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Navigating Brownfields Agreements in North Carolina

Navigating Brownfields Agreements in North Carolina

SML Perspectives
(November 22, 2011)

From Environmental Threats to Neighborhood Jewels

"Brownfields" are properties that have been contaminated by pollutants or hazardous substances making them difficult to expand, reuse, or redevelop. In the past, these sites have been underutilized or even abandoned because of the difficulty in getting loans for redevelopment due to uncertainties related to the cost of remediation. In 1995, the Environmental Protection Agency (EPA) instituted a program to encourage the redevelopment of an estimated 450,000 brownfields in the U.S. by alleviating liability for prospective developers. Among other funding programs, the federal program provides grants and loans to state and local governments, other governmental units and non-profits on a competitive basis. State brownfields programs do not offer funding to prospective developers, but they do offer tax incentives that help to offset the cost of site assessments, cleanups, and improvements.

In North Carolina, prospective developers must negotiate a "Brownfields Agreement" with the North Carolina Department of Environment and Natural Resources (NCDENR). A prospective developer is "an entity who desires to buy or sell for the purposes of redeveloping the property and did not cause or contribute to the contamination." A Brownfields Agreement is, in essence, a covenant not-to-sue contingent on the developer agreeing to make the property suitable for reuse. The cost of investigating and making the property suitable for use can be estimated by the developer, allowing lenders to determine the worthiness of a project without fear of uncertain environmental liability. In many instances, prospective developers can avoid future cleanup costs by agreeing to restrict the use of the property in a manner deemed protective of the public.

Negotiating a Brownfields Agreement with NCDENR is not a fast or cheap process. There is an option to pay for expedited processing, but the fee is steep: more than $30,000, and it does not come with a guaranteed completion date. The chart (below), adapted from a diagram created by NCDENR, demonstrates what can turn out to be a long and arduous process. While some might be tempted to submit a Letter of Intent, and then purchase a site with the belief that an agreement with the state will eventually be reached, doing so is extremely risky because the state can and does say no to projects.. Certain types of sites, including those where the contamination originates from underground storage tanks, are not eligible for the North Carolina program.

Relying on the experience of an attorney who has been through the process and grasps the nuances involved in these types of transactions can help you make sound business decisions with regard to redevelopment of these properties. The risks are often worth it, and the positive impact that redevelopment has on a community is tangible. Not only are local tax bases increased, but jobs are often created, and pressures on undeveloped, open land are relieved as well. It’s good to know that protecting the environment can make good business sense too.

Brownfields Agreement Process

Graph depicting the Brownfields Agreement Process

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William E. Burton
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Mona Cunningham O
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