NYSDEC Adopts Final Definition of “Underutilized” for NYC Brownfield Sites

August 3rd, 2016

Over a year after the 2015 amendments to the state Brownfield Cleanup Program (BCP) went into effect and eight months after the legislative deadline, the New York State Department of Environmental Conservation (NYSDEC) announced it was adopting amendments to its Part 375 regulations defining what constitutes  “underutilized” and “affordable housing”.  The definitions are important because they establish two of the four criteria  for qualifying NYC brownfield sites for the qualified tangible property (QTP) tax credit. The definitions become effective  on August 12th.

NYSDEC had  proposed revised definitions in March 2016. There is not much to say about these final definitions beyond what we discussed in our prior post because the agency made virtually no changes to the definition of “underutilized”. No changes were made to the “affordable housing project” or “brownfield site” definitions which remain as published in the  March 9, 2016 State Register.

In its announcement, the NYSDEC proclaimed the rule revisions as an improvement to the BCP.  However, in adopting the final definitions, the agency  completely ignored two rounds of comments from the Brownfield Task Force of the New York State Bar Association  and other stakeholders explaining how the proposed rulemaking was too restrictive and would undermine the legislative goals of the BCP.  The comments asserted that the “underutilized” definition was unduly restrictive and would cause small, family-owned  properties located in vast swaths of   middle class  areas in Queens, Brooklyn and Staten Island from qualifying for the QTP tax credit, thereby discouraging their redevelopment into more productive use. This is because most of Queens and Staten Island and a little more than half of Brooklyn are not located in Environmental Zones (the third criteria for qualifying for the QTP tax credit), and would not qualify for ‘upside-down” test (the fourth QTP criterion) because of real estate values.  The NYSDEC simply concluded that these brownfield sites in these areas could still qualify for the  QTP by satisfying the other QTP criteria ( i.e., En-Zone,  upside-down, or affordable housing) without any meaningful analysis.

The commentators also pointed our that the tax arrears and structurally unsound tests for qualifying for the “underutilized”  definition were not valid tests because  of tax delinquency policies and procedures, and that few buildings would be deemed condemned or as having acute structural deficiencies because of building code violations. Nevertheless, NYSDEC said it believed that these criteria “are valid indicators of underutilization and the regulations provide objective tests with clear parameters” again without explaining the basis for this conclusion.

The final definition of “underutilized”is contrary to the plain meaning of the word because focuses on FUTURE use and not the current use of the property. Continuing to Include factors such as tax arrears and buildings that are condemned in the definition when confronted with evidence that these factors have little relevance to NYC would appear to be the very definition of arbitrary and capricious rulemaking.  The “underutilized” “definition will undercut the program’s goal of providing incentives for redevelopment of brownfields sites

In our opinion, this rulemaking is not only inconsistent with the Legislative intent but represents another unlawful attempt by DEC to narrow the scope of the brownfield program.  We predict  this rulemaking will spawn a wave of multi-year litigation much like what happened  when the NYSDEC adopted an unnatural definition of “brownfield site” in the mid-2000s,  and could  cause irreparable harm to the BCP since will not know if they qualify for the important tangible property tax credits until after the litigation is concluded. The BCP was just beginning to recover from the damage done by DEC’s prior illegal interpretation and this rulemaking could be the death throe of the program. At the very least, this

The definition of “underutilized”  located in 375-3.2(l)  read as follows:

(l) “Underutilized” means, as of the date of application, real property on which no more than fifty percent of the permissible floor area of the building or buildings is certified by the applicant to have been used under the applicable base zoning for at least three years prior to the application, which zoning has been in effect for at least three years; and

(1) the proposed use is at least seventy-five percent for industrial uses; or

(2) at which:

(i) the proposed use is at least seventy-five percent for commercial or commercial and industrial uses;
(ii) the proposed development could not take place without substantial government assistance, as certified by the municipality in which the site is located; and
(iii) one or more of the following conditions exists, as certified by the applicant:
(a) property tax payments have been in arrears for at least five years immediately prior to the application;
(b) a building is presently condemned, or presently exhibits documented structural deficiencies, as certified by a professional engineer, which present a public health or safety hazard; or
(c) there are no structures.

The complete text of the rulemaking as well as the NYSDEC response to comments is availableHERE

 

 

NYSDEC Proposes Revised Brownfield “Underutilized” Definition

March 8th, 2016

The NYSDEC’s much awaited revised definition of underutilized that was required as part of the 2015 Brownfield Cleanup Program (BCP) reforms will be published in the March 9, 2016 New York State Register (NYR). The proposed definition is currently available on the NYSDEC website

As previously  discussed, the 2015 BCP amendments replaced the ‘as of right” tangible property tax credit (TPC) for New York City brownfield sites. Instead, new applicants would qualify for the TPC if they satisfied one of four the four tests or “gates: At least half of the site is located within an Environmental Zone; The site was “upside down”, the site will be used for affordable housing or the site is underutilized. NYSDEC was required to publish a definition of “underutilized” by July 1st and to adopt the rule by October 1st. The agency met the first deadline when it published the definition in the June 10, 2015 issue of the NYR.

The proposed “underutilized” definition was widely criticized as being too narrow and essentially reading out the term from the statute. As a result, NYSDEC withdrew the definition and missed the statutory deadline to adopt the definition by October 1st.

Despite the adverse comments, the NYSDEC declined to make significant changes to the definition of underutilized despite a plethora of adverse comments. The reason cited by NYSDEC was that only three actual examples were provided for DEC’s evaluation and agency concluded those sites would be eligible under one of the other TPC gates. The agency dismissed other “broad statements” about the effect of the proposed rule on small property owners as unpersuasive. Click here for our blog post on this issue

The revised proposed definition of underutilized provides that at the time of the application no more than 50% of the permissible floor area of the building or buildings is certified by the applicant to have been used under the applicable base zoning for at least three years prior to the application and one of following tests are satisfied.

  1. the proposed use is at least 75%  for industrial uses; or
  2. The following conditions exist

(i) the proposed use is at least seventy-five percent for commercial or commercial and industrial uses;

(ii) the proposed development could not take place without substantial government assistance, as certified by the municipality, AND

(iii) one or more of the following conditions exist:

(a). taxes are in arrears for the five years preceding the application; or

(b) a building is condemned, or exhibits structural deficiencies as certified by a professional engineer that present a public health or safety hazard; or

(c) there are no structures on the site.

Note is is unclear if 2 (i) through (iii) are all required since there was no “and” following 2(i).

It appears there is a fundamental disagreement between the NYSDEC and the real estate community as to what constitutes an underutilized property.  As it stated in its responsiveness summary, the agency believes that “ If the majority of a site is in productive use as stated in the comment, it should not be considered underutilized even if there may be some contamination present.” This view would seem to undermine the intent of rezoning and prevent properties that are by all reasonable measures obsolete from qualifying for BCP tax credits because they have tenants generating some income. Under this interpretation, an abandoned gas station with a tenant selling flowers or that is being used for parking would prevent the site being considered “underutilized”. A small, obsolete shopping center impacted by a former dry cleaner would not meet the proposed “underutilized” definition if it is more than 50% leased.

The proposed “underutilized” appears to favor industrial sites which is somewhat incongruous that this term applies to New York City sites. A mixed-use project that has more 25% residential would not satisfy for criterion 2(ii) and not qualify for the tangible property tax credit if  2(i) through 2(iii) are required to be met  to qualify for the tangible property tax credit. Unless a site with a proposed mixed-use project with market-rate residential units falls is located in an Environmental Zone or is “upside down” as defined by the statute, the project would not qualify for the tangible property credit component.

In our view, NYSDEC has arbitrarily dismissed adverse comments that the restrictive definition would exclude large swaths of small commercial properties in the middle class neighborhoods located outer boroughs of New York City from the BCP tax credits that were not the high value” sites that the legislature was targeting and would have a devastating impact on owners and developers of small contaminated properties such as dry cleaners, gas stations, and vehicle repair and maintenance shops. The agency simply disagreed with these comments and assumed these properties could qualify for the “upside-down” test  without any meaningful analysis.

DEC’s response to the comments is available here

Searchable BCP Tax Credit Database Show Who Has Received Tax Credits and How Much

February 18th, 2016

Because of the changes and controversy surrounding the  NYSDEC Brownfield Cleanup Program (BCP), there has been some skepticism in the real estate community about the amount of  tax credits that the Department of Taxation and Finance actually approves and if those amounts are near what is supposed to be available under the BCP.

The following searchable database provides information about the amount of tax credits awarded to BCP projects.  Searches can be done by county, year and taxpayer. Each entry shows the amount of the costs claimed and the actual tax credits that were received.

Click here to access the searchable database

 

Biblical Origins of Environmental Ethics Presentation

February 2nd, 2016

I gave a presentation titled “Biblical Origins of Environmental Ethics” at the 35th annual meeting of the Environmental Law Section of the New York State Bar Association on January 29th.

One might ask what could a 3000-year old religious document that was developed for an agrarian society could conceivably have to say about modern 21st Century environmental issues like Climate Change, species extinction or toxic waste sites? Indeed, as western cultures have recognized individual rights and adopted economic models based on free market capitalization, the sacred teachings have been misinterpreted and come to view Creation (the Earth, living things, etc)  as being here for the pleasure and profit of humans,  They relied on the language in Genesis, which gave humans dominion over the earth and have tended to ignore other teachings that set forth  humanity’s   obligations towards the Creation.

However when one examines the original text and understand the context becomes clear that the proper interpretation is that humans have been appointed as God’s representatives on Earth and to act as stewards towards Creation. First, the chapters of Genesis show that God pronounced Nature  “good” independent of any value to humans. Second, these chapters establish that humanity has a special role in and responsibility to care for that good creation and to exercise dominion over it. God commands respect for all of His creation. He teaches that human and nonhuman nature are equals in their ultimate task: the service of the Creator. This means to minimize the suffering of animals even if it comes at great costs to us. We should not just prevent the worst, but promote the good.  Later Old Testament Scriptures reflects the idea that   use of land and devotion to God are linked and that the freedom to use land–even the land one owns–is not without restrictions. Stewardship of the earth is a central element of the right relation between God and humans.

The powerpoint presentation is available Here.

More resources about the environmental teachings of various faith traditions including our Bible Study lecture materials are available from our website Here

NY Court of Appeals Finds PRP Letter Triggers Contractual Indemnification

January 27th, 2016

The New York State Court of Appeals held that a PRP letter issued by the New York State Department of Environmental Conservation (NYSDEC) was sufficient to trigger an indemnity obligation under a purchase and sale agreement. While lower courts have found PRP letters to constitute “suits” within the meaning of  a Comprehensive General Liability policy so as to trigger a duty to defend, this is the first time the a PRP letter has been interpreted within the context of a private indemnity agreement.

In Remet Corp. v. Estate of Pyne, 26 N.Y.3d 58 (N.Y. 2015), James R. Pyne sold all of his stock in Remet Corporation (Remet) and real property to Burmah Castro Holding (BCH) for approximately roughly $28 million. During pre-acquisition due diligence, BCH learned that a leased facility in Utica was located adjacent to the Old Erie Canal site, a parcel that was listed on the New York State List of Inactive Hazardous Waste Sites. BCH became concerned that Remet could become responsible for the remediating the Old Erie Canal site which BCH’s consultant estimated could cost as much as $29MM.  After BCH proposed excluding the site from the transaction, Pyne agreed to provide a ten-year indemnity to BCH for losses related to pre-existing environmental conditions provided that the losses resulted from actions that the purchaser was “required to take under or in connection with any Environmental Law.” The indemnity also contained a “muzzle” clause that provided that such required actions could not be a result of  communication by BCH with NYSDEC.  A $2.7 million environmental escrow account was established.

In October 2002, the NYSDEC sent Remet and four other parties a notice letter identifying them as a generator PRPs for the Old Erie Canal site.  The notice letter provided in part that if the PRPs did not enter into a signed Consent Order within 30 days, NYSDEC would terminate discussions and implement a remedy using the state superfund. The letter warned that NYSDEC would seek cost recovery for its costs and that the letter constituted a demand for payment of all monies the NYSDEC might expend for the investigation and remediation of this site, plus any and all interest.

Remet tendered an indemnification claim to Pyne in accordance with the indemnification procedures under the purchase and sale agreement (PSA). Pyne declined to assume control of the defense but cooperated with Remet in implementing the company’s initial response to the PRP letter. Remet, three other PRPs, and Mr. Pyne investigated the Old Erie Canal site and prepared a report with Pyne and Remet splitting 25% of the costs. In discussions with NYSDEC, Remet and Pyne argued that Remet should not be considered a PRP because Remet did not generate any waste stream from its processes and the chemicals it used did not match the contaminants identified at the Old Eric Canal site. The NYSDEC negotiations were unsuccessful. Pyne died in March 2003. Later that year, Remet’s management team acquired all of Remet’s stock and the Pyne estate agreed to assume the Pyne’s indemnification obligations under the PSA.

NYSDEC subsequently issued a letter indicating that since none of the PRPs had agreed to perform any work, the agency would use state funds to complete the investigation and implement the remedy.  Eventually, NYSDEC selected a remedy estimated to cost $12.5MM

With its indemnification claim still pending, Remet filed a claim against the Pyne estate in the Surrogate Court seeking to bar distributions from the estate until the indemnification claim was resolved. The Pyne estate objected to any release of funds from the escrow account to cover the approximately $550K demanded by NYSDEC for a portion of the work and instructed Remet that any unilateral contact with the NYSDEC would constitute a waiver of any right to indemnification under the PSA.

Remet then commenced an action against the Pyne estate to enforce the estate’s indemnification obligations of $550K as well as a declaration that it was entitled to reimbursement for all future costs. The trial court granted summary judgment to Remet, holding that Remet would have to expend money since it would either have to respond to the PRP letter or defend a NYSDEC cost recovery action. The court also noted that Pyne’s cooperation following the PRP Letter was inconsistent with the estate’s position that the PRP letter did not “require” action. The estate appealed and the appellate court reversed, ruling that the DEC did not “require” any action but merely informed Remet of its potential liability and sought voluntary action.

Before the Court of Appeals, Remet relied heavily on a line of insurance cases holding involving that PRP letters were “suits” within the meaning of Comprehensive General Liability policies that triggered an insurer’s duty to defend. Remet analogized that if a PRP letter was coercive and adversarial enough to constitute a “suit,” it is coercive and adversarial enough to “require” responsive action. Moreover, Remet argued that if the appellate decision was affirmed, “every business insured under a liability policy that provides coverage for defense of environmental claims will have an incentive to resist cooperating with DEC upon receipt of a PRP letter, until there has been a final determination of liability.”

The estate argued that the NYSDEC letter simply indicated that Remet was a PRP and that it had no indemnification obligation under the PSA until a court actually held that Remet was found to actually be a  responsible party. The estate pointed out that the NYSDEC never categorized or ever asserted that Remet was anything other than a PRP. Indeed, the estate emphasized that NYSDEC had not taken any enforcement action against Remet or any other of the PRPs.

The Court of Appeals rejected this creative but strained interpretation, holding that the PRP letter was sufficiently coercive and adversarial as to “require” action ” under Environmental Law as provided under the PSA. The court noted that the PRP letter, which was labeled “Urgent Legal Matter,” demanded either a consent order or payment. It further indicated that a prompt reply was “necessary” and set forth imminent legal and financial consequences that would occur if Remet refused to act. Thus, even though Remet was labeled a “potentially responsible party,” it responses to the letter were coerced and  not voluntary. The court also found persuasive the circumstances surrounding the execution of the indemnification clause and the funding of the environmental escrow account as evidence that the parties were aware of the potential for substantial expenses relating to the Erie Canal Site, and that Pyne’s cooperation after receipt of the PRP letter was evidence that Pyne thought action was required action.

NY State Court Upholds Denial of BCP Application

January 21st, 2016

One of the important changes of the 2015 BCP amendments was that Class 2 sites on the State Registry of Inactive Hazardous Waste Disposal Sites (the state superfund list) as well as RCRA sites may now be eligible for the BCP if the applicant is a volunteer and the NYSDEC has determined no financially viable party is available. Unfortunately, sites subject to enforcement actions continue to remain ineligible for the BCP.

The NYSDEC has interpreted this prohibition to apply to former manufactured gas plant (MGP) sites that are subject to multi-site orders on consent that several utilities previously entered into with NYSDEC. The remedial programs at these multi-site MGPs have slogged along since the utilities have little incentive to aggressively remediate these sites. Many of the sites where cleanups have been completed have long-term institutional and engineering controls because the contaminants lie beneath existing commercial structures. NYSDEC has taken the position that so long as sites are subject to site management plans (SMPs), the sites are still subject to an enforcement order and therefore not eligible for the BCP.

A New York state court recently a denial of a BCP application for a site that was subject to a multi-site MGP order on consent in In the Matter of the Application of Wythe Berry LLC, 2015 N.Y. Misc. LEXIS 3855 (Sup. Ct-Kings Cty. 10/26/15). In this case, Brooklyn Union Gas operated a manufactured gas plant (MGP) holder station known as Wythe Holder Station from 1909 to approximately 1965 when the gas holders and all the related equipment was dismantled. The Wythe Holder Station was sold off in pieces and by 2014 it was developed with one- and two-story brick or concrete warehouses as well as a paved parking lot.

Meanwhile, National Grid (NG) as a successor to BUG entered into a multi-site Order on Consent and Administrative Settlement (NG Order) with NYSDEC in February 2007 where it agreed to investigate and, if necessary, remediate the numerous MGP sites subject to NG Consent Order. NG submitted a Site Characterization (SC) Report for the Wythe Holder Station site in September 2012. The purpose of the SC was to determine the presence of holder structures, identify soil or groundwater impacts associated with former holder station operations and assess the potential human and ecological exposure pathways from these contaminants of potential concern. The SC report found residual impacts in the soils and groundwater but that exposure was limited because of the existence of structures and pavement across the site.

NYSDEC approved the SC report in August 2013 and requested NG to prepare an Interim Site Management Plan (ISMP) for managing MGP-related contamination that might be encountered during any development of the Site. The ISMP provided for institutional controls, an Excavation Work Plan (EWP) that would have to be implemented for any future redevelopment, a 60-day advance notice of any work as well as pre- and post-redevelopment monitoring to assess groundwater contamination.

Around the same time, Wythe Berry LLC (Wythe) became interested in purchasing the site to develop it into a mixed use project that would include a hotel, retail space, and a community space. In January 2014, Wythe participated in a BCP pre-application meeting where NYSDEC informed Wythe that the Site was likely ineligible for the BCP because the Site was already subject to the NG Order. Undeterred, Wythe subsequently submitted a BCP application.  While a decision on the BCP application was pending, NG submitted the draft ISMP to DEC providing, inter alia, that the petitioner would assume responsibility for the bulk of the investigation and remediation of the MGP site. The draft ISMP indicated that NG would reimburse the property owner for its incremental costs related to meeting the ISMP requirements (e.g., disposal of MGP‐impacted materials).

In February 2014, NYSDEC denied Wythe’s application on the grounds that the was subject to an ongoing enforcement action because of the existence of the Consent Order. Moreover, the NYSDEC indicated that NG was prepared to complete any remediation required as part of the proposed redevelopment of the site. As a result, the NYSDEC said public interest would not be served by granting the application.

Wythe commenced an Article 78 proceeding, arguing that the NG Order is not an “on-going state or federal environmental enforcement action” as contemplated by ECL § 27-1405(2)(e) and that DEC’s invocation of the “public interest” exclusion under ECL § 27-1409 was unreasonable.

In a well-reasoned brief, Wythe argued that the NG Order should not be construed as an ongoing enforcement action. The petitioner pointed out that the plain language of ECL Section 27-1405(2)(e) identifying the types of orders that would exclude sites from BCP eligibility was expressly limited to orders issued under the state Oil Spill Act, the Petroleum Bulk Storage Act and a “catch-all” provision for sites “subject to any other on-going state or federal environmental enforcement action related to the contamination which is at or emanating from the site subject to the present application”.

Wythe argued that NYSDEC’s interpretation was inconsistent with an appellate court decision in Destiny USA Development LLC v. New York State Dept. of Env. Conservation, 63 A.D.3d 1568 (4th Dept. 2009). There, the court held that a voluntary cleanup agreement (VCA) was not an ‘enforcement action’ within the meaning of the BCP Section 27-1405[2](e) because it served to obviate the need for the DEC to achieve remediation through litigation. The petitioner then examined the similarities between the NG order and the Destiny VCA to support its view that the NG Order should not be considered an “enforcement action”.

Turning to the “public interest” grounds for denial, Wythe pointed out that none of the enumerated “public interest” factors applied to the facts of this case. Indeed, the petitioner suggested that it would not be in the public interest to deny the application because NG had not only failed to remediate the site in the four decades since operations had ceased but had taken another half dozen years since the NG Order was executed to provide NYSDEC with a SC report.

In response, the State argued that by listing orders for cleanup and then adding the catchall “any other enforcement action” (emphasis added), the Legislature considered cleanup orders to be enforcement actions. The State also distinguished the VCA from the NG Order, noting the NG Order obligated a party to perform some investigation and/or remediation, and requires a party to waive certain rights, such as a right to a hearing to proceed with a remediation and obtain a release of liability at the conclusion of the remedial process. Moreover, if NG terminated or violated the NG Order, NYSDEC would continue to pursue the enforcement action to ensure remediation of the property, including administrative enforcement and referral to the Attorney General for enforcement in court if necessary. Based on the clear and unambiguous “any other” language, the State insisted the NG order should be considered an “enforcement action” within the meaning of the Brownfield Act.

On the public interest argument, the State contended that allowing the site to enroll in the BCP would reward both the petitioner and the immediate prior owner for what the state characterized as unlawful and “inequitable conduct”. The State claimed that the property owner had thwarted and hindered NG from remediating the site in the hope of attracting a potential purchaser who would be willing to pay more for the property because of the availability of tax credits. Specifically, the State asserted that prior owner had denied NG to access the site to collect soil and groundwater sampling a few weeks before the petitioner submitted its application but had allowed the petitioner to collect samples in the same areas NG Grid was barred from accessing to support the BCP application.

In addition, the State alleged that the petitioner failed to provide a change in use notice to NYSDEC after it took title to the property ownership, conducted asbestos abatement and collected geo-tech soil borings without prior notice to NYSDEC, and not only had failed to submit a pre-excavation plan for NYSDEC approval but began excavating the site without informing NYSDEC and obtaining agency approval of plans for soil handling, dewatering, air monitoring, odor and dust control, and transportation and disposal of contaminated soils.

While Wythe removed 18,000 tons of contaminated soil and approximately 90,000 gallons of contaminated water, the NYSDEC asserted that the work failed to comply with NYSDEC procedures. Moreover, the State said numerous citizen complaints about odors had been lodged with New York City’s 311 hotline and several 911 calls while the work was being performed. Indeed, air monitoring data showed that levels of volatile organic compounds exceeded safe thresholds on many occasions.  The State alleged the NYSDEC inspected the site several times and tried to work with the petitioner to address the issues but that petitioner was uncooperative. As a result, the court was informed that the NYSDEC was pursuing an enforcement action against petitioner for numerous violations of the hazardous waste regulations.

Finally, the State argued the petition was moot because the petitioner had completed the remedy and the work had been done without NYSDEC oversight in violation of the Environmental Conservation Law and various NYSDEC regulations.

The court dodged the mootness and statutory interpretation arguments. Instead said NYSDEC’s denial of Wythe’s BCP application based “public interest” exclusion should be given judicial deference and was not arbitrary, capricious or an abuse of discretion. The court noted that NYSDEC and NG had already entered into an agreement that created a framework for investigating and remediating the property that made NG financially responsible for all remediation without providing any additional financial benefits to NG. Thus, the court concluded, NYSDEC reasonably determined that the public interest would not have been served by permitting Wythe to enter the BCP program and trigger unnecessary financial obligations that would not serve the economic well-being of the people of the state. Wythe Berry has appealed the decision.

We think NYSDEC’s policy is shortsighted. Where there is an innocent party be willing to remediate (or perform a more comprehensive cleanup) as part of a redevelopment of a contaminated site, it would seem to be in the public interest to allow these sites to enroll in the BCP subject to reasonable conditions such as ensuring that NYSDEC is reimbursed for past costs and the volunteer has not indemnified the responsible party.

 

NYSDEC Adopts Revised Petroleum and Hazardous Substance Bulk Storage Regulations

January 18th, 2016

The New York State Department of Environmental Conservation (NYSDEC) has made extensive changes to its regulations pertaining to the handling and storage of petroleum and hazardous substances. Specificially, the revisions were made to the Petroleum Bulk Storage (PBS) regulations (6 NYCRR Parts 612-614), the Chemical Bulk Storage regulations (6 NYCRR Parts 596-599), the Used Oil program (6 NYCRR Subpart 374-2) and 6 NYCRR 370.1(e)(2) of the Hazardous Waste regulations.

NYSDEC embarked on the rulemaking to reflect changes made to state and federal laws since the PBS regulations were last revised in 1994. The rulemaking is intended to enable NYSDEC to obtain full delegation of the RCRA Subtitle I program. The agency is currently operating on a memorandum of agreement with EPA. This post is limited to the changes to the PBS regulations.

Former Parts 612-614 of the PBS regulation have been repealed and consolidated into a single new Part 613 which governs both underground storage tanks (USTs). Under the revised structure, Subpart 2 covers UST Systems that are subject to both the federal UST program (Subtitle I) and Title 10 of the Environmental Conservation law (Title 10 tanks). Subpart 3 only pertains to Title 10 tanks (mainly heating oil tanks or motor fuel for non-commercial purposes). Subpart 4 pertains to ASTs. Revised spill reporting, investigation and corrective action requirements are set forth in subpart 6.  Among key changes to the PBS regulations are:

  • New definitions of facility, UST and petroleum;
  • New Categories of USTs;
  • Secondary Containment for piping and dispensers and clarify AST secondary containment requirements;
  • Changing testing frequency for USTs;
  • Changes to Spill Requirements, Investigation, and Remediation Rules;
  • Potential Delivery Prohibition;
  • Operator training requirements;

The particular requirements depend on if the tank system is subject to the federal Subtitle I program or only Title 10 tanks as well as the tank category which is based on installation date. Category 1 tanks are tanks installed prior to December 27, 1986. Category 2 tanks were installed between December 27, 1986 through October 11, 2015. Category 3 tanks means any tank system was installed after October 11, 2015.

NYSDEC plans a second round of rulemaking that will address additional EPA requirements that became effective in October 2015 as well as Changes to Part 611(Spill Response and Corrective Action).

Key Definitional Changes-

Facility– this term is now defined as a single property, or contiguous or adjacent properties (as opposed to tanks) that are used for a common purpose that are owned or operated by the same person or persons Regulated facilities are those with (a) one or more tanks with a combined capacity of 1100 or more gallons or (b) a single UST with a capacity of 110 or more gallons. Heating oil tanks with a design capacity of less than 1100 gallons that are used for on-site consumption are not regulated unless there are other tanks at the property with a combined storage capacity of 1100 gallons.  Note that operational tanks that store petroleum which is not consumed such as transformers and hydraulic lift tanks are exempt.

Operator– is now defined as any person any person who leases, operates, controls, or supervises a facility

Owner– An owner is defined as any person who has legal or equitable title to the real property of a facility.

Petroleum– The definition of “petroleum” has been amended to match the federal definition. The term now includes synthetic forms of certain oils, including lubricating, dielectric, insulating, hydraulic, and cutting oils, as well as complex blends of hydrocarbons and petroleum mixtures.  Animal and vegetable oils and substances that are normally gases are excluded from the definition.

Petroleum Mixture– A new definition of petroleum mixture was added to clarify when a mixture will be regulated as petroleum or a hazardous substance. If the mixture contains one percent or more petroleum and no hazardous substance, then it is regulated as petroleum. If the mixture contains at least 70% petroleum and less than 30% hazardous substance containing no hazardous waste, then the mixture is regulated as petroleum. If the mixture does not contain any petroleum and less than one percent of one or more hazardous substances, it is unregulated.

UST Tank system– The definition of USTs was amended to conform to the federal definition. A UST system is now one or more tanks whose volume is at least 10% beneath the ground. In calculating the volume of the system that is beneath ground, piping must be included. What about the numerous tanks located in basements? DEC has clarified in comments to the new regulations that tanks located in concrete vaults that are not accessible for inspection are considered USTs and subject to the full panoply of UST requirements. If a tank is located in a concrete vault that has weepholes that can be monitored weekly for leaks, the tank will be considered an AST and not subject to tightness testing

Registration Requirements-

The owner of property where tanks are located is required to register the USTs even the total volume of tanks at the property is 1100 gallons or more. The owner obligation applies even where the tanks are owner or operated by multiple tenants (e.g., USTs for emergency backup generators). The NYSDEC contemplates one registration per property for all regulated tanks.  The agency did indicate in its responsive summary that it will allow more than one registration based on a number of factors.

If ownership of the real property on which a facility is located is transferred, the new facility owner must submit an application to initially register the facility with the Department within 30 days after the transfer. The application for an initial registration or transfer of facility ownership must be accompanied by a copy of the current deed for the property at which the facility is located. If the facility is located on multiple properties, deeds for each property must be submitted with the application.

Equipment and Operating Requirements

Federally regulated tanks must have secondary containment and Interstitial monitoring. For new UST systems (category 3), double-walled tanks and piping are now the only acceptable method of secondary containment. Under-dispenser containment is required for new dispenser systems.

All UST systems must be monitored for leaks weekly, and a monthly operability check of the leak detection system is required. 10-day reconciliation inventory monitoring is now only required for retail motor fuel UST systems storing motor fuel or kerosene. NYSDEC cautioned that the NYS Fire Code Section 3404.2.11.5.1 (inventory control) provides that daily inventory records shall be maintained for underground storage tank systems.

Annual line testing required for suction piping that is part of Title 10 Category 1 UST system. However, no leak detection required for suction piping that is part of Title 10 UST Category 2 or 3 system. Entire piping run must be replaced when 50% or more of piping run is replaced unless piping has been constructed in accordance with section 613-2.1(b)(2).

Federal leak investigation requirements are incorporated. For Title 10 USTs, category 1 UST systems must be tightness tested annually. USTs storing #5/6 oil or have acceptable leak detection are exempt.

UST owners or operations must ensure that the last 30 days of leak detection records are always available for inspection. Cathodic protection monitoring records must be maintained for 3 years

Operator training requirements are also being added to comply with federal requirements. Operators of UST systems regulated by Part 613 will be required to undergo training and pass an exam within one yea by October 11, 2016.

Financial Responsibility-

The revised PBS rules now incorporate the federal financial responsible (FR) requirements. The Oil Spill Fund may be used to satisfy the FR requirement for corrective action / third-party property damage requirements. For third-party bodily injury, acceptable mechanisms include self‐insurance, guarantee, insurance and risk retention group, standby trust fund, local government bond rating test, local government financial test, local government guarantee, and local government fund. However, surety bond, letter of credit are not acceptable.

Spill Reporting, Investigation and Corrective Action

The new DEC regulations incorporate the federal requirements of 40 CFR Part 280 Subparts E, F, and G. Effective October 11, 2015, a “facility” must report a “suspected” leak to the DEC’s Spill Hotline (518-457-7362) within two hours after discovery (The old PBSA regulations had imposed reporting obligations on “any person with knowledge of a spill leak or discharge”). Conditions suggestive of a leak include the presence of petroleum in secondary containment structure of the tank system or in the surrounding area (e.g., product or vapors in basements, sewers, utilities, etc.), unusual operating conditions and results of inventory monitoring.

The facility must commence an investigation with 48 hours of discovery of the suspect leak and complete the investigation within one week.  If a leak is confirmed, the facility must then implement corrective actions.

A facility must report any spill within two hours of discovery unless the spill meets the following conditions: (a) the spill is less than five gallons; (b) the spill is contained and under control; (c) the spill has not reached and will not reach the land or waters of the State; and (d) it is cleaned up within two hours after discovery.

Closure

USTs that are out of service for more than 30 days must undergo temporary closure. The facility must continue with certain monitoring and other operating requirements while the UST tank system is temporarily closed.  USTs out of service for more than one year must be removed or permanently closed in place.  DEC must be provided with 30 days advance notice when tank systems are permanently closed or when there is a change in service. Closure report due no more than 90 days after permanent closure.

The rulemaking does not make changes to NY’s quirky rules for closure of heating oil tanks. No closure site assessments are required for Title 10 USTs (heating oil tanks used for on-site consumption). However, NYSDEC strongly recommends performing site assessments when closing heating oil tanks.

ASTs-

The AST standards are now consolidated into one section. The new tank construction standards (UL 80, UL 2258) have been adopted to allow for new technologies. Annual monitoring for adequacy of cathodic protection is now required. Impressed current systems must be monitored every 60 days for operation. Cathodic protection monitoring records must be maintained for 3 years. Tightness testing of ASTs as opposed to 10-year inspections is permitted. While there are no changes to the leak detection requirements, the federal leak investigation requirements now apply.

The revised rules clarify when ASTs must be equipped with secondary containment requirements are clarified. AST systems installed after December 27, 1986 with a design capacity of 10,000 gallons or more must have secondary containment. Smaller ASTs must also be equipped with secondary equipment if they are located within 500 feet of wetlands; a perennial or intermittent stream; a storm drain; a public or private well; lake, pond, estuary, or other similar surface water body or a primary or principal aquifer. Depending on the facility, a standard double-wall tank may not meet the secondary containment requirements.

Note that ASTs that are out-of-service for more than 12 months at an active site do not have to be permanently closed. An active site is where there are one or more other tanks being used.

A handful of counties (Cortland, Nassau, Suffolk, Rockland, and Westchester) have received delegation from NYSDEC to administer the PBS regulations under their local rules.  These counties must adopt the revised rule within 6 months to maintain their delegation. Some of the country UST programs have been stricter than the NYSDEC PBS program. As a result, owners and operators of USTs need to ensure that they comply with any local requirements.

Principal New York State Environmental Laws Impacting Commercial Leasing Transactions

January 16th, 2016

Parties to commercial leasing transactions frequently overlook environmental issues because they believe that tenants who do not use large quantities of hazardous chemicals will not be exposed to significant environmental liability. Consequently, the parties may do little to no environmental due diligence and use obsolete or boilerplate lease provision that do not specifically allocate environmental risks. Even when a lessee examines environmental conditions of a site, the investigation is often limited to ensuring that there are no environmental conditions that would impair its ability to operate at the site or that the property is adequate for the intended use.

What these parties do not realize that owners and operators of commercial property can be liable for contamination associated with historic uses. This means that landlords can be liable for contamination caused by their tenants and tenants may be responsible for contamination that preceded its tenancy.

In the second installment of a series that I am publishing in the venerable New York State Bar Journal, I review the key New York State Laws that can impact commercial leasing transactions. The article is available here. The next installment in this series will cover NYC environmental laws. The first article discussing federal environmental laws impacting commercial leasing transactions is available from our publications page here.

OER’s Suite of Tools To Facilitate Brownfield Development

January 8th, 2016

Back in mid-November, the New York City Office of Environmental Remediation (OER) participated in a brownfield conference sponsored by the Environmental Law Section of the New York State Bar Association.  In a series of presentations, OER provided an update on the various initiatives it has created to help facilitate the redevelopment of contaminated properties in New York City. This post reviews this impressive suite of tools that are now available to property owners, transacting parties and lenders.

Voluntary Cleanup Program (VCP)  The flagship program of OER is the VCP which can be used to address minimally-contaminated sites such as contaminated fill sites, the “e” program (discussed below) and oil spills that are confined to the property. OER has entered into a Memorandum of Understanding with the New York State Department of Environmental Conservation (NYSDEC) whereby NYSDEC has agreed to honor cleanups completed by OER under its VCP.

The NYC VCP is a popular tool for moderately contaminated sites because of the OER’s streamlined approach that allows sites to complete remediation fairly quickly. The NYCVCP is perhaps the nimblest remedial program in the country. OER staff is particularly responsive to the needs of applicants and will work hard to find a way to accommodate the construction schedule of an applicant.

Sites that are eligible for VCP are those where real property in NYC, redevelopment of which is complicated by presence or potential presence of detectable levels of contamination. Properties that are remediated through the NYC VCP receive a Notice of Completion, which includes New York City liability release, a statement from the NYSDEC has no further interest and does not plan to take enforcement or require remedial action for the property. Applicants also receive a NYC Green Property Certification that symbolizes the city’s confidence that the property is protective of public health and the environment.

In addition, applicants may be able to tap a modest suite of investigation/cleanup grant programs offered by OER that can help plug the funding gap caused by the need to perform remedial actions. Sites enrolled in the NYC VCP are eligible for the Brownfield Incentive Grants (BIG) Program which funds four types of grants including pre-enrollment investigation costs, remediation, technical assistance to non-profit developers of Preferred Community Development Projects and purchase of pollution liability insurance or cleanup cost cap insurance. BIG grants may also be used for the Hazardous Materials E-Designation and Restrictive Declaration Remediation programs.

Developers of properties that are have been assigned an “e” designation for hazardous materials should consider enrolling in the VCP to satisfy their “e” obligations. While the VCP has more robust public participation requirements than the “e” program, enrolling in the VCP will enable the applicant to be exempted from any hazardous waste program fees that could be assessed if soils or fill material excavated from the site have to be managed as hazardous wastes. These fees can be quite significant depending on the volume of hazardous waste that is generated and could actually rival the disposal costs in some instances.

Brownfield Jump Start Program– OER also recently embarked on a brownfield “jump start” program for affordable housing and certain industrial site expansion projects that were contemplating applying to the NYSDEC Brownfield Cleanup Program (BCP). For qualifying sites, OER will provide upfront refundable grants of up to $125,000 for investigation and $125,00 for site remediation costs.  The funds are repaid to OER after a project receives BCP tax credits.

Environmental Review and Assessment (ERA) Letters– One of the key challenges facing purchasers of contaminated property is that the landowner liability protections under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) and similar state laws are self-implementing.  While EPA may occasionally enter into a prospective purchaser agreement or issue a comfort letter, EPA and state environmental agencies do not have the resources to routinely review the thousands of phase 1 reports generated annually in commercial real estate or financing transactions. Thus, a purchaser will not know if it has qualified for one of these defenses until the purchaser has been sued or a defendant files a counterclaim in a contribution claim filed by the purchaser, and a court issues a final ruling.

To facilitate redevelopment, OER willing to issue several types of letters. The first known as ERA letters may be used where the presence contamination may complicate at real estate or financing transaction. OER will issue ERA letter where it determines that existing conditions at a property are protective of public health. OER does not anticipate issuing where contamination requires further action beyond that contemplated under the transaction to render a property protective for its intended use. To obtain an ERA letter, a party will meet with OER to discuss the nature of the transaction, prior and current site uses and operational history of the property, the proposed development, known site contamination, and how the ERA letter will facilitate the transaction.  As part of the process, OER will review available data on the property, including a Phase I and all Phase II reports, and compare the identified contamination against the state cleanup standards 6 NYCRR § 375 to determine if the existing or proposed property conditions are protective of the property’s future use. If as a result of this review OER determines further environmental investigation or remedial action is warranted, OER will consider issuing an ERA letter to identify those additional studies and remedial actions if requested by both parties

Acceptance Letters This type of letter is particularly useful when a phase 2 identifies contaminants above the NYSDEC standards but there are not any completed pathways because of the existence of a building foundation, paved surfaces, etc. OER will review phase 2 reports and if it agrees that no further action is required, OER will issue a letter indicating it accepts or agrees with the conclusions of the report.

Pre-Enrollment Comfort Letters– OER will also issue a pre-VCP enrollment “comfort letter.” Frequently, when a consultant recommends further sampling or cleanup, lenders may require a borrower to enroll in a voluntary cleanup program prior to the closing and require borrower to covenant to obtain a no further action letter from the appropriate regulatory agency. Unlike other remedial programs, the OER voluntary cleanup program does not accept applicants until after a site has been characterized and documented in a remedial investigation report. Thus, a borrower may not be able to actually enroll in the NYC VCP until after the closing.

To provide assurance to a lender, OER will issue a pre-enrollment letter indicating that the borrower is making progress towards acceptance into the OER VCP. OER interprets this sentence very broadly and will write letters to satisfy concern of lenders

Standstill Letters– OER has also developed a “standstill letter” which can be used when a seller seeks to sell property but environmental issues have complicated a transaction. In such a case, the seller can investigate site and develop a generic remedy with OER. The site would then be enrolled in VCP but would be “standstill” mode with no requirement to proceed with the remedy. It is hoped the existence of an approved remedy will provide comfort to a prospective purchaser and its lender since the buyer will be able to estimate the cleanup costs. After the purchaser acquires title, it can then implement the pre-approved remedy—provided the proposed reuse is consistent with the approved remedy.

Look-Back Letters All is not lost if you have learned about the NYCBCP after construction has started or is significantly completed. OER has developed a “look back” track where projects may be able to obtain liability protection if the remedial action conforms to the OER program requirements. However, “look back” applicants will not be eligible for the NYCBCP funding incentives.

Satisfying Environmental Review Haz Mat Requirements The OER VCP may also be used to satisfy requirements of the National Environmental Policy Act (NEPA), the State Environmental Quality Review Act (SEQRA), and City Environmental Review Quality Act (CEQRA) for projects being funded by the New York City Department of Housing Preservation and Development (HPD). The federal Department of Housing and Urban Development (HUD) has established regulations implementing NEPA  when HUD staff performs environmental reviews and when local governments assume HUD responsibility . In New York City, HPD has assumed responsibility for environmental review that would normally be performed by HUD.

All property proposed for use in HUD programs must be free of hazardous materials, contamination, toxic chemicals and gases, and radioactive substances where the hazard could affect the health and safety of occupants or conflict with the intended use of the property.   As a result, developers of affordable projects receiving funding from HUD or HPD often have to perform environmental reviews for the presence of hazardous materials to comply with NEPA

HPD must have an Environmental Assessment (EA) prepared to identify all potential environmental impacts, whether beneficial or adverse, and the conditions that would change as a result of the project.  Environmental reviews are generally conducted for new construction, major rehabilitation, leasing, acquisition and change in use under a range of HUD programs. The most common programs for which HPD performs environmental reviews are HUD’s HOME Investment Partnership Program (HOME). HPD utilizes federal HOME funds to finance the construction of new and rehabilitation of existing housing including vacant and occupied single room occupancy buildings (SRO), small homes (buildings with fewer than 12 units) and multi-family buildings. The reviews must be completed before the release of funds and acquisition of property.

As condition of the funding, the developer will be required to conduct a phase 1. If the phase 1 identifies Recognized Environmental Conditions (RECs), the developer will have to propose a phase 2 work plan for approval by New York City Department of Environmental Protection (DEP). Note that sometimes HUD or HPD may disagree with the phase 1 findings and require a Phase II even if the phase 1 did not identify RECs. If the investigation confirms the presence of contamination above applicable levels, the developer will have to prepare a remedial action plan (RAP) for review and approval by the DEP.

The existence of an approved the RAP enables HPD to issue a Notice of Finding of No Significant Impact (FONSI) certifying that the project will not have a significant impact on the environment and therefore will not require preparation of an Environmental Impact Statement (EIS). HPD will then also issue Notice of Intent to Request a Release of Funds (NOI/RROF). The developer would normally implement the RAP and submit a remedial action report to DEP for final approval.

The DEP approval will simply confirm that the developer has satisfactorily completed the RAP. The certification will not confer any liability protection under CERCLA or the state Environmental Conservation Law (ECL) nor provide contribution protection. Moreover, the HPD funding often does not cover remediation costs which can create a funding gap for a project that already has very tight margins.

When facing the prospect of implementing a remedial action, developers should consider enrolling the project in the NYCVCP. Developers can enter the NYCVCP even after DEP has approved a RAP. Often times, all that a developer will have to do is to convert the DEP-approved RAP into the template form used by OER. This is because both DEP and OER follow the NYSDEC remedial program requirements set forth at 6 NYCRR Part 375.

NYC Board of Standards and Appeals Grants Zoning Variance Due to Cleanup Costs

December 28th, 2015

The NYC Board of Standards and Appeals (Board) granted a variance to facilitate construction of a four-story residential building in Marine Park, Brooklyn because of the costs to remediate soil contamination associated with historic uses at the development parcel. (BSA Bulletin No. 15, Vol. 100, BSA calendar no. 254-13-BZ, CEQR #14BSA032K)

The Department of Buildings (DOB) had denied the applicant’s request for a building permit because the proposed floor area exceeded the maximum permitted for building, the initially-proposed twenty-six dwelling units exceeded the maximum permitted for the zoning lot, the proposed building exceeded the maximum aggregate street width of one hundred and twenty-five feet, did not have a required front or side yard, and exceeded the maximum permitted height.  The applicant then requested a variance to permit the building but the community board recommended disapproval of the variance.

As part of the variance application, the applicant prepared an Environmental Assessment Statement (EAS) pursuant to the City Environmental Quality. The EAS revealed that the development site had been used for auto repair in the past and now housed a car wash with an oil change repair bay that extended into the basement. A phase 2 found VOCs, SVOCs and metals to a depth of 12 feet but no impacts to groundwater. The Board held a public meeting that extended over six sessions. The applicant’s counsel contended that the costs to excavate and dispose contaminated soil was approximately $1,.4MM and that the applicant would lose money if it was only allowed to construct the building that was allowed as-of-right.

The Board unanimously approved the variance, finding the hardship was not caused by the applicant or a predecessor in title, but years of industrial use as an auto repair and car wash.  The Board concluded that there was no reasonable possibility that development in strict compliance with applicable zoning requirements will provide a reasonable return and that proposed variance was the minimum necessary to offset the hardship caused by the unique physical conditions of the site. The Board’s resolution provided that the applicant comply the Remedial Action Report (RAP) and Construction Health and Safety Plan (CHASP) prepared in conjunction with the proposed development and submit Remedial Closure Report to the NYC Department of Environmental Protection (DEP) upon the completion of the project confirming that all remedial requirements as set forth in the RAP and CHASP had been properly implemented.

The record does not indicate if the applicant considered applying to the state Brownfield Cleanup Program (BCP) or the NYC Office of Environmental Remediation (OER) voluntary cleanup program or that the Board was even aware of these options. Under either the BCP or the VCP, the applicant could have pursued a track 4 cleanup and would not necessarily have had to excavate all of the contaminated soil which would have eliminated the rationale for the granting of the variance.

Developers with cleanup obligations imposed as a result of the CEQR process should consider enrolling in the OER VCP rather than simply complying with NYCDEP-approved RAPs. In addition to satisfying their CEQR obligations, parties enrolled in the VCP will also be able to receive covenant not to sue as well as be exempt from any fees or taxes that might be imposed if the excavated soil has to be managed as a hazardous waste.

The decision is available Here