Environmental Law


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Thursday, March 15, 2012

The Unfortunate Demise of the Leaking Underground Tank Fund

 

In 1989 the Federal EPA required all tank owners to get an insurance policy to cover leaks and spills, the thought being that if insurance were covering the bill, station owners would be less likely to hide a leak. Private insurance wouldn't write policies at the time because they couldn't calculate the risk pool. In response, the State of Connecticut increased the gross receipts tax and started a clean up fund. The EPA certified and recognized this as an umbrella insurance for all tank owners in the state. The fund had a ceiling of $18 million and a floor of $2 million, so there was always money in it. Tank owners could apply for clean up funds and they were granted in a somewhat timely manner. $15-16 million a year was paid out for claims and the remaining money went to the DEP for administrative costs. 

Fast forward to 2011. The gross receipts tax is a percentage based tax, so income increases as gas prices increase. In 2011 the State took in $365 million in tax revenue from fuel. Their pay out for tank clean ups? $250,000. Not a typo. And the DEP still is getting $2,000,000 and a staff of 18 to administer the clean up program. They have over $80 million in clean up applications that they have not paid out. 

So, the Federal EPA has been informed. And EPA has notified the state that after the current legislative session ends the EPA will decertify them as the insurer and station owners will be forced to get private insurance. Private insurance companies will not write a policy if you have known environmental issues. Thus stations will have to close. 

There are estimates that 600-800 stations around Connecticut will have to shut their doors for some amount of time. The state doesn’t seem to care, as reported in this article in the Waterbury Republican:

“The state's chief environmental official said Wednesday he supports ending a taxpayer-funded program that reimburses gas stations for cleaning up leaks from underground fuel storage tanks. He recommends paying just a fraction of the remaining claims, which currently could total $98.6 million.

Advocates for the state's gas station owners, however, say eliminating the program would cause as many as 650 of the state's 1,480 gas stations to close, putting up to 4,000 people out of work and resulting in gas prices of more than $6 per gallon.

State Department of Energy and Environmental Protection Commissioner Daniel C. Esty issued a news release Wednesday supporting Senate Bill 375, which is pending before the Environment Committee. The bill proposes to set aside just $5 million toward phasing out the tank reimbursement program by October 2014.”

So why wasn’t the money used for cleaning up the environment?  What will this do to gasoline prices in Connecticut, which are already the highest in the nation?

Those are the questions.


Tuesday, July 14, 2009

Changes to Remediation Standards are Dropped

The Connecticut Department of Environmental Protection decided earlier this summer not to finish the changes to the Remediation Standard Regulations, commonly known as the RSRs.  The RSRs provide exact requirements for remediation of contamination in soil and groundwater.  Previously remediation standards were handled by DEP on a case by case basis, which was a much more cumbersome process. The RSRs provide a level of certainty, espectially for Connecticut Transfer Act properties.

The new RSRs would have added requirements for new contaminants and would have made the remediation requirements for some other contaminants more stringent.  There has been no explanation as to why, after years of work, DEP decided to drop the changes.  One reason may be the budget problems facing all Connecticut state agencies.  DEP may have decided to devote its limited resources to other priorities.  Another reason could be the difficulty in developing a workable transition period.  Since most remediation projects go on for many years, it would be difficult to apply the new standards to an existing project.  This had become a hot topic.


Friday, December 12, 2008

Voluntary Remediation—An Alternative to Transfer Act Compliance

The Connecticut Transfer Act seems to get all the press when it comes to remediation of commercial and industrial properties. There is good reason for this. The Transfer Act affects every sale of commercial property in the State of Connecticut, and even some residential properties. More about the Transfer Act can be found on at the DEP website. But there is an alternative to Transfer Act compliance. It is voluntary remediation under Sections 22a-133w and 22a-133y of the Connecticut General Statutes. One statute is for areas in which the groundwater is GA/GAA, or clean, and the other statute is for where the groundwater is GB/GC, or not so clean. There are some slight differences between the two programs, but the procedure is pretty much the same. The property owner hires a licensed environmental professional (LEP), who investigates the contamination at the property and develops a remediation plan, which is filed with DEP. The property owner, under the guidance of the LEP, completes the clean up of the property in accordance with the DEP standards. When everything is completed, the LEP files a final report. If the DEP has no objections to the report, then the remediation is complete. There is a $3,000 fee payable to DEP for participating in the program, but this fee may be credited against a subsequent Form II fee under the Transfer Act. More information on the voluntary program can be found at the DEP website.
 
What are the advantages of the voluntary remediation program? If a property owner knows that the property is subject to the Transfer Act and compliance will be required upon a sale of the property, the voluntary program allows the owner to be proactive. The clean up of the property can be completed prior to a sale. This will enhance the property’s market value and marketability. In addition, it will to help to avoid lengthy (and expensive) negotiations with a potential buyer about remediating the property, as well as escrows. It also allows the owner to retain total control over the clean up without the buyer wanting to be involved.
 
There is another advantage to using the voluntary program. When the Transfer Act was new some sellers may have filed Form I’s, certifying that there has been no spill at the property, when in fact there may been some contamination. This was especially true where the amount of contamination was very small. But DEP is now very careful about reviewing Form I’s and will reject a Form I if there is any evidence of contamination, regardless of how small. So it is better to address the issue head on.
 
When the owner decides to sell the property, it will still have to comply with the Transfer Act. But the owner will be able to file a Form II, in which the owner certifies that the property has been remediated in accordance with DEP requirements. The advantage of the Form II is that the owner has no post-closing obligations. The filing of the form is all that is required. 
 
Please note that the owner is still responsible for any activities that may have happened at the property since the clean up was completed. For example, if there has been a spill since the completion of the clean up, then on a sale the owner is going to have to file a Form III under the Transfer Act.

Monday, November 24, 2008

Lead Paint Disclosure Requirements in Residential Transactions

A recent article in the Commercial Record reported that a number of real estate brokerages throughout New England were being investigated by the federal Environmental Protection Agency for failing to comply with lead paint disclosure requirements. I don’t know if these agencies really were not in compliance, but it presents a good opportunity to provide some background information on the disclosure requirements. I won’t go into the requirements in depth because a detailed description of the requirements can be found at the HUD website. But it is important to remember that, before any contract for 1-4 family property is fully signed, the seller and the agent must provide the following information:
 
  • EPA approved pamphlet on lead-based paint hazards.
  • Disclose any known information concerning lead paint at the property.
  • Provide copies of all existing reports on lead paint at the property.
  • Include an attachment to the contract which includes a lead paint warning statement.
  • Allow the buyers an opportunity to inspect for lead paint hazards.
 

Note that these requirements also apply to leases of apartments and single-family residences.


Thursday, November 13, 2008

Protection from Existing Environmental Contamination

In my last post I talked about a recent statute which addressed the issue of disclosure of environmental issues in a property sale. Now I would like to address protection from existing contamination on a site being purchased. Many prospective purchasers, in deciding whether to buy a property, want to know if they can be responsible for contamination at a property they purchase, even if they had no hand in creating the contamination. The short answer is yes! Even if the buyer did not create the condition, he or she can be responsible for it. Under Connecticut statutes, any person who is “maintaining any facility or condition” which is a source of pollution can be required to clean it up.  Owning the property is the same as maintaining the source of pollution.
 
So how do you protect yourself? One way is to be 100% sure that there is no contamination on the property. That, of course, isn’t always possible. That is especially true if you know there was contamination on the site previously but it was supposedly cleaned up. Even the most thorough testing and remediation can miss something, although if the work is done by a competent environmental firm that should not happen.
 
There are some limited statutory protections in Connecticut. Section 22a-452e of the Connecticut statutes provides some protection to “innocent landowners.” To qualify as an innocent landowner, you must have purchased the property with no knowledge of the existing contamination and also must have conducted some due diligence in accordance with “good commercial practices.” So the buyer must have checked the site out and found nothing.
 
The protection afforded by this statute, however, is very limited. Under Section 22a-452e, if the state incurs clean up costs, the state can still file a lien against the property for those costs. The property owner cannot be assessed costs over and above the value of the property.  But your equity is still very much at risk. In addition, if the contamination has traveled into the groundwater or somehow affected a neighboring property, no protection is afforded.
 
A more recent statute, Section 22a-133ee offers some liability protection if the right conditions are met. If a person purchases a property that has contamination or has contaminated adjacent property, the owner will not be liable for damages to an adjoining property owner if the owner did not create the contamination, the site has been remediated, and the DEP has approved the remediation. These are pretty stringent requirements, especially the part where DEP has to sign off on the final report. In many clean ups the remediation can now be supervised by an environmental consultant and the DEP has no active role. In that case it might be sufficient if the final report has been submitted to DEP and DEP has elected not to audit the report. But the law isn’t clear about that.
 

Note that all of this doesn’t have to have taken place before the owner buys the property. The person can buy the property and then clean it up. If the DEP approves it, the owner is still protected, as long as the owner isn’t the one who caused the contamination in the first place.


Friday, October 31, 2008

Disclosure of Environmental Issues in Residential Real Estate Transactions

In the 2008 session the Connecticut legislature made some revisions to a little known law regarding disclosure of environmental contamination in residential real estate transactions. The law is Section 20-327f of the Connecticut General Statutes.  The original law stated that if a seller of a one to four family home disclosed to the buyer that a list of a list of local hazardous waste sites could be found at the local town clerk’s office, then the seller satisfied any possible obligation to disclose the existence of any of these facilities. Presumably this meant any facilities located near the property being sold, but of course the statute isn’t that specific. By statute the Connecticut Department of Environmental Protection is required to deliver the list to each town clerk. 
 
The revisions to the law kept the old language and added a new provision. It says, again for 1-4 family real estate, if the seller provides notice to the buyer of the “availability of information concerning environmental matters” from several different federal agencies and “third-party” providers, then the seller and any broker shall have satisfied any duty to disclose “environmental matters concerning properties other than the property that is the subject of the contract.”
 
The law specifically provides that the enactment of this law does not create a duty to make these disclosures. I am not aware of any law, either by statute or common law, which would require these disclosures. Why would a seller be required to disclose the environmental condition of a property he or she doesn’t own? Disclosures usually only apply to the property being sold. What else are they not required to disclose? What if the moon doesn’t hang quite as high as it used to? (Sorry, I always liked that line and couldn’t resist.) The end of caveat emptor and the emerging obligations of sellers to make disclosures about the property being sold, especially matters not easily found, are good things. But even suggesting that sellers make disclosures about other properties doesn’t make much sense to me.
 

Nonetheless, if you have the opportunity, it’s a pretty easy thing to put in a real estate contract. Most contracts for residential property are done on preprinted forms, so that isn’t going to be easy to do. But it is worth considering.


Wednesday, October 8, 2008

Proposed DEP Release Reporting Regulations

On September 8th the Connecticut DEP released draft regulations for reporting of releases of hazardous wastes, petroleum products and other substances to the environment. The Connecticut General Assembly had passed a law requiring the reporting of such releases, codified at Connecticut General Statutes Section 22a-450, back in 1969. But DEP has never adopted regulations to implement the requirements of the statute, making it mostly ineffective. Now the DEP has started the process of adopting those regulations.
 
The proposed regulations will require that a report be sent to DEP if there is a release of any hazardous waste, hazardous substance, petroleum products, biomedical waste, or other substances in an amount greater than 10 pounds. Generally this means one incident, so releases of smaller amounts do not have to be added together. But in certain situations releases must be aggregated. For example if there have been a series of releases from the same source, the release amounts must be added together and cannot be considered separate releases for purposes of determining whether a release of more than ten pounds has occurred. Releases from underground tanks are included.
 
In some situations a release report would be required even if the amount released is less than ten pounds. Examples include releases near drinking water wells and releases to any watercourse or wetland.
 
A telephone report of any release would have to be made immediately to the DEP’s Emergency Response Unit Reporting telephone number. A written report would be required within seven days.
 
Finally, records would need to be kept for releases which do not have to be reported. The records would have to be kept for three years.
 
Since the regulations are not final a complete summary and analysis is premature. The regulations will go through a period of public comment and revision before they are adopted. In addition, the regulations will not be finalized until DEP has also finalized the revisions to the Connecticut Remediation Standard Regulations, which are also in the process of public comment.

Monday, May 12, 2008

Limited liability companies: The entity of choice for Connecticut businesses.

There is no question that limited liability companies (LLCs) have become the dominant vehicle for new businesses being formed in the State of Connecticut. In fact, in 2006 formation of new LLCs outnumbered corporations by six to one! LLCs have become extremely popular because they combine the major advantages of two other types of entities: the limited liability of corporations and the pass-through tax treatment of partnerships.  Limited liability companies are easy to set up and maintain, and very flexible in structure.  There is virtually no limit on the different types of ownership and management structures that can be established.  LLCs also benefit from pass-through tax status, meaning that there is no tax at the entity level and all income and loss is reported on the owner’s tax return. As a result, income tax filings are much simpler. LLCs with only one owner do not have to file a separate tax return for the LLC, but instead report everything on Schedule C of their personal tax returns.
 
Since its introduction in 1993 the LLC has also become the entity of choice for real estate ownership and development. The low cost and flexibility of the LLC allows real owners to set up a new company for each property, and even for separate parcels within the same development. This allows the owner to protect his or her personal assets from liabilities associated with the real estate business. And it has the added advantage of insulating each property or project from liabilities associated with other projects or properties.
 
Limited liability companies can now be set up with one member, two members, or many members. The ownership can be as simple or as complicated as complex as the parties desire to structure it. There is virtually no limit on the different types of ownership structures. The management of the LLC can also be set up in a variety of ways. There can be one person in charge of the business, or all of the owners can be involved, or anything in between.  
 
There are still some situations in which the use of a corporation or other entity may be preferable to a limited liability company. And although setting up a LLC requires fewer documents and formalities than a corporation, there are still key documents that need to be prepared and executed. For this reason it is important to consult with an experienced attorney before setting up any new business, including a real estate business.

Wednesday, April 2, 2008

Proposed Act Concerning Environmental Disclosures

For many years, the law in Connecticut on disclosures in real estate transactions was “caveat emptor,” Latin for “buyer beware.” A seller of real estate, whether residential, commercial or both, had no obligation to disclose an aspects of the condition of the property. A seller could be liable for making a misrepresentation regarding the condition of the property, and courts often stretched to find misrepresentations in order to protect innocent buyers. One example is the multiple listing service. Courts have routinely held that the information in this service constitutes a representation as to the condition of the property. The Connecticut legislature finally obliterated “buyer beware,” at least in residential closings, by adopting legislation requiring that each seller deliver something called a Residential Property Condition Disclosure Report. This is a multiple page document which requires the seller to disclose many aspects of the condition of the property. If the seller doesn’t deliver the report, the seller must credit the buyer $300 at closing. Although the report is not intended to be a warranty of the condition of the property, if the seller fails to disclose anything the seller faces liability for non-disclosure.
 
Now the Connecticut legislature is taking disclosure obligations to a new level. A bill now making the rounds would require any seller of residential property to disclose to the buyer if the property is located within 300 feet of an “environmentally hazardous site.” There are eight different categories of environmentally hazardous sites, including proposed superfund sites. This would put a tremendous burden on any seller. What seller, real estate broker or even lawyer would know how to find this out? And how do you measure the distance without having a survey done? Do you get out there with a tape measure? 
 
If the seller’s property is within 300 feet of an environmentally hazardous site and the seller follows the letter of the law and delivers the required disclosure, the buyer can then terminate the contract within seven business days after receiving the disclosure. This could have a tremendous adverse effect on the seller, because the seller might have already signed a contract to buy a new home. If the sale of his or her existing house falls through, the seller in most cases is not going to be able to close on the new property and may forfeit his or her deposit.
 
The Real Property Section of the Connecticut Bar Association recently voted to oppose this legislation. Let’s hope our legislature realizes it causes more problems than it creates and focuses on more pressing matters.

Friday, March 28, 2008

2007 Changes to the Connecticut Transfer Act

 
The following text is excerpted from a recent letter from Kim Maiorano of the Remediation Division, Bureau of Water Protection and Land Reuse at the Connecticut Department of Environmental Protection. It provides an excellent summary of the changes made to the Connecticut Transfer Act, also known as the Property Transfer Law, by the 2007 Connecticut General Assembly and the DEP’s current requirements.
 
“Please note that significant changes were made to the Property Transfer Law during the 2007 Regular Session of the General Assembly. Public Act 07-81 (effective October 1, 2007) and Public Act 07-233 (effective July 1, 2007) made changes to CGS §22a-134 and 134a.
 
The Property Transfer Law now provides for automatic delegation to a licensed environmental professional (LEP) to oversee the investigation of the parcel and verify that the establishment has been remediated in accordance with the State Remediation Standard Regulations, §22a-133k-l through 3 (RSRs). This delegation is automatic unless within 75 days of the date of this letter, you are notified in writing that the Commissioner’s review and approval of the investigation and remediation is required. Please be aware that although the Form III is considered complete, the ECAF may still be under technical review and you may be required to provide additional information (i.e., receptor survey, well monitoring analyses, etc.) in order for the Commissioner to determine if the Commissioner’s oversight of the remediation activities is necessary.
 
In accordance with CGS §22a-133a(g)(l) and (h), as amended by Public Act 07-233, you must submit to the Commissioner within 75 days of the date of this letter, a schedule for the investigation of the parcel and remediation of the establishment. The schedule shall include the name of the licensed environmental professional that will be retained to oversee such activities at the establishment, and shall provide that you (as certifying party) will do the following:
 
1.         The parcel will be investigated in accordance with prevailing standards and guidelines, and the investigation will be completed within 2 years of the date of this letter.
 
2.         The final investigation report, approved in writing by an LEP, will be submitted to the Commissioner within 2 years of the date of this letter. The “Completion of Investigation Transmittal Form” shall be used to submit the required documentation to the Commissioner.
 
3.         Public notice of remediation will be posted prior to the initiation of remediation in accordance with CGS §22a-134a(i).  Since a forty five (45) day comment period is required pursuant to the RSRs, the public notice of remediation should be published far enough in advance of the submittal of the Remedial Action Plan (RAP) to allow adequate time for any comments on the proposed remediation and any response to such comments to be incorporated into the Remedial Action Plan. A copy of the public notice will be submitted to DEP immediately following publication of said notice.
 
4.         Remediation of the establishment will be initiated within 3 years of the date of this letter.
 
5.         A Remedial Action Plan, approved in writing by an LEP, will be submitted to the Commissioner within 3 years of the date of this letter. The “Remedial Action Plan Transmittal Form” shall be used to submit the required RAP to the Commissioner.
 
6.         Annual progress reports concerning the remediation and monitoring of the establishment will be submitted to the Commissioner on an annual basis starting by the fourth year from the date of this letter and every 12 months thereafter. Such annual progress reports must provide detailed report on remediation activities conducted within the previous 12 months, and any information indicating risks to human health or the environment may be higher than previously known.
 
The Department must be notified in writing within 30 days should there be any change in the selection of the licensed environmental professional.
 
Unless an alternative schedule has been approved in writing by the Commissioner, you shall investigate the parcel and remediate the establishment in accordance with the proposed schedule. When remediation of the entire establishment is complete, you, as the certifying party, shall obtain and submit to the Commissioner a final verification by an LEP (unless DEP notifies you in writing that the Commissioner will review and approve the investigation and remediation). The final verification shall be on a form prescribed by the Commissioner,
 
You should note that pursuant to CGS §22a-134a(g)(1), as amended by Public Acts 07-81 and 07-233, the Commissioner may determine at any time that the Commissioner’s review and written approval of the investigation and remediation at the parcel is necessary. Nothing in this determination shall affect the authority of the Commissioner under any other statute or regulation, including, hut not limited to, any authority to issue an order to any party associated with the transfer, to institute any other proceeding, or take any other action to prevent or abate pollution, to recover costs and natural resource damages; and to impose penalties for violations of law.
 
If at any time the Commissioner determines that the actions at the parcel have not fully characterized the extent and degree of pollution or have not successfully abated or prevented pollution, the Commissioner may institute any proceeding, or take any action to require further investigation or further action to prevent or abate pollution. In addition nothing in this letter shall relieve any person of his or her obligations under applicable federal, state and local law.”
 



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