Bar Bulletin

June, 2004

 June 15, 2004

Environmental Law  

By James B. Witkin and Melissa B. Derwart

On April 27, 2004, Maryland Governor Robert L. Ehrlich, Jr. signed the Brownfields Redevelopment Reform Act, one of the major environmental bills enacted by the General Assembly in its 2004 legislative session. The Act is intended to improve the Maryland Voluntary Cleanup Program (VCP), which encourages the cleanup and redevelopment of properties that are, or are perceived to be, contaminated by providing liability protections and financial incentives. Since many brownfields are located in urban areas, the VCP supports “smart growth” by encouraging the recycling of sites with existing infrastructure, rather than pushing development to outlying areas.

Historically, the development of brownfields has been hampered by numerous factors, including fear of legal liability, the costs of environmental cleanup and the difficulty of obtaining financing due to federal and state environmental laws that can hold a purchaser of an environmentally impacted property liable for remediation costs. Numerous states, including D.C. and Virginia, and the federal government have enacted programs designed specifically to overcome these barriers to redevelopment.

Maryland enacted its VCP in 1997. As of the beginning of 2004, the Maryland Department of the Environment (MDE) had received approximately 175 VCP applications. Of those, 91 properties have completed the program. To date, eligible applicants to the VCP have included property owners, potential purchasers, lenders and tenants.

A prominent VCP success story is the former American Can Company in Canton. Vacant for 10 years due to environmental concerns, this former manufacturing plant on Baltimore’s waterfront is now a successful retail and office complex.

Under the Maryland program, parties that voluntarily agree to investigate and, if required, clean up a brownfield are offered liability protection in the form of a “Certificate of Completion” or “No Further Requirements” determination, indicating that the State will not bring an enforcement action for the known contamination. Most lenders are then willing to make loans on these sites.

Generally, a contaminated property, or one perceived to be contaminated, is eligible for the VCP. However, there are some exceptions, and it is important to determine a site’s eligibility before going through the application process. In addition, a person who knowingly violated any law concerning controlled hazardous substances is not eligible to participate in the VCP.

Notable Changes in the New Law

The new law, effective October 1, 2004, expands the range of eligible parties and properties. Oil-contaminated sites will now be included in the VCP. Previously, properties contaminated by petroleum products were handled in a separate MDE program, which did not provide the same liability protections afforded by the VCP. Now, a shopping center site contaminated by dry cleaner solution and gasoline will only need to go through the VCP.

In the past, properties under active environmental enforcement have not been eligible for the VCP. Now, sites under active enforcement, such as an industrial property charged with environmental permit violations, can potentially qualify for the VCP.

Some of the Act’s changes could shorten the VCP process. Currently, a “Phase II” environmental assessment, where an environmental consultant tests soil or groundwater for contamination, must be submitted with every VCP application. Under the new law, a Phase II assessment is only required when the MDE’s review of the Phase I (non-intrusive) report determines it is necessary. In addition, the new Act shortens the turn-around time for the MDE to notify applicants of the status of their application from 60 to 45 days and provides a new option for expediting certain administrative determinations – although MDE will charge a $2,000 fee.

Certain changes may lengthen the VCP process, however. The new law contains more extensive public notice requirements, including the posting of signs on the subject property, the publishing of a notice of the application on MDE’s website, a public informational meeting for proposed cleanup plans and MDE’s acceptance of public comments after those meetings.

The new law provides certain additional liability protections. For example, in cases where MDE imposes a use restriction on a property and that restriction is violated by a third party, the original applicant will not be held liable. The Act also gives MDE greater enforcement authority.

Although certain fees associated with VCP applications will increase, the new law permits lower fees upon a demonstration of financial hardship; it also permits a reduced $2,000 fee for each application submitted subsequent to the initial application for adjacent properties that are a part of the same development project.

The current law offers financial incentives such as low interest loans or grants for environmental assessments and site remediation and property tax credits in certain jurisdictions. By expanding the range of properties eligible for the VCP, the new law broadens the number of sites that will qualify for these incentives.

In all, these changes to the VCP program should assist developers of brownfields and result in the continued restoration and reuse of these properties.

James B. Witkin is a Partner at the law firm of Linowes and Blocher LLP and editor of the book Environmental Aspects of Real Estate Transactions. Melissa B. Derwart is an Associate at Linowes and Blocher LLP.



Publications : Bar Bulletin: June, 2004

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