From Hazardous to High Dollar

In recent years, both federal and state governments have become increasingly concerned about a condition sometimes called "environmental blight." The condition arises when otherwise valuable real estate is abandoned because of potential contamination resulting from past industrial use. Often, these "brownfields"--so named for the characteristic lifeless appearance of abandoned industrial sites--sit idle and unused for years because of fear that environmental clean-up would be cost prohibitive or could lead to unlimited liability for the property owner. The resulting brownfield is thus the unintended consequence of the various environmental clean-up laws, which inadvertently encourage development of pristine, uncontaminated land while allowing the brownfield properties to remain contaminated and unproductive.

In recent years, both federal and state governments have become increasingly concerned about a condition sometimes called “environmental blight.” The condition arises when otherwise valuable real estate is abandoned because of potential contamination resulting from past industrial use. Often, these “brownfields”–so named for the characteristic lifeless appearance of abandoned industrial sites–sit idle and unused for years because of fear that environmental clean-up would be cost prohibitive or could lead to unlimited liability for the property owner. The resulting brownfield is thus the unintended consequence of the various environmental clean-up laws, which inadvertently encourage development of pristine, uncontaminated land while allowing the brownfield properties to remain contaminated and unproductive.

In response to this phenomenon, the federal government and many states have enacted legislation designed to provide incentives for the clean-up and redevelopment of brownfields. Georgia has two such laws, the Georgia Hazardous Site Reuse and Redevelopment Act (the “Brownfield Act”), enacted in 2002, and the brownfield tax incentive law enacted in 2003, each designed to encourage redevelopment. To date, the “Brownfield Program” authorized by the Brownfield Act has resulted in the successful redevelopment of over 45 properties, including the wildly successful Atlantic Station–formerly the site of Atlantic Steel Company–in midtown Atlanta, which will house restaurants, theaters and retail space employing 30,000 people, and middle-income and upscale housing for 10,000 people, when completed.

The Brownfield Program

The Brownfield Program is administered by the Georgia Environmental Protection Division (EPD), Hazardous Waste Management Branch. The goals of the Program, as expressed by the EPD, are to (1) enhance protection of human health in the environment; (2) reduce urban sprawl by encouraging in-fill redevelopment; (3) revitalize neighborhoods; and (4) increase the tax base of communities. In order to realize these goals and encourage redevelopment of industrial properties, Georgia’s brownfield laws provide significant incentives to potential purchasers of brownfield properties.

Qualifying for the Program

There are two categories of brownfield eligibility, both of which must be met in order for a project to qualify. The first category of eligibility applies to the property; the second to the purchaser. The State of Georgia does not define what is meant by “brownfield.” Rather, Georgia’s Brownfield Act simply establishes criteria for property to qualify for the various state brownfield incentives. First and foremost, a Georgia property cannot be considered a brownfield until a release of a hazardous substance has been discovered on the premises through environmental sampling. With a few newly created exceptions, the discovery must occur before a party wishing to participate in the Brownfield Program takes title to the property. There are some notable exceptions that preclude properties from qualifying as brownfields: (1) properties that are listed on the National Priorities List (federal “Superfund” sites); (2) properties that are the subject of a judicial or administrative order; (3) properties that are subject to a removal or remediation (i.e., clean-up) order or voluntary agreement under federal law; and (4) properties that have a hazardous waste facility permit. Outside of these exceptions, any property that has had a release of a hazardous substance can qualify as a brownfield.

Once it is determined that a property is eligible for the Brownfield Program, the next question that must be answered is whether the purchaser is eligible. The most important limitation is that the purchaser must be a prospective purchaser rather than a current owner. The current owner of a brownfield is not eligible to participate in the Program unless that owner falls into the exception recently created by the amendments to the Act (discussed later in this article).

In addition to the “prospective purchaser” limitation, applicants to the Program must not have contributed to the release of the hazardous substance on the property, or have a substantial business relationship or other affiliation with a party responsible for the release. Finally, an applicant cannot be the current subject of an enforcement action of the Georgia EPD if it wishes to qualify.

Application to the State

If the prospective purchaser and the property are eligible, the next step is to file the correct application for the property in question. There are two types of applications that can be filed with the state. The first, a Prospective Purchaser Corrective Action Plan, is appropriate at sites where source material and/or soil require clean-up in order to achieve the appropriate level of protection for the planned land use. The Plan will typically specify what actions are needed to achieve the desired level of clean-up, and will provide for confirmatory sampling to assure that the standard is reached. The second type of application, an Initial Compliance Status Report, is appropriate in cases where site conditions are well understood, and the state can certify that the appropriate clean-up level can be reached without any further remediation at the site. The state uses the two types of applications because not every site will require active remediation in order to comply with risk reduction or clean-up standards.

The appropriate level of clean-up will depend on the proposed use for the property. The state recognizes two clean-up standards, residential and non-residential, both of which are promulgated under Georgia’s “Superfund” law. As could be expected, the residential standard is more stringent than the non-residential, such that properties that are intended for future residential use are more likely to require active clean-up than those intended for non-residential use.

Incentives for Participation

Currently, there are two types of incentives available under the Act: liability limitations and tax incentives. In order to obtain the liability shield, a prospective purchaser enters into a contract with the state under which the purchaser agrees to perform certain environmental investigation and, if need be, clean-up. Under a typical brownfield agreement, the prospective purchaser usually assumes responsibility for site investigation (soil and groundwater), soil clean-up, source material clean-up or removal, and compiling a Compliance Status Report to demonstrate completion of the work agreed to in the contract with the state. In return for accessing contamination on a property and conducting any necessary clean-up of soil and source material, a qualifying prospective purchaser of a brownfield can obtain from the state a limitation of liability that relieves it, as the new owner, from liability for groundwater clean-up, as well as liability for third-party claims arising from whatever release of a hazardous substance qualified the property as a brownfield in the first instance. Liability for the groundwater clean-up, and for monetary damages to third parties, remains with the previous owner of the property.

The investigation conducted by the potential purchaser forms the basis for the limitation of liability granted in the agreement with the state. In other words, the data gathered in the investigation establish the baseline site conditions for which the prospective purchaser will not be responsible. The limitation of liability typically takes effect upon the approval of the work plan for the site or upon concurrence by the state that no further clean-up is required. Under Georgia’s Act, the limitation of liability is fully transferable to subsequent purchasers, unless such purchaser is otherwise liable for the contamination because of some prior interaction with the property.

Georgia also provides tax incentives for brownfield redevelopments. The brownfield tax incentive law allows property owners to apply to their local taxing authority for preferential assessment of the brownfield property. The preferential assessment can reduce taxes on the property for 10 years, or until certified assessment and clean-up costs are recouped, whichever occurs first. To obtain the preferential tax treatment, the prospective purchaser simply has to produce an approved application for a limitation of liability to its local taxing authority.

Recent Amendments

While the Brownfield Program has been effective in assisting with the redevelopment of hazardous waste sites, it previously excluded properties that were contaminated with one of the most commonly encountered pollutants: petroleum released from underground petroleum storage tank systems. Historically, releases from these systems were regulated exclusively under Georgia’s Underground Storage Tank Act and could be addressed under the Brownfield Program only if the petroleum was mixed with other hazardous waste. The petroleum exclusion has affected potentially hundreds of former industrial sites in Georgia that otherwise would have been appropriate candidates for participation in the Program.

To rectify this problem, the Georgia General Assembly passed amendments to the Brownfield Act in March of 2005, which, among other things, allow properties contaminated with petroleum to participate in the Brownfield Program.

While Georgia’s Brownfield Program is still in its infancy, it already has been successful in assisting with the redevelopment of dozens of sites in Georgia.

Another exclusion has unfairly disqualified certain persons from participating in the Brownfield Program. Initially, only prospective purchasers qualified for the Program; current owners of property were ineligible even if they were not the party who contaminated the site.

The March 2005 amendments to the Act open a retroactive grace period for property owners who purchased their property after July 1, 2002. Thus, persons who purchased property after July 1, 2002, but before January 1, 2005, can still qualify as “prospective purchasers” despite the fact that they already hold title to the property. The justification for this exception is that the development community at large was not commonly aware of the intricacies of the Act, and many unwittingly proceeded to purchase properties that otherwise would have qualified for the Program. For purchases completed after January 1, 2005, the true “prospective purchaser” rule remains applicable.

While Georgia’s Brownfield Program is still in its infancy, it already has been successful in assisting with the redevelopment of dozens of sites in Georgia. With the new amendments opening the door to petroleum-contaminated sites and sites purchased after July 1, 2002, but before January 1, 2005, a whole new class of properties is now eligible for the Brownfield Program. Like the Atlantic Station project in midtown Atlanta, many of these sites are in prime locations and have lucrative development potential. The Act offers a qualifying developer the opportunity to quantify the environmental unknowns before taking title to property, thereby allowing the developer to factor in more precisely the environmental costs of the development. More significantly, the Act relieves a qualified developer from liability for ground water clean-up, which, in most cases, is the most expensive aspect of any environmental clean-up. The Act, and the limited liability it offers, represent a serious attempt by the State of Georgia to undo the “cooling effect” of environmental clean-up laws on the redevelopment of industrial sites, and to address environmental blight.