Scott Hubbard, chair of the Environmental Practice Group at Warner Norcross & Judd, was featured in a Jan. 10, 2011 MiBiz article about changes to Part 201 of the Natural Resources and Environmental Protection Act. The article appears here with permission.
WEST MICHIGAN — Just as nature abhors a vacuum, so too does business abhor uncertainty. Changes to the laws governing environmental cleanup in Michigan that bring the state in line with federal legislation are also creating uncertainty for developers, lenders and environmental engineers of smaller properties.
The changes to Part 201 of the Natural Resources and Environmental Protection Act (NREPA), Michigan's primary environmental cleanup law, update the law to help keep Michigan in line with federal legislation. Under the old statute, there were different cleanup standards for residences, industrial properties, and several classes of commercial properties. With the changes, there are only two: residential and non-residential.
BEAs will now be more closely aligned with federal statutes, including the federal standard for "all appropriate inquiry" (AAI). In addition to conducting an AAI-compliant Phase I environmental site assessment, a purchaser or tenant will be required to conduct sufficient testing to confirm the property is a "facility." The BEA will no longer need to distinguish existing contamination from new contamination, and the DNRE and will no longer be issuing BEA determination letters, said Scott Hubbard, chairman of the Environmental Law Group at Warner Norcross & Judd.
"This is really a streamlining of the BEA process. Under the present program, a BEA must fall into one of three categories, which is a function of the anticipated use of hazardous substances going forward," Hubbard said.
The amendments now bring due care obligations of an owner or operator of contaminated property in line with federal law, including providing reasonable cooperation, assistance and access to persons conducting cleanup activity and compliance with land use restrictions. The amendments result from discussions among regulatory agencies, the environmental advocacy community and business and industry. The amendments do not make any radical changes in Michigan law, but they do clarify regulations that will affect the purchase, redevelopment and cleanup of industrial and commercial real property in Michigan.
For Joe Berlin, president of BLDI Environmental Engineering in Grand Rapids, the change to cleanup laws represents a significant shift in how risks are accounted for. The BEA, with a determination letter, often marked the end of the liability question for buyers. Berlin said that many projects relying on financing from the Small Business Administration may be stalled as the agency relied on BEA approval letters as an equivalent of the EPA’s No Further Action designation. Therefore, the changes could have the most impact on the smaller, more typical reuse projects.
"For a $10 million deal, with a sophisticated buyer, this may not have that big of an impact." Berlin said. "This is going to require more investigation, not less. I look to the mean, a deal worth $700,000, adding $20,000 to $30,000 to the cost of a transaction. It just doesn’t work. If SBA loans are not available, it will have a significant impact on property assessments. That’s the other shoe that is going to drop."
Changes to the environmental laws, while needed, come at an inopportune time. Adding uncertainty into how the SBA will incorporate the changed laws into their lending policies may make investors wary of redeveloping potentially contaminated sites in the state, said Eric Gielow, an attorney with Parmenter O'Toole in Muskegon.
"The timing is not particularly great for our state. Michigan was renowned for having an effective Brownfield redevelopment program, but in more complicated sites, it proved to be unworkable. The ways in which they were implemented were near impossible to get final approval," Gielow said. “At least in the interim, for months or even years, there will be uncertainty about how this plays out until SBA weighs in and lenders weigh in. Clearly something had to be done, and I laud the people who worked on the legislation.
"The agency is going through a big learning curve. The agency is more than willing to help, but they don't have answers. Commerce, unfortunately, doesn’t work that way. You can’t say the rules are one way one day, and different the next."