and Where consistent with my client's interests, I will communicate with efficiently. In order to carry out that responsibility, not only will I comply opposing counsel in an effort to avoid litigation and to resolve litigation with the letter and spirit of the disciplinary standards applicable to all that has actually commenced; lawyers, but I will also conduct myself in accordance with the following Principles of Professionalism when dealing with my client, opposing I will withdraw voluntarily claims or defense when it becomes apparent parties, their counsel, the courts and the general public. that they do not have merit or are superfluous;

Civility and courtesy are the hallmarks of professionalism and should not I will not file frivolous motions; be equated with weakness;

I will endeavor to be courteous and civil, both in oral and in written I will make every effort to agree with other counsel, as early as possible, on communications; a voluntary exchange of information and on a plan for discovery;

I will not knowingly make statements of fact or of law that are untrue; I will attempt to resolve, by agreement, my objections to matters contained in my opponent's pleadings and discovery requests; I will agree to reasonable requests for extensions of time or for waiver of procedural formalities when the legitimate interests of my client will not be In civil matters, I will stipulate to facts as to which there is no genuine adversely affected; dispute;

I will refrain from causing unreasonable delays; I will endeavor to be punctual in attending court hearings, conferences, meetings and depositions; I will endeavor to consult with opposing counsel before scheduling depositions and meetings and before rescheduling hearings, and I will I will at all times be candid with the court and its personnel; cooperate with opposing counsel when scheduling changes are requested; I will remember that, in addition to commitment to my client's cause, my When scheduled hearings or depositions have to be canceled, I will notify responsibilities as a lawyer include a devotion to the public good; opposing counsel, and if appropriate, the court (or other tribunal) as early as possible; I will endeavor to keep myself current in the areas in which I practice and when necessary, will associate with, or refer my client to, counsel Before dates for hearings or trials are set, or if that is not feasible, knowledgeable in another field of practice; immediately after such dates have been set, I will attempt to verify the availability of key participants and witnesses so that I can promptly notify I will be mindful of the fact that, as a member of a self-regulating the court (or other tribunal) and opposing counsel of any likely problem in profession, it is incumbent on me to report violations by fellow lawyers as that regard; required by the Rules of Professional Conduct;

I will refrain from utilizing litigation or any other course of conduct to I will be mindful of the need to protect the image of the legal profession in harass the opposing party; the eyes of the public and will be so guided when considering methods and content of advertising; I will refrain from engaging in excessive and abusive discovery, and I will comply with all reasonable discovery requests; I will be mindful that the law is a learned profession and that among its desirable goals are devotion to public service, improvement of In depositions and other proceedings, and in negotiations, I will conduct administration of justice, and the contribution of uncompensated time and myself with dignity, avoid making groundless objections and refrain from civic influence on behalf of those persons who cannot afford adequate legal engaging I acts of rudeness or disrespect; assistance;

I will not serve motions and pleadings on the other party or counsel at such I will endeavor to ensure that all persons, regardless of race, age, gender, time or in such manner as will unfairly limit the other party’s opportunity disability, national origin, religion, sexual orientation, color, or creed to respond; receive fair and equal treatment under the law, and will always conduct myself in such a way as to promote equality and justice for all. In business transactions I will not quarrel over matters of form or style, but will concentrate on matters of substance and content; It is understood that nothing in these Principles shall be deemed to supersede, supplement or in any way amend the Rules of Professional Conduct, alter existing standards of conduct against which lawyer conduct I will be a vigorous and zealous advocate on behalf of my client, while might be judged or become a basis for the imposition of civil liability of recognizing, as an officer of the court, that excessive zeal may be any kind. detrimental to my client’s interests as well as to the proper functioning of our system of justice; --Adopted by the Connecticut Bar Association House of Delegates on June 6, 1994 While I must consider my client’s decision concerning the objectives of the representation, I nevertheless will counsel my client that a willingness to initiate or engage in settlement discussions is consistent with zealous and effective representation;

Page 2 of 122 Table of Contents Agenda ...... 4 Faculty Biographies ...... 5 Introduction to Environmental Liability ...... 7 The Connecticut Transfer Act ...... 12 The Connecticut Site Verification Process ...... 18 Environmental Due Diligence in Real Estate Transactions ...... 20 Environmental Land Use Restriction (ELUR) ...... 23 Seminar Presentations ...... 29 Environmental Liability in Real Estate Transactions ...... 29 The Connecticut Site Verification Process ...... 46 Environmental Due Diligence in Real Estate Transactions ...... 84

Page 3 of 122 Environmental Law in Real Estate October 16, 2018 Agenda

6:00 p.m. – 6:10 p.m. Introductions Bridget D’Angelo, Murtha Cullina LLP 6:10 p.m. – 6:20 p.m. Introduction to Environmental Liability Patricia Boye-Williams, Murtha Cullina LLP 6:20 p.m. – 6:30 p.m. What is the Connecticut Transfer Act and when does it apply? Patricia Boye-Williams, Murtha Cullina LLP 6:30 p.m. – 6:50 p.m. What is the role of a Licensed Environmental Professional? What is the Site Verification Process? Kevin L. Vanderveer, Fuss & O’Neill, Inc. 6:50 p.m. – 7:00 p.m. Environmental Due Diligence in Real Estate Transactions Bridget D’Angelo, Murtha Cullina LLP 7:00 p.m. – 7:20 p.m. Once you know there is potential environmental liability, how can you mitigate it? Patricia Boye-Williams, Murtha Cullina LLP 7:20 p.m. – 7:40 p.m. Overview of Environmental Land Use Restrictions and the Connecticut Department of Energy and Environmental Protection Bridget D’Angelo, Murtha Cullina LLP 7:40 p.m. – 8:00 p.m. Question and Answer

Page 4 of 122 Faculty Biographies

Bridget D’Angelo is an associate attorney at Murtha Cullina LLP. As a member of Murtha Cullina’s Business & Finance Department, Bridget represents clients in the areas of real estate and financing. She assists clients with real estate acquisitions, development, financing, and entity formation. Bridget’s representation of clients includes negotiation of loan documentation, purchase and sale agreements, leases, and entity formation, as well as all other aspects of commercial real estate and asset-based lending transactions. Bridget has been an invited speaker for Connecticut Real Estate Women (CREW) at the University of Connecticut School of Business Real Estate Society Presentation and the Millennial Panel presented by the Real Estate Exchange. She currently serves as Chair of the Real Property Section of the Young Lawyer’s Section Executive Committee of the Connecticut Bar Association. Bridget received her J.D. from the University of Chicago Law School, where she was a member and a Managing Editor of the Chicago Journal of International Law. She earned her B.A. summa cum laude in Economics and Political Science from the Robert E. Cook Honors College of the Indiana University of Pennsylvania. Bridget serves on her firm’s Professional Development Committee and Diversity Committee. In her spare time she enjoys golfing with her husband, James.

Patti Boye-Williams practices in Murtha Cullina’s Environmental and Renewable Energy Practice Groups. She advises clients on a variety of regulatory compliance matters arising under RCRA, the Clean Water Act, the Clean Air Act, CERCLA, and related state laws. Additionally, Patti has represented both renewable energy developers and renewable energy off-takers, including municipalities, in a variety of matters including: representation before PURA and the Connecticut Siting Council, the negotiation of power purchase agreements, and analysis of proposals to develop large scale solar arrays.

Patti has significant experience managing environmental aspects of complex corporate and real estate transactions, including evaluating the impact of the Connecticut Property Transfer Act on these transactions. She has counseled clients regarding compliance with remediation requirements under both federal and state laws, including the remediation of hazardous building materials (for example the remediation of PCBs in caulk and paint). Her CERCLA experience includes representing PRPs at multi-party Superfund sites throughout the country, including counseling clients with regards to settlement with state and federal entities, as well as other PRPs. She has also advised clients regarding the impact of bankruptcy on environmental liabilities and successfully represented policyholders in insurance disputes stemming from historical environmental contamination.

Patti is a former Assistant Attorney General at the Connecticut Office of the Attorney General. As an Assistant Attorney General, she advised and represented the Department of Energy and Environmental Protection, Department of Agriculture and the Connecticut Agricultural and Experiment Station.

Before becoming an Assistant Attorney General, Patti was an associate at Jenner & Block LLP in Chicago where she was a member of the Firm’s Environmental & Workplace Health and Safety Law and Climate Change and Clean Technology Practice Groups. While there, she advised clients on a variety of matters involving compliance with environmental laws as well as climate change issues.

Page 5 of 122 Kevin L. Vanderveer, LEP As a Senior Hydrogeologist with Fuss & O’Neill, Kevin looks at the natural landscape and sees more than parcels of land comprised of trees, dirt, and rocks. He sees history. He understands the processes that have shaped what exists now. More than that, he sees a home that we have to inhabit for a long time to come. Kevin draws on his 20+ years of experience performing environmental assessments at sites throughout Connecticut to inform and guide clients along the path of managing environmentally-challenged properties. Kevin is an expert on the regulatory processes that govern site remediation and development under Connecticut’s Property Transfer Law and the Remediation Standard Regulations (RSRs). He assists clients in tackling the often challenging environmental regulatory requirements that accompany the transfer of establishments, from building a comprehensive understanding of site conditions to developing sustainable remedial solutions through Phase I, II, and III investigations; preparing Remedial Action Plans (RAPs) and Engineered Control Variance Requests (ECVRs); and documenting site cleanup activities in Remediation Summary Reports. He has prepared 10 verification reports for submittal to the CTDEEP and has supported attorneys in preparing many Environmental Land Use Restriction (ELURs), 8 of which have finished the state review process and are recorded on land records. Beyond the alphabet soup of ECAFs, ELURs, ECVRs, and RSRs, Kevin's interests delve into mythology and philosophy, particularly in how the heroic archetypes manifest in modern tales of fantasy and science fiction and reflect who we are both as individuals and as a society. He enjoys engaging other people's heroic side, whether it be through creative writing, bringing kids of all ages together for some friendly competition with padded swords, or serving as a team leader for his local community emergency response team. We are all world builders with a unique vision, but ours is a shared world. No one gets more than one paragraph, and there is only one draft. Every decision, every action, every stroke of the pen makes a permanent mark on our surroundings. It's up to us to ensure that the story never ends.

Page 6 of 122

ENVIRONMENTAL ISSUES IN REAL ESTATE TRANSACTIONS

Patricia L. Boye-Williams1

I. LEGAL OBLIGATION TO CLEAN UP CONTAMINATED PROPERTY

The primary federal statutes that address environmental liability are: the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA,” often referred to as Superfund) and the Resource Conservation and Recovery Act (“RCRA”). Each statute serves a different purpose. CERCLA primarily addresses historical contamination such as that resulting from former landfills and other sites where hazardous substances are found in the environment as a result of historical operations.

By comparison, RCRA governs current operations such as hazardous waste transfer, storage, and disposal facilities; manufacturing facilities that use or store hazardous materials; underground storage tanks; and similar operations. RCRA also imposes specific closure obligations (including investigation and remediation) that a company must undertake when terminating or changing operations, usually involving hazardous materials. Connecticut has authority to implement its own RCRA program—and while it has generally adopted the federal provisions, in many cases, Connecticut’s regulations for current operations and the closure of these facilities is more stringent than the federal program.

Other state laws regarding environmental issues include the Connecticut Property Transfer Act as well as the Connecticut Voluntary Remediation Program. The Connecticut Property Transfer Act places disclosure, and often remediation, requirements sellers of property or business operations that may have environmental contamination.

Collectively, these state and federal laws impose environmental investigation and remediation obligations on property owners. Therefore, when property is sold, environmental liability issues must be addressed in the transaction documents and if these issues are not addressed in the documents, both buyers and sellers can find

1 Ms. Boye-Williams is Counsel in the Environmental Practice Group at Murtha Cullina LLP where she advises clients on a variety of regulatory compliance and transactional matters arising under RCRA, the Clean Water Act, the Clean Air Act, CERCLA and related state laws.

Page 7 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 2 themselves responsible for remediation of contamination at a property, even many years after the transaction has closed.

A. Liability for Clean Up and Potential Cost Recovery

CERCLA imposes liability for remediation of contamination on a number of persons.2 In particular, the most significant of these responsible parties are current and former owners and operators (e.g., tenants) of contaminated property. Generators of hazardous waste who ship waste offsite for disposal, and those who transport and arrange for disposal of hazardous waste are also responsible for remediation of contaminated property. 42 U.S.C § 9607(a). RCRA, and the related Connecticut statutes, also impose additional, separate liability upon owners and operators of property. Each of these categories of persons, and their clean up obligations, is discussed in more detail below.

It is important to recognize that the mere fact that a person is one of these entities is enough to find a person legally responsible for 100% of the remediation of contaminated property. A liable person does not necessarily have to have caused the contamination. Notably, while it is possible for one party to indemnify another, statutory environmental liabilities cannot be contracted away, i.e., if the indemnitor fails to indemnify the indemnitee (for any reason, such as bankruptcy), the indemnitee remains legally obligated to remediate the property or reimburse others for costs incurred as part of the remediation.

1. Current & Prior Owner Liability

Owners are responsible for remediation of property they currently own or owned in the past, regardless of whether they caused the contamination or whether a third party (such as a tenant or other occupant of the property) caused the contamination. While a person owns the property, it is fully responsible for the environmental condition of the property (subject to some exemptions discussed further below). Accordingly, a current owner is responsible for the environmental contamination that exists on a site even if the contamination existed before the person owned the property. By comparison, a prior owner is only liable for contamination that occurred while it was an owner of the property.

2. Operator Liability

An operator may be an owner of a property, but the term “operator” also includes other categories, such as tenants. “Operator” includes anyone who “manage[s], direct[s], or conduct[s] operations specifically related to pollution.”

2 When used in this memo “person” or “persons” refers to the legal definition of person under these statutes and includes a natural person as well as corporations, limited liability companies, partnerships, and other legal entities.

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United States v. Bestfoods, 524 U.S. 51, 66-67 (1998). In particular, it is important to note that while operator is broadly defined, it does not include the mere operation of a hazardous waste treatment system, rather it refers to the operation of the entire facility. With the broad definition of operation, it can also include parent companies if appropriate corporate formalities are not maintained.

Just like with owners, current operators are liable for all contamination that exists on a property regardless of who caused the contamination; by comparison, just as with prior owners, former operators are responsible for contamination that occurred during the time that they operated the facility. Additionally, operators can find themselves liable under RCRA, as well, for causing or contributing to a release of hazardous materials at a property.

3. Third Party Liability

Other categories of persons can also be responsible for the environmental remediation even if they did not own or operate at the property. This often arises with respect to landfills and other waste treatment centers. Additionally, these categories of liable persons tend to be more amorphous such that determining whether an entity is liable pursuant to one of these categories is a more fact- intensive inquiry.

a. “Arrangers,” Generators and Transporters

Generator, arranger, and transporter liability imply that the waste was disposed of at a location other than where it was originally created. For example, a “generator” often makes arrangements with a “transporter” (e.g., a waste hauler) to have hazardous waste shipped off-site to a landfill or other location for disposal. The generator and the transporter are now both liable for the costs of any remediation that may need to occur at the disposal location. Note that the term “arranger” is not defined by CERCLA. Accordingly, determining whether someone is an arranger is often a fact-intensive inquiry.

b. Adjacent Property Owners

Under both CERCLA and Connecticut law, adjacent property owners are not liable for contamination that is on their property solely because it migrated from adjacent properties. In Connecticut, the state’s downgradient policy protects property owners by not requiring them to remediate contamination originating from other sites. However, under CERCLA, in particular, a “contiguous property owner” must make certain showings in order to avoid being considered an owner or operator. 42 U.S.C § 9607(q). Among other requirements, a contiguous property owner must not have caused the contamination or made it worse; must not be affiliated with the party that did cause the contamination; must take reasonable

Page 9 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 4 steps to stop the release, prevent future threatened release and prevent or limit exposure to the contamination on that property; must cooperate with governmental authorities; and must have undertaken proper due diligence at the time of the purchase and still not have known or had reason to know that the property was contaminated with hazardous substances. 42 U.S.C § 9607(q).

B. Defenses to Liability

There are few defenses to liability under environmental laws. As noted previously, it is not a defense to assert that another entity has agreed to be responsible for the contamination. Defenses to liability include an act of war, an act of god (but heavy rain and earthquakes are predictable events that should be planned for—and thus aren’t considered a defense), innocent purchaser, and holding an interest in the land to protect a security interest (such as a lender or fiduciary). The key to most defenses is that the property owner must demonstrate that they have conducted a reasonable investigation.

1. Innocent Landowner

Under CERCLA, a person who would otherwise be liable as an owner or operator may avoid liability if they can show (by a preponderance of the evidence) that a third party was the source of the contamination. As with adjacent property owner protections, this third party cannot be someone with whom the owner or operator had contractual relationship or is otherwise related to (whether a corporate or familial relationship). In order to take advantage of this defense under CERCLA, the owner or operator would also need to show that “(a) he exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances and (b) he took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.” 42 U.S.C. § 9607(b)(3). This is a very high threshold and, most times, it is difficult to prove.

Connecticut provides similar liability protections for innocent landowners, as well. In addition, state law protects from liability landowners who acquire property after the date of spill if: “the person is not otherwise liable for the spill or discharge . . . and, at the time of acquisition, the person (i) does not know and has no reason to know of the spill or discharge, and inquires, consistent with good commercial or customary practices, into the previous uses of the property; (ii) is a government entity; (iii) acquires the interest in real estate by inheritance or bequest; or (iv) acquires the interest in real estate as an executor or administrator of a decedent's estate.” Conn. Gen. Stat. § 22a-452d.

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2. Bona Fide Prospective Purchaser

A person that acquired ownership of a facility on or after January 11, 2002, may be able to take advantage of the bona fide prospective purchaser defense in CERCLA. Bona fide prospective protection is often difficult to demonstrate and requires that a purchaser of land take a number of steps prior to purchasing the property in order to show that it can avail itself of this defense.

Bona fide prospective purchasers must demonstrate the same steps as those identified above regarding adjacent property owners, except a bona fide prospective purchaser remains “innocent” even if historical contamination is discovered at the property. Essentially, this rule was developed to encourage development of brownfields. In addition to the items that an adjacent property owner must prove, the bona fide prospective purchaser must also show that all hazardous materials that have been released at the property were released prior to the person becoming an owner of the property. The required due diligence is often referred to as an “all appropriate inquiry,” is mandated by federal regulations, and requires compliance with ASTM 1527-13. Purchasers of potentially contaminated property should consider hiring a local environmental consultant well versed in conducting all appropriate inquiries if the purchaser wishes to avail itself of this defense.

3. Fiduciary Liability

A fiduciary includes a person acting for the benefit of another party, including a bona fide: trustee, executor, administrator, custodian, guardian of estates or guardian ad litem, and other similar roles. Provided certain requirements are met, a fiduciary’s liability is generally limited to the value of the assets held by the fiduciary unless either (a) the fiduciary is independently liable for the contamination or (b) the fiduciary’s negligence causes or exacerbates the contamination. 42 U.S.C § 9607(n). Unless a fiduciary estate was created to facilitate an estate plan or on behalf of an incapacitated natural person, protection does not apply if the fiduciary is acting on behalf of a trust or estate that was formed for the sole purpose of conducting for-profit operations. Finally, for obvious reasons, if a fiduciary trust is formed to avoid environmental liability, then the fiduciary liability protection does not apply. For these reasons, a fiduciary should take steps to understand the environmental condition of the property that he or she is holding and take necessary precautions to prevent contamination.

4. Lender Liability

Lenders, even those who take possession of contaminated property through foreclosure (and then re-lease, sell, liquidate facilities, takeover operations, or wind- down operations), have protection from liability if they meet certain requirements. In particular, lenders are protected from liability so long as they do not “participate in

Page 11 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 6 management” and act to preserve, protect, or prepare a property for sale or other disposition “at the earliest practicable, commercially reasonable time, on commercially reasonable terms.” 42 U.S.C. § 9601(20)(E)(ii). “Lender” includes the traditional lending institutions as well as anyone who holds indicia of ownership for the sole purpose of protecting a security interest.

“Participate in management” is defined as “actually participating in the management or operational affairs . . . and does not include merely having the capacity to influence, or the unexercised right to control, . . . facility operations .” 42 U.S.C. § 9601(20)(F)(i). By comparison, a lender will be considered to be participating and management (and therefore liable for environmental remediation), if, while the borrower remains in possession of the property, the lender “exercises decision-making control over the environmental compliance [of the] facility” or takes over day-to-day management responsibilities regarding environmental compliance or operational activities (as compared to financial or administrative responsibilities). 42 U.S.C. § 9601(20)(F)(ii). For these reasons, although lenders may impose environmental requirements on borrowers, lenders should not step into the shoes of the borrower to remedy or otherwise address environmental concerns while he borrowers remain in possession.

C. The Connecticut Transfer Act

A specific Connecticut statute requires disclosure and the assumption of environmental responsibilities by a party to the transaction in cases where specific types of property are being conveyed. The Connecticut Transfer Act (CGS § 22a- 134 et seq.) applies when an “establishment” is being transferred.

An “establishment” is any real property or business at which at least 100 kilograms (approximately 220 pounds or 25 gallons) of hazardous waste has been generated in any one month since November 1, 1980, or at which hazardous waste generated at a different location is managed. Accordingly, a one-time “cleanout” of old chemicals or other materials can cause a property or business to be considered an establishment even if otherwise it wouldn’t be an establishment. Certain business operations are automatically considered an establishment and the transfer of these businesses (or property at which these businesses occurred) would also trigger transfer act requirements: dry cleaning, furniture stripping or vehicle body repair, in each case, conducted on or after May 1, 1967.

Most, but not all, transactions involving the purchase or sale of establishments are subject to the Transfer Act.”3 As a result, the seller is required to disclose the environmental condition of the property to the purchaser and certain

3 Exemptions from this requirement include leases for 99 years or less, certain corporate re- organizations, changes in ownership approved by a probate court, the conveyance of a security interest and the transfer of residential property

Page 12 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 7 filings must be made. For those transactions covered by the Act, an appropriate Form must be filed with DEEP. The type of Form, and the resulting obligations, will depend on whether there has been a release of contaminants on the property and whether that release has been remediated.

While there are four different form filings that could be made, the most commonly filed forms associated with the transfer of establishments are a Form I and a Form III, each of which will also require filing an Environmental Conditions Assessment Form (“ECAF”). An ECAF is prepared by a licensed environmental professional (“LEP”); a Form I or Form III can be prepared by an LEP or an attorney.

The investigation conducted by the seller will determine which Form should be filed after the closing. If the seller has determined after an appropriate investigation that complies with Connecticut’s Site Characterization Guidance Document (usually requiring soil and/or groundwater sampling) that there has been no release to the environment, a Form I can be filed with DEEP. Assuming DEEP accepts the Form I, no further action is required. If, however, the Seller cannot demonstrate that no release has occurred, or that all releases have been remediated in accordance with DEEP standards, then a Form III will need to be a filed. If a Form III is filed, one of the parties to the transaction will be required to investigate and remediate the property in accordance with applicable regulations. This party is called the “certifying party” and must be a party “affiliated with the transaction,” which is defined to include the transferor, transferee, and current or past operator, among other parties. As the law does not specify which party is to assume the obligation, that determination becomes a subject of negotiation between the parties.

If the seller fails to disclose that the property is an establishment or otherwise fails to file the proper forms with DEEP, the seller will be liable to the purchaser for 100% of all investigation and remediation costs. Although this is a seller’s obligation, buyers should realize that they will have the same obligations when they sell the property in the future. A prior seller’s failure to disclose the site’s status as an establishment does not release a current seller from liability for its failure to do so.

D. Standards for Clean Up

While methods of remediation are beyond the scope of these materials, it is important to evaluate the costs of any potential remediation as part of negotiating the terms of any transaction that involves the transfer of potentially contaminated property. Connecticut’s cleanup standards are referred to as Remediation Standard Regulations (“RSRs”). The RSRs do not impose a specific obligation to remediate property; rather they regulate the level of contamination that may remain in the soil or groundwater for a clean up to be deemed “complete.” The RSRs are not

Page 13 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 8 necessarily globally applicable to all properties, but rather are triggered when cleanups occur under the voluntary remediation program, the Connecticut Property Transfer Act, and RCRA corrective action (including in response to leaking underground storage tanks).

It is important to recognize that in Connecticut, unless the Department of Energy & Environmental Protection has approved a variance or a land use restriction, the property (including both soil and groundwater) must be remediated to residential standards.

II. MITIGATING THE RISK AS A BUYER AND LIABILITY AS A SELLER

Because current and past owners of contaminated property are jointly and severally liable for the costs of investigating and remediating the property, parties to a transaction will want to ensure that they understand the scope of potential liability and allocate these liabilities as part of the terms of the transaction. In particular, negotiations around environmental issues may focus on the extent to which the environmental liability can be effectively transferred to the buyer, and the economic adjustments needed to compensate for that transfer.

There are often significant practical difficulties associated with quantifying environmental costs when investigation and remediation have not been completed. Since it is usually impracticable to wait until the environmental work has been completed to complete the transaction, it is necessary to build into the contract provisions for evaluating the environmental liabilities and allocating the costs.

A. Disclosures by Seller vs. Due Diligence by Buyer.

Disclosures made by sellers can be a critical component to a transaction that involves potentially contaminated property. The information provided by a seller will assist a buyer in determining the value of the property taking into account: past use, potential current contamination (if any), and buyer’s intended future use of the property. Seller’s disclosures can be balanced with due diligence rights by buyer— and also drive how much independent investigation a buyer wishes to conduct. (Note, however, that as discussed previously, buyers are required to conduct their own independent inquiry if they wish to avail themselves of innocent landowner protections.)

Buyers typically want as much information as possible from sellers—with several representations and warranties, as well. By comparison, it is in sellers’ best interest to disclose as little as possible, particularly if the contract provides for penalties or possible cancellation if seller representations are subsequently proved false.

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Most often, the parties can reach a compromise on the information being provided. Sellers will typically agree to provide copies of available environmental reports. For an avoidance of doubt, the reports provided can be listed in a schedule to transaction document to ensure that everyone knows what materials were provided to the buyer in the future. Sellers often then make a representation that they are not aware of any environmental issues at the site other than those described in the reports. Buyers should be sure to thoroughly read the reports and potentially retain an environmental expert to review the seller’s reports if it appears that a property could be contaminated.

Representations and warranties made by the seller may be subject to a seller indemnity. Because statutes of limitations under federal law are broadly defined, it is critical that the indemnified party understand the true scope and time period of the indemnity. If the purchaser is relying on a representation and warranty indemnity to protect itself against environmental liability, there should be some assurance that the seller will be a viable entity for the term of the indemnity and that the term of the indemnity run for the period of the statute of limitations for environmental claims. Additionally, a representation and warranty indemnity does not necessarily require the seller to undertake any environmental work if it turns out that the seller’s representation is false or misleading. Accordingly, a contract should specify who will be responsible for conducting environmental work related to existing site conditions. Likewise, if it appears that remediation is required, parties to a transaction should explore whether the party responsible for the work will indemnify the other—or whether a release of liability sufficient.

B. Allocating Responsibility for Investigation and Remediation.

As noted above, while legal requirements inform the negotiation process, there is considerable latitude in how the parties will comply with the legal requirements. The general rule is that sellers (as an owner of the property) have responsibility for environmental issues that exist as of closing and must negotiate to persuade buyer to assume some portion of that liability. The extent of leverage that sellers have is a function of the desirability for the buyer to acquire the property, price of the property, and the nature of the known or reasonably anticipated environmental conditions. Once the parties have reached the general understanding as to which party will be responsible for existing environmental conditions going forward, there are a number of specific items that need to be addressed.

1. Access.

If the seller retains responsibility for addressing environmental issues post- closing, there needs to be a common understanding of what will be done and how and when it will be done. The seller will need post-closing access rights to the

Page 15 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 10 property in order to conduct its investigation and any required remediation. Common issues in an access agreement include the need for advanced notice to the new land owner, an obligation to repair any disturbances caused by sampling or remediation activities, an agreement to not interfere with on-going operations at the property, and more. The new owner would be well advised to be listed as an additional insured on any applicable insurance policy and to require proof of insurance from any party or contractor coming on to its property prior to such party accessing the property.

The most significant issue to be negotiated is the scope and cost of remediation of the property. Remediating an active, operational facility may pose significant, practical, economic and logistic problems. These issues are complicated by the competing and often conflicting interests of the parties. Prior owners performing remediation are primarily interested in minimizing the cost and effort involved and ensuring that remediation can be done in a reasonably short time frame so that they can “cut ties” with the property. By comparison, current owners typically want a comprehensive and effective remediation effort undertaken in the way which minimizes interruptions with ongoing operations and which allows them to continue to use their property in a manner that they intended at the time of the transaction. To the extent it is possible to anticipate the types of remediation alternatives to be pursued, especially if land use restrictions are to be employed, the contract should lay out a set of agreed to remediation approaches, restrictions that may be permissible, and timetables for starting and completing the work.

2. Escrow and Insurance.

Buyers and Sellers rarely know, with any degree of specificity, the exact extent and nature of the contamination or the costs of remediation. Escrows and insurance are common ways of addressing this issue.

Contracts often call for placing a portion of the purchase proceeds into an escrow account which can be utilized to investigate and remediate the property. Often an escrow account can be drawn upon by the party conducting the remediation throughout the remediation process; in other instances, the funds may not be released until the remediation is complete. In addition to the necessity of negotiating a dollar amount to fund the escrow, the agreement should also identify an escrow agent, determine how requests for reimbursement will be approved and for what purposes. In addition, the agreement should identify the points at which remediation is deemed complete (often upon approval of cleanup by the DEEP or an LEP, taking into account DEEP’s authority to audit the final cleanup report (a “Verification Report”)) and who is entitled to any remaining funds.

There are also a handful of insurance products designed to protect buyers and sellers. Common types of policies include protection for claims related to newly

Page 16 of 122 Environmental issues in real estate transactions P. Boye-Williams P a g e | 11 discovered contamination, as well as insurance to cover costs in excess of estimates provided for known contamination. Costs for these products vary widely and a broker familiar with environmental insurance products should be consulted to ensure that the insurance meets the needs of the insured party.

III. LEAD PAINT, PCBS AND ASBESTOS

It is important to recognize that soil and groundwater contamination is not the only environmental contamination that should be considered. So-called hazardous building materials, i.e., asbestos, lead paint, and polychlorinated biphenyls (“PCBs”) are often present in buildings constructed at various times, usually prior to the 1980s. For example, federal law requires sellers or lessors of pre-1978 housing to disclose the presence of lead-based paint. 42 U.S.C. § 485 2d. In Connecticut, the owner of a property in which paint or other materials contain high levels of lead must assure that children under the age of 6 are protected from exposure. Conn. Agencies Reg. § 19a-111-1 et seq.

Similarly, federal requirements require the abatement of asbestos and asbestos-containing materials in poor condition. Asbestos is a naturally-occurring mineral with important heat and fire-resistant properties. Because of this, it has been used for boiler insulation, gaskets and floor and ceiling tiles. The general rule is that while asbestos containing materials in good shape may remain in place, materials which are in poor condition, i.e., friable asbestos, must be managed in a way to prevent undue exposure and harm to individuals. 42 U.S.C. § 7412.

Finally, federal and state regulations require that materials which contain actionable levels of PCBs be removed. PCBs can be found in oil, caulk, window- glazing, paint, floor sealings, and more. If they are found to present above 50 ppm (under federal regulations) and 1 ppm (state policy), then they must be removed. Accordingly, before testing for these materials, sellers (and buyers) should have a plan for addressing PCB-containing materials, if they are discovered. Removal of these materials can cost hundreds of thousands of dollars, if not more, depending on the size of the building and quantity of materials used.

Page 17 of 122 The Connecticut Site Verification Process Key Considerations and Challenges

October 2018

I. Property Transfer Filings/Remediation Program Entry

· Property owner understanding the verification process · Consultants understanding the property owner’s real objectives

II. Phase I Site Assessment Considerations

· DEEP AOCs cover more circumstances than the ASTM RECs · Buyer vs. seller Phase I · Recommendations are not required – lenders want them; consultants and attorneys often don’t · Determining if a site is an establishment · Low cost is expected but, for sites subject to the Property Transfer Law, the Phase I will be the foundation for all future investigations · National firms don’t always understand CT regulations and processes

III. Phase II/III Site Assessment Considerations

· A release is a detection above the analytical reporting limit or, for metals, background · Compliance with RSR criteria is determined by release area, not by sample location · Investigations commonly involve multiple iterations/mobilizations · Receptor assessments are part of the Phase III evaluation (e.g. drinking water well survey, ecological risk assessment, vapor intrusion assessment, significant environmental hazard notification) · Health and safety – health & safety plan, CBYD, private utility locator, vacuum excavation · Weather & working conditions · Data quality objectives and data usability evaluation · PCBs and TSCA (40 CFR 761) · Emerging contaminants · Changing regulations

IV. Remediation Considerations

· Allowing time for public notification and DEEP approvals · Development as part of the remediation · Lack of detail for remediation contractors in the Remedial Action Plan · Iterative excavation · Clean corridors for utilities · Vapor barrier penetrations

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Page 18 of 122 · Clean soil vs. polluted soil vs. contaminated soil · Public health and safety (e.g. dust monitoring) · Adequate documentation of remedial activities · Post-remediation obligations: ELURs, financial assurance, groundwater monitoring, maintenance

V. Verification Flags

Technical Flags - Investigation

· Multiple iterations of conceptual models and too much characterization detail · Main structure is a single AOC · Emerging contaminants not considered (1,4-dioxane, PFAs, etc.) · “No release” determination made without documenting potential release mechanisms, possible migration pathways, lines of evidence, and/or sampling rationale · Degree and extent of releases not defined · Seasonal and dimensional understanding of groundwater plumes not presented

Technical Flags – Remediation and Compliance

· Duration of remedial activities not provided · All data used to demonstrate compliance not presented · Historical remediation not covered · Data quality and data usability not discussed · All RSR provisions used not discussed · No lab reports for compliance data · On-going necessary inspections/maintenance/monitoring/ financial assurance not addressed

Audit Flags

· No samples inside main structure · Use of microwells (<1.5” in diameter) · Filtered groundwater samples used for compliance without solid justification · Lack of rationale for why certain data is suitable for demonstrating compliance · No on-site background data; only literature values cited · Data dump (too much information that buries key findings) · Insufficient documentation o Incomplete or missing verification report o Significant data gaps o Phase I based on ASTM standards and not DEEP guidance o Back-referencing reports instead of presenting key data o DEEP staff need to review other reports to understand the CSM o Receptor assessments missing with no justification o Significant environmental hazards not closed out o Misapplication of the RSRs

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Page 19 of 122

Environmental Due Diligence in Real Estate Transactions

October 2018 I. Why is environmental due diligence conducted?

o Fulfill requirements for all appropriate inquiries as defined in Section 101(35)(B) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in order to establish innocent landowner protections

o Meet the requirements of the Connecticut Site Characterization Guidance Document

o Presence and management of hazardous substances and petroleum products on the property

o Conditions indicative of releases or threatened releases of hazardous substances at, in, from, or to a property

o Inspections of environmental conditions at the property, including conditions of buildings and environmental media (e.g., soil, ground water, surface water, sediment) located on the property

o Historical, current, and potential future cleanup action on the property

o Regulatory status of the property

o Current and historical ownership and property access issues

o Potential risks and liabilities associated with the presence of hazardous substances and petroleum products on the property and potential cleanup action needed

o Lender Financing

. Evaluate prior uses and existing reports

. Whether property has been deemed an establishment under the Connecticut Transfer Act

 Impacts value

 In the event of a loan default and subsequent foreclosure, such properties cannot be sold or transferred without following the specific guidelines and filing requirements of

Page 20 of 122

Environmental Due Diligence in Real Estate Transactions

October 2018 the Connecticut Department of Energy and Environmental Protection (DEEP)

II. Who conducts due diligence?

o Licensed Environmental Professionals o Surveyor o Real estate professionals or attorneys o Environmental attorneys o Engineers o Municipal officials or non-profits

III. Commercial Liability Insurance

o A claims-made policy provides protection for claims made during the specified policy period. In contrast, an occurrence-based policy provides protection for claims that occurred during a policy period no matter when the claim is made.

o In the environmental context, occurrence policies may be stacked to provide a policyholder multiple years of coverage to pay for long-tail environmental claims.

o Traditional Comprehensive General Liability (“CGL”) policies issued after the early to mid-1970s (depending on the carrier) will not provide coverage for environmental conditions. Such policies contain “pollution exclusion” language.

IV. Example Pro-Buyer Environmental Due Diligence Requests in Purchase Agreement

o List of facilities or other properties currently or formerly owned, leased, or operated by the Company and its predecessors.

o Reports of environmental audits or site assessments in the possession of the Company, including any Phase I or Phase II assessments or asbestos surveys, relating to any such facilities or properties.

o Copies of any inspection reports prepared by any governmental agency or insurance carrier or other third party in connection with environmental or workplace safety and health regulations relating to any such facilities or properties.

Page 21 of 122

Environmental Due Diligence in Real Estate Transactions

October 2018 o Copies of all environmental and workplace safety and health notices of violations, complaints, consent decrees, and other documents indicating noncompliance with environmental or workplace safety and health laws or regulations, received by the Company from local, state, or federal governmental authorities. Include information indicating how the situations were resolved. o Copies of any private party complaints, claims, lawsuits or other documents relating to potential environmental liability of the Company to private parties or governmental authorities. o List of underground storage tanks currently or previously present at the properties and facilities, copies of permits, licenses or registrations relating to such tanks, and documentation of underground storage tank removals and any associated remediation work. o Descriptions of any release of hazardous substances or petroleum known by the Company to have occurred at the properties and facilities. o Copies of any information requests, Potentially Responsible Party EPA notices, "106 orders," or other notices received by the Company pursuant to CERCLA or similar state or federal laws relating to liability for hazardous substance releases. o Description of the workplace safety and health programs currently in place for the Company's business.

Page 22 of 122

Environmental Land Use Restrictions

October 2018 I. What is an Environmental Land Use Restriction (ELUR)?

o Under specific circumstances, an ELUR may be considered as an alternative to remediating contamination to a concentration that is consistent with specific criteria of the Connecticut Remediation Standard Regulations (RSRs).

o An ELUR may save money and time spent actively remediating a site. For example, an ELUR may prohibit the demolition of a building located above contaminated soil to prevent the contamination from being exposed or may prohibit property from being used for residential purposes.

o An ELUR is recorded on the municipal land records of the town where the subject property is located. The ELUR "runs with the land," meaning all present and future owners must comply with its conditions, including any operation and maintenance obligations. In almost all cases, Commissioner approval is required.

o Common ELURs include prohibitions on:

i. the use of on-site groundwater for drinking (R.C.S.A. § 22a-133k- 3(e)(2)(C));

ii. the use of the property for residential purposes (R.C.S.A. § 22a- 133k-3(c)(2); and

iii. disturbance of “engineered controls” such as building slabs, geotechnical membranes, or paved areas meeting specific criteria (R.C.S.A. § 22a-133k-2(f)(2)(B));

iv. “no build” restriction to ensure that no building is constructed over polluted groundwater (R.C.S.A. § 22a-133k-3(c)(5)(A).

o The purpose of an ELUR is to minimize the risk caused by exposure to the pollutants that remain on the property by preventing certain types of uses of a property, or limiting specific activities on a property.

o The option of using an ELUR is at the discretion of the property owner and the property owner must sign the ELUR prior to it being recorded on the land records.

Page 23 of 122

Environmental Land Use Restrictions

October 2018 o A property owner may contact DEEP to obtain a temporary release from an ELUR and there is an ability to obtain a permanent release if the property is remediated at a later date.

i. For the Commissioner of DEEP to approve an ELUR, the Remediation Standard Regulations (“RSRs”) must be triggered (as defined in RCSA § 22a-133k-1(b)).

ii. If the RSRs do not apply, an ELUR will not be approved by the Commissioner.

iii. Typically, the RSRs apply to remediation triggered by the Connecticut Transfer Act and/or the Connecticut Voluntary Remediation Program.

II. Soil Remediation: Direct Exposure Criteria and the Pollutant Mobility Criteria must be met when remediating soil.

o Direct Exposure Criteria are established to protect human health from exposure to contaminants in soil.

i. Polluted soil must be remediated to a concentration that is consistent with the Residential Direct Exposure Criteria, unless the site is used exclusively for industrial or commercial purposes. In such a case, the less stringent Industrial/Commercial Direct Exposure Criteria may be used, provided an Environmental Land Use Restriction is recorded to ensure that the site is not used for residential purposes in the future.

o Pollutant Mobility Criteria (“PMC”) are established to prevent the pollution of groundwater caused by soil contamination that is available to migrate into groundwater.

i. With some exceptions, these criteria apply to soil located above the seasonal low water table. The PMC vary depending on the groundwater quality classification of the site. The RSRs also specify when an alternative PMC is appropriate. The amended RSRs include a compliance option using groundwater quality.

o The RSRs also specify circumstances in which the PMC do not apply.

i. In general, these circumstances include cases where:

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Environmental Land Use Restrictions

October 2018

1. polluted soil is located beneath a building, provided an Environmental Land Use Restriction is recorded to prohibit the building from being intentionally destroyed;

2. widespread polluted fill exists, provided the groundwater in the subject area is not used for drinking water purposes; or

3. an engineered control, such as an engineered cap, has been constructed to prevent the contamination of underlying groundwater.

ii. The goals of groundwater remediation include:

1. Preserving high quality groundwater

2. Protecting existing uses of groundwater

3. Preventing further degradation of groundwater quality

4. Preventing degradation of surface water from discharges of contaminated groundwater

5. Protecting human health

III. Remediation of Groundwater Plume

o Groundwater Protection Criteria

o Surface Water Protection Criteria

o Volatilization Criteria

IV. Section 22a-133k-2 Standards for Soil Remediation

o Residential Activity Restriction – Soil (22a-133k-2(b)(2)(A))

i. Polluted soil may be remediated to the Industrial/Commercial Direct Exposure Criteria for each substance (except polychlorinated biphenyls (PCBs) if access is limited to individuals working at or people temporarily visiting the subject Property and an ELUR is in effect which ensures that the Property

Page 25 of 122

Environmental Land Use Restrictions

October 2018 or restricted portion thereof is not used for any residential activity in the future and that any future use is limited to an industrial or commercial activity o Residential Activity Restriction – Soil (PCBs) (22a-133k-2(b)(2)(B))

i. Soil polluted with PCBs may be remediated to the Industrial/Commercial Direct Exposure Criteria for PCBs if, among other requirements, an ELUR is in effect which ensures that the Property or restricted portion thereof is not used for any residential activity in the future and that any future use is limited to an industrial or commercial activity

ii. Note that if PCBs are present, EPA regulations will also apply and specific approvals to allow the PCBs to remain in place may be required. o Exposure of Inaccessible Soil Restriction. See 22a-133k-2(b)(3)

i. 22a-133k-1(a)(32) "Inaccessible soil" means polluted soil which is:

1. (A) more than four feet below the ground surface;

2. (B) more than two feet below a paved surface comprised of a minimum of three inches of bituminous concrete or concrete, which two feet may include the depth of any material used as sub-base for the pavement;

3. (C) polluted fill beneath a bituminous concrete or concrete surface comprised of a minimum of three inches of bituminous concrete or concrete if such fill is (i) polluted in excess of applicable direct exposure criteria only by semi- volatile substances or petroleum hydrocarbons that are normal constituents of bituminous concrete, (ii) polluted by metals in concentrations not in excess of two times the applicable direct exposure criteria, or (iii) any combination of the substances or limits identified in clause (i) or (ii) of this subparagraph; or

4. (D)(i) beneath an existing building or (ii) beneath another existing permanent structure provided written notice that

Page 26 of 122

Environmental Land Use Restrictions

October 2018 such structure will be used to prevent human contact with such soil has been provided to the Commissioner.

ii. The Direct Exposure Criteria for substances other than PCBs do not apply to inaccessible soil at a release area provided that, if such inaccessible soil is less than fifteen (15) feet below the ground surface, an ELUR is in effect with respect to the subject Property or portion of such Property containing such release area, which ensures that such soils will not be exposed as a result of excavation, demolition or other activities and that any pavement which is necessary to render such soil inaccessible is maintained in good condition.

iii. With respect to PCBs-polluted soil, in accordance with Section 22a-133k-2(b)(3) of the RCSA, certain Direct Exposure Criteria for PCBs is applied to inaccessible soil (as provided in the subsection) at a release area provided that, if such inaccessible soil is less than (15) feet below the ground surface, an ELUR is in effect with respect to the subject Property or portion of such Property containing such release area, which ensures that such soils will not be exposed as a result of excavation, demolition or other activities and that any pavement which is necessary to render such soil inaccessible is maintained in good condition o Exposure of Environmentally Isolated Soil to Infiltration of Water Restriction (also referred to as the “Pollutant Mobility” ELUR) see 22a-133k-2(c)(4)(A)

i. 22a-133k-1(a)(18) "Environmentally isolated soil" means polluted soil which is:

1. (A)(i) beneath an existing building or (ii) beneath another existing and permanent structure which the Commissioner has determined in writing would prevent the migration of pollutants;

2. (B) not a continuing source of pollution;

3. (C) not polluted with volatile organic substances or, if it is polluted with such substances, the concentration of such substances has been reduced in concentration to the maximum extent prudent; and

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Environmental Land Use Restrictions

October 2018

4. (D) above the seasonal high water table.

ii. The Pollutant Mobility Criteria do not apply to environmentally isolated soil provided an ELUR is in effect and ensures that such soil will not be exposed to infiltration of soil water due to, among other things, demolition of the building.

o Disturbance of Engineered Control and Polluted Soil Restriction (also referred to as the “Engineered Control” ELUR)

i. An Engineered Control is a permanent physical structure designed to safely isolate pollutants which would otherwise not comply with the self-implementing remedial options allowed in the RSRs.

ii. If certain conditions at a subject release area exist or are met, the requirements of RCSA Sections 22a-133k-2(a) through 22a-133k- 2(e) (the Standards for Soil Remediation) do not apply provided that an Engineered Control of polluted soils is implemented pursuant to RCSA Section 22a-133k-2(f)(2)(B) and RCSA Section 22a-133k-2(f)(2)(C).

iii. The regulations require that an ELUR is or will be in effect with respect to the Property at which the subject release area is located, which restriction ensures that such Property will not be used in a manner that could disturb the Engineered Control or the polluted soil.

V. Interests in Land (Table 1 and Table 2) - Part of the ELUR process includes obtaining a title search/certificate of title and DEEP requires irrevocable subordination of all interests in land

i. Examples of interests in land on Table 1 include mortgages, access agreements, easements, etc. (request a waiver if the interest does not impact the ELUR subject area) ii. Table 2 examples include unrecorded leases, utilities with no recorded easement, encroachments, etc.

Page 28 of 122 Environmental Liability in Real Estate Transactions Due Diligence and Mitigating the Risk of Dealing with Contaminated Property Patricia L. Boye-Williams 860-240-6168 | [email protected]

Bridget D’Angelo 860-240-6015 | [email protected] October 16, 2018 Kevin Vanderveer, Senior Hydrogeologist, Fuss & O’Neill 860-646-2469 | [email protected]

Page 29 of 122 Overview

• Statutory Scheme • Scope of Remediation that • Responsible Parties may be required • Connecticut Transfer Act • Mitigate environmental risk • Due Diligence • Environmental Land Use Restrictions  Environmental Professional

 Attorneys

Page 30 of 122 Statutory Liability: Federal • Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) a/k/a Superfund

 Historic Contamination, e.g.: old landfills, manufacturing facilities, defense sites • Resource Conservation and Recovery Act (“RCRA”)

 Cradle to grave

 Current operations involving hazardous materials

Page 31 of 122 Statutory Liability: State

• Statutes which implement RCRA • Connecticut Clean Water Act: addresses spills that may impact the water, essentially any and all spills to the environment • Connecticut Transfer Act Why we are here

 Unique to Connecticut

 Triggered by transfer of certain property

Page 32 of 122 Potentially Responsible Parties • Parties who:

 Cause contamination or generate waste (but causation is not required)

 Own the property (now or in the past)

 Operate a business (now or in the past) at the property

 Transport ANY waste to the property

 Arrange for someone else to send waste to the property • Are jointly and severally liable for 100% of remediation costs

Page 33 of 122 Owner • Current owner: full liability for all contamination existing at the property, regardless of whether owner contributed to the contamination • Prior owner: liable only for contamination that occurred during its ownership (including that caused by third parties, regardless of control)

 Typically prior owners must prove when the contamination occurred

Page 34 of 122 Operator • Includes owners, but also other parties who “operate” a facility, such as tenants and major contractors (e.g., a defense contractor managing a military facility’s operations).

 Recall that owners are also liable for their tenants acts • Current operators: liable for all contamination at the site, regardless of causation or timing • Prior operators: liable for all contamination that occurred during their period of operation

Page 35 of 122 Third Parties (not as relevant to real estate transactions) • Generators, Arrangers, Transporters: implication that waste was generated somewhere other than where it ended up, e.g., a hauler that hauls waste to a landfill; a manufacturer that sent its waste off-site for disposal.

 Fact intensive inquiry, especially for “arranger” which is not defined by statute.

 Note: if a tenant or seller is generating hazardous waste, that should trigger an environmental investigation of the property being leased or purchased

Page 36 of 122 Parties who MIGHT be shielded (but probably not) • Innocent Landowners

 exercise due care with respect to hazardous substance and

 precautions against foreseeable acts or omissions of third parties

 In Connecticut: must conduct the investigation and not find contamination

Page 37 of 122 Bona Fide Prospective Purchasers • Must conduct an all appropriate inquiry (ASTM 1527- 13) • Must demonstrate all contamination occurred prior to acquiring the property • Encourages Brownfield Redevelopment

 Connecticut has grant programs and liability relief programs for returning brownfields to tax rolls

Page 38 of 122 Lender Liability?

• Protected from federal and some state liability provided:

 Do not participate in management

 Act to preserve, protect, or prepare a property for sale or other disposition “at the earliest practicable, commercially reasonable time, on commercially reasonable terms.” 42 U.S.C. § 9601(20)(E)(ii)

Page 39 of 122 Statute of Limitations

• Effectively endless under federal laws • Based on:

 When cleanup is started (in some cases)

 When cleanup ends (in other cases) • Usually interpreted to allow government to recover as much as possible of costs incurred

Page 40 of 122 Connecticut Transfer Act

• Transfer • Establishment

Page 41 of 122 Transfer • Sale of real property or the business

 Includes transfers involving 40% or more of the interest in the business • Does not include:

 lease <99 years

 Acquisition by a lender as a result of default (does include the lender’s subsequent transfer to a buyer)

 Transfers to immediate family members

 Residential Property (provided residential since July 1, 1997)

Page 42 of 122 Establishment • Generate more than 100kg hazardous waste in any one month since November 1, 1980

 Hazardous waste does not include waste oil, remediation waste, abatement of building materials

 Fact-based inquiry • Certain businesses: dry cleaning, furniture stripping, vehicle body repair (each on or after 5/1/1967) • Hazardous waste generated at a different location was recycled, reclaimed, reused, stored, handled, treated, transported or disposed of (e.g., landfill, transfer stations)

Page 43 of 122 Form Filings (Seller Obligation) • Form I: thorough investigation, no evidence of release • Form II: investigation, prior release remediated (Verification Report required) • Form III: investigation not yet complete or remediation required • Form IV: Remediation complete except for ELUR or groundwater monitoring • Forms filed within 10 days of closing

Page 44 of 122 ENVIRONMENTAL DUE DILIGENCE: ROLE OF THE LEP

Page 45 of 122 Don’t get caught in the dark

Page 46 of 122 PropertyEntry Transfer Into FormRemediation III Program

PhaseSite I Environmental Investigations Site Assessment Phase II/III Environmental Site Assessment Remediation

Post-Remediation Obligations

Verification

Page 47 of 122 Entry Into Remediation Program Property Transfer Form Filing or Other Entry Environmental Condition Assessment Form

Site Investigations

Remediation

Post-Remediation Obligations

Verification

Page 48 of 122 Remediation Program Entry

• Form 1 – Least common o No release of hazardous waste; release of hazardous substances verified • Form II – Becoming more common o Site previously verified • Form III – Most common o Environmental evaluation in progress • Form IV – Occasional o Site verification complete except groundwater monitoring and ELUR • Brownfields Remediation and Revitalization Program • Voluntary Programs – 22a-133x and 22a-133y

Page 49 of 122 ECAF

• Environmental Condition Assessment Form • 13-Page form signed by LEP and the Certifying Party

• Part VIII: Contaminants in the Environment

Historic Max Current Max Number Current Max Material and Phases of COCs in COCs in COCs in Remediation of Date of COCs in Soil AOC Quantity Investigation Overburden / Overburden / Surface Status and Releases Release [Sediment] Released Completed Bedrock Bedrock Water Date Detected (Soil Vapor) Groundwater Groundwater No. 2 Fuel Oil ETPH (500gal) and I - 10/5/98; Example - Tank 10/4/97 & 1,000*ppm ETPH 150*ppb ETPH <100ppb soil removed 2 dichromate II - 7/9/00 ND Farm 7/15/85 (5-6') and Cr (O=5-15') (O=5-15') 9/1/01 wastewater III – 6/1/01 56ppm (5-7') (200gal) Example - Dry PCE 40*ppb further Prior to I - 10/5/98; PCE 500*ppm PCE 50*ppb Cleaning 1PCE (B=20-25') Unknown investigation 11/13/98 II - 7/9/00 (0-2') (B=20-25') Machine 11DCE 15*ppb planned Example - I - 10/5/98; no further 0 ------ND ND ND ND Dumpster II - 7/9/00 action

Page 50 of 122 Entry Into Remediation Program Property Transfer Form Filing or Other Entry Environmental Condition Assessment Form

Site Investigations Phase I Environmental Site Assessment

Remediation

Post-Remediation Obligations

Verification

Page 51 of 122 Phase I Guidance

• All Appropriate Inquiries (AAI) Rule (40 CFR Part 312) o Provides certain protections from liability under CERCLA. o References ASTM E1527-13, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process . Defines a "Recognized Environmental Condition“ • Property Transfer Law o Does not specifically address Phase I content

• Site Characterization Guidance Document o ASTM Standard Practice and the USEPA’s AAI are not inclusive of a complete Phase I ESA in accordance with the SCGD.

Page 52 of 122 ASTM vs. SCGD

ASTM - REC SCGD - AOC

• REC = Recognized Environmental Condition • AOC = Area of Concern • The presence or likely presence of any hazardous • Hazardous waste and/or hazardous substances substances or petroleum products in, on, or at a (including petroleum products) that have been or property: may have been: o Due to a release to the environment o Used o Under conditions indicative of a release to the o Stored environment o Treated Under conditions that pose a material threat of o o Handled a future release to the environment o Disposed • De minimis conditions are not recognized environmental conditions. o Spilled o Released

Page 53 of 122 AOCs that Are Not Necessarily RECs

• Floor drains • Sumps • Dumpsters • Loading docks, loading bays, doorways • Electrical transformers • Roof drains and air vents • Historical fill

Page 54 of 122 Hazardous Building Materials Not Included

Page 55 of 122 Additional Phase I Challenges

• Buyer vs. seller Phase I • Whether or not to include recommendations • Determining if a site is an establishment • Cost vs. value • National firms don’t always understand CT regulations and processes

Page 56 of 122 Entry Into Remediation Program Property Transfer Form Filing or Other Entry Environmental Condition Assessment Form

Site Investigations Phase I Environmental Site Assessment Phase II Environmental Site Assessment Phase III Environmental Site Assessment(s)

Remediation

Post-Remediation Obligations

Verification

Page 57 of 122 Phase II Objective

• Determine whether or not releases of hazardous substances occurred • A release is: o Detection above the analytical reporting limit o Detection of a metal above naturally-occurring site background

Page 58 of 122 Phase III Objective

• Define the magnitude and extent of identified releases • Assess potential receptors o Water Supply Well Receptor Survey o Surface Water Receptor Survey o Ecological Risk Assessment o Vapor Intrusion Assessment o Significant Environmental Hazards o Evaluate compliance with the Remediation Standard Regulations

Page 59 of 122 Phase II/III Challenges

• Health and safety • Iterative investigations • Field observations vs. the sampling plan • Investigation-derived waste • Weather & working conditions

Page 60 of 122 Drilling

Page 61 of 122 Adverse Drilling Conditions

Page 62 of 122 Additional Phase II/III Considerations

• Emerging contaminants • Additional polluting substances • PCBs and TSCA (40 CFR 761) • Data usability evaluation • Changing regulations

Page 63 of 122 Entry Into Remediation Program Property Transfer Form Filing or Other Entry Environmental Condition Assessment Form

Site Investigations Phase I Environmental Site Assessment Phase II Environmental Site Assessment Phase III Environmental Site Assessment(s) Water Supply Well Receptor Survey Surface Water Receptor Survey Ecological Risk Assessment Vapor Intrusion Assessment Significant Environmental Hazards

Remediation Public Notice of Remediation Remedial Action Plan Conduct Remediation

Post-Remediation Obligations

Verification

Page 64 of 122 Public Notification

• Required prior to initiating remediation o Notice in a newspaper having substantial circulation in the area o Letter to the local director of health o Sign or letters to abutters o 45-day public comment period

Page 65 of 122 Soil Excavation

Page 66 of 122 Engineered Control - Before

Page 67 of 122 Engineered Control – River Bank Cleared

Page 68 of 122 Engineered Control – Lower Terrace

Page 69 of 122 Engineered Control – Complete

Page 70 of 122 Vapor Barrier

Page 71 of 122 Sub-Slab Ventilation System

Page 72 of 122 Remediation Challenges & Considerations

• Development as part of the remediation • Permitting • Public health and safety • Contractors following the remedial action plan • Iterative excavation • Clean corridors for utilities • Clean soil vs. polluted soil vs. contaminated soil • Adequate documentation of remedial activities

Page 73 of 122 Entry Into Remediation Program Property Transfer Form Filing or Other Entry Environmental Condition Assessment Form

Site Investigations Phase I Environmental Site Assessment Phase II Environmental Site Assessment Phase III Environmental Site Assessment(s) Water Supply Well Receptor Survey Surface Water Receptor Survey Ecological Risk Assessment Vapor Intrusion Assessment Significant Environmental Hazards

Remediation Public Notice of Remediation Remedial Action Plan Conduct Remediation

Post-Remediation Obligations Environmental Land Use Restriction Post-Remediation Groundwater Monitoring Financial Assurance Maintenance and Monitoring

Verification

Page 74 of 122 Post-Remediation Requirements

• ELUR o Impact on future property use o 82-Page application, 65-page instruction document o Unrecorded easements o Vapor mitigation measures not included o ELURs reviewed as preliminary verifications • Post-Remediation Groundwater Monitoring o 4 rounds of sampling that reflect seasonal variability • On-going Maintenance and Monitoring o Engineered Controls o Vapor mitigation systems • Engineered Control Financial Assurance o 5 years of maintenance and monitoring

Page 75 of 122 Entry Into Remediation Program Property Transfer Form Filing or Other Entry Environmental Condition Assessment Form

Site Investigations Phase I Environmental Site Assessment Phase II Environmental Site Assessment Phase III Environmental Site Assessment(s) Water Supply Well Receptor Survey Surface Water Receptor Survey Ecological Risk Assessment Vapor Intrusion Assessment Significant Environmental Hazards

Remediation Public Notice of Remediation Remedial Action Plan Conduct Remediation

Post-Remediation Obligations Environmental Land Use Restriction Post-Remediation Groundwater Monitoring Financial Assurance Maintenance and Monitoring

Verification

Page 76 of 122 Verification Documents 1. Verification form for each type of form filing • 15 to 20 pages • Form III has over 500 fields • 50 percent filled out incorrectly 2. Verification report • Final conceptual site model • Description of remedial actions • Discussion of all methods used to demonstrate compliance with RSRs • Relevant information only • Stand-alone document

Page 77 of 122 Verification Flags

• Data dump obscures relevant information • Back-referencing reports instead of presenting relevant data • Phase I based on ASTM standards and not DEEP guidance • Main structure is a single AOC • No samples inside main structure • No on-site background data • Peripheral contaminants not evaluated • Data usability evaluation not documented • Insufficient rationale for why data supports compliance • All relevant RSR provisions are not discussed • Receptor assessments missing • Significant environmental hazards not closed out • On-going maintenance, monitoring, & financial assurance not addressed

Page 78 of 122 Verification Conclusion

• Letter of “No Audit” from DEEP o Ideal closure

• 3 years without a response = “No Audit” o Lack of closure – 3 years is a long time to wait

Page 79 of 122 Page 80 of 122 Page 81 of 122 LEP Professional Conduct

In the rendering of professional services, a licensee shall, at all times, hold paramount the health, safety and welfare of the public and the environment.

RCSA 22a-133v(d)(1)

Page 82 of 122 Best Practices

• Communication o Property owners need to understand the verification process o Consultants need to understand a client’s real objectives • Involve an attorney and consultant early • Understand the time necessary for investigation, remediation, and regulatory response • Be aware that this process involves a lot of professional judgment

Page 83 of 122 ENVIRONMENTAL DUE DILIGENCE IN REAL ESTATE TRANSACTIONS

Page 84 of 122 Some Basic Questions

• Why is environmental due diligence conducted?

 Fulfill all appropriate inquiry requirements

 Manage hazardous substances

 Historical, current and potential future cleanup action

 Regulatory status of the property and property access issues

 Risks and liabilities

 Lender financing

 Better purchaser position to draft indemnities, determine appropriate environmental escrow amounts and negotiate pricing

Page 85 of 122 Key Legal Concepts

• Innocent landowner defense

 Like contiguous property owners (CPOs), persons desiring to qualify as innocent landowners must perform "all appropriate inquiries" prior to purchase and cannot know, or have reason to know, of contamination in order to have a viable defense as an innocent landowner.

 Entities that acquire property and had no knowledge of the contamination at the time of purchase may be eligible for the "innocent landowner" defense to Superfund liability if they conducted all appropriate inquiries prior to purchase and complied with other pre- and post-purchase requirements.

Page 86 of 122 Confidentiality Agreements

• Clarify scope, process and limitations of due diligence review before documents are exchanged and site visits are scheduled

• Establish method for reporting adverse environmental conditions or compliance violations that are discovered during due diligence review

• Process for return/destruction of diligence documents

Page 87 of 122 Who Conducts Due Diligence?

• Environmental and Real Estate Attorneys • LEP • Surveyor • Municipal officials • Engineers

Page 88 of 122 Engage licensed environmental professional

• Local consultants are more efficient • Negotiate site access agreement • Purchaser should confirm that consultant has adequate insurance to cover any issues during site access and include provisions requiring that insurance • Results of diligence can influence the structure of transaction

Page 89 of 122 Seller Perspective

• Sellers may conduct due diligence in advance of taking the deal to the marketplace in order to evaluate the relative value of potential offers, make informed decisions regarding indemnities, or evaluate possible risk transfer products, such as insurance, recognizing that seller-authorized diligence may not be a complete substitute for a purchaser’s own diligence. • If response or cleanup action is required, the seller can work with regulators to obtain its formal approval prior to marketing the property.

Page 90 of 122 Commercial Liability Insurance

• Claims-Made Policy • Occurrence Policy • Traditional Comprehensive General Liability Policy

Page 91 of 122 Sample Commercial Due Diligence Requests

• Inspection Reports • Environmental/Workplace Violations, Private Party Lawsuits • Underground Storage Tanks • Release of Hazardous Substances • Notices from Governmental Agencies • Health & Safety Programs in effect

Page 92 of 122 MANAGING RISKS AFTER DUE DILIGENCE

Page 93 of 122 Potential Outcomes • Establishment?

 If yes, Transfer Act applies

 If not, still may have environmental concerns • USTs / historical contamination • Hazardous building materials • May or may not have remediation requirements • Uncertainty

Page 94 of 122 Establishment, now what? • Transaction documents should address:

 Forms to file

 Certifying party

 Access post-closing (if seller is CP)

 Termination of obligations • Also consider:

 Escrow for remediation

Page 95 of 122 Certifying Party Obligations

• Investigate, remediate if necessary

 Comply with state and federal investigation requirements (both ASTM 1527-13 and Connecticut Site Characterization Guidance Document)

 Verification from LEP • Remediation is presumed to be to residential standards unless variances are sought

Page 96 of 122 Termination of Obligations • DEEP has three years from date of Verification Report to audit the report. • Obligations continue until:

 DEEP issues a “no audit letter”

 DEEP audits the report and determines no deficiencies, or deficiencies are corrected (as approved by DEEP)

 Three years after Report submitted and no audit occurs

Page 97 of 122 Cost of Remediation: Options

• Consider requesting CP to fund an escrow account in case CP does not complete work • Negotiate costs of remediation that will be funded by CP; other party places some portion of that in an escrow account to be used in case remediation exceeds that cost • Cost cap and similar insurance products

Page 98 of 122 Liability Risks: Transfer Act

• Seller’s obligation to disclose

 Buyer’s concern: if intent is to sell property in future • Failure to disclose:

 Seller liable for 100% of all investigation and remediation costs

 6 year statute of limitations (for Transfer Act filings)

Page 99 of 122 Other considerations

• Scope of disclosures • Reps / Warranties • Indemnities • Affirmative agreements to conduct work • Insurance products

Page 100 of 122 Disclosures

• Scope of due diligence impacts seller disclosures • Seller’s interest: disclose as little as possible • Buyer’s interest: disclose as much as possible • Inverse relationship between scope of disclosures and extent of due diligence

Page 101 of 122 USTs, spills, releases

• Sellers required to disclose existence of underground storage tanks, registration status, life expectancy • Buyers request disclosure regarding prior spills, releases of hazardous materials, compliance with environmental laws • Depending on transaction: may be interested in permits, notice of violations, regulatory compliance

Page 102 of 122 Representations & Warranties

• Survival Period

 Typically tied to statute of limitations for broadest protection for buyers

 Or to closing for seller protection (but unusual for environmental reps) • Scope of indemnity associated with breach of reps

Page 103 of 122 Indemnities

• Only as good as the assets of the indemnitor • Single purpose entities vs. larger corporations • Considerations:

 Baskets / caps

 Survival Period / statute of limitations • Purpose / Scope

Page 104 of 122 Access & Remediation Agreements • Insurance • Restoration • Type of Environmental Land Use Restriction that will be used (if any)—and other remediation methods that will be applied

 Consider the land use post-closing

 Subordination Agreements / Cooperation from Owner • When does obligation terminate?

Page 105 of 122 Insurance Products

• Consult with a broker familiar with environmental insurance products • Cost Cap coverage • Pollution Legal Liability (coverage for new releases)

Page 106 of 122 Other: Not just soil and water • Indoor air

 Radon

 Volatile Organic Compounds • Lead paint, lead pipes: restrictions on residential buildings. Notices to buyers. • PCBs: if known to exist, they must be removed (can be found in paint, caulk, sealants) • Asbestos: ok to remain if in good condition

Page 107 of 122 Scope of Remediation

• RSRs require remediation to residential standards, regardless of:

 How property is used

 Zoning

 Drinking water on site or public water supply • Environmental Land Use Restriction allows for variance from residential remediation requirement

Page 108 of 122 Environmental Land Use Restrictions • Variance pursuant to Connecticut Remediation Standards Regulations • Saves time and money spent actively remediating a site • Public record and runs with the land • Common ELURs:

 Restriction on use of on-site groundwater for drinking

 Use of the property for residential purposes

 Disturbance of “engineered controls”

 “No build” restriction to ensure no building is constructed over polluted groundwater

Page 109 of 122 Purpose of an ELUR

• Minimize risk caused by exposure to contaminants by imposing certain restrictions on use, occupancy and activities on site • DEEP’s website contains a list of contaminated or potentially contaminated sites in Connecticut by Town

Page 110 of 122 ELUR Temporary Release

• Property owner may contact DEEP to obtain a temporary release from ELUR

 Requires soil management plan • Ability to obtain permanent release if the property is remediated

Page 111 of 122 Soil Remediation

• Direct Exposure Criteria • Pollutant Mobility Criteria

Page 112 of 122 Goals of Groundwater Remediation

• Preserve high quality groundwater • Protect human health and existing uses of groundwater • Prevent degradation of surface water from discharges of contaminated groundwater

Page 113 of 122 Remediation of Groundwater Plume

• Groundwater Protection Criteria • Surface Water Protection Criteria • Volatilization Criteria

 No build restriction

 The Volatilization Criteria for groundwater vary depending on whether the overlying building is used for residential or industrial/commercial purposes.

Page 114 of 122 Remediation Standard Regulations

• Connecticut's Remediation Standard Regulations (RSRs) provide detailed guidance and standards that may be used at any site to determine whether or not remediation of contamination is necessary to protect human health and the environment. The RSRs do not create, in and of themselves, a requirement that remediation be undertaken, nor do they specify a time-frame for completing remediation. • Factors that may effect the degree of remediation at a polluted site include the groundwater quality classification of the site, the land use of the site, and proximity to sensitive receptors of the contamination.

Page 115 of 122 Section 22a-133k-2 Residential Activity Restriction • Polluted soil may be remediated to Industrial/Commercial Direct Exposure Criteria for each substance (except polychlorinated biphenyls (PCBs)) if access is:

 Limited to individuals working or people temporarily visiting the subject property AND

 ELUR is in effect to ensure subject property is not used for any residential activity in the future and that any use is limited to industrial or commercial activity

Page 116 of 122 Section 22a-133k-1(a)(32) Exposure of Inaccessible Soil Restriction

• Definition of inaccessible soil • Direct Exposure Criteria for substances other than PCBs do not apply to inaccessible soil less than 15 feet below the ground surface provided ELUR is in place to ensure soil will not be exposed as a result of excavation, demolition or other activities and any pavement necessary to render soil inaccessible is in good condition. 22a-133k-2(b)(3)

Page 117 of 122 Section 22a-133k-1(a)(32) Exposure of Inaccessible Soil Restriction

• Inaccessible soil containing PCBs may be left at a release area if such inaccessible soil is less than 15 feet below the ground surface provided ELUR is in place to ensure soil will not be exposed as a result of excavation, demolition or other activities and any pavement necessary to render soil inaccessible is in good condition. 22a-133k-2(b)(3)

Page 118 of 122 Exposure to Environmentally Isolated Soil to Infiltration of Water Restriction

• Pollutant Mobility Criteria does not apply to environmentally isolated soil • Definition of Environmentally Isolated Soil • Ensures soil will not be exposed to infiltration of soil water due to demolition of the building, etc.

Page 119 of 122 Engineered Control Restriction

• Engineered controls serve to “physically isolate” contaminated soil. Under the RSRs, an approved engineered control renders direct exposure and pollutant mobility criteria inapplicable to the “isolated” soil. Contaminated soil can then be left in place, so the engineered control is part of a strategy to achieve RSR compliance on relatively cost-effective terms.

• Every control requires DEEP staff review of risks, costs and benefits.

 Ongoing inspection and maintenance of controls and

 Supply financial assurance for performance over an operational lifetime

 DEEP review and approval have been ad hoc, time-consuming and unpredictable.

Page 120 of 122 Table 1 and Table 2 of the ELUR (Interests in Land)

• Part of the ELUR process includes obtaining a title search/certificate of title • DEEP requires irrevocable subordination of all interests in land unless a waiver is granted

Page 121 of 122 Questions

Patricia L. Boye-Williams (860)240-6168 | [email protected]

Bridget D’Angelo 860-240-6015 | [email protected]

Kevin Vanderveer, Senior Hydrogeologist, Fuss & O’Neill 860-646-2469 | [email protected]

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