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Apr 2003
01
April 01, 2003

Environmental Alert

New Part 201 Rules Will Affect Cleanups & Transactions Involving Contaminated Property

Introduction.

Michigan's primary cleanup law is Part 201 of the Natural Resources and Environmental Protection Act. Part 201 describes who is liable for cleaning up contaminated property, how a buyer can avoid liability when acquiring contaminated property, cleanup standards used to remediate such contamination, and a host of other issues dealing with contaminated property. Many of the details to implement Part 201 were left to rule making. After years of waiting, a comprehensive set of Part 201 rules became effective on December 21, 2002. The new Part 201 rules primarily govern response activity at contaminated sites, including cleanup standards, finality of cleanups, and other issues. The new rules also add new due care requirements for non-liable parties who own contaminated property. This newsletter focuses on highlights of the new rules that may change how cleanups have been conducted and those rules that may affect future transfers of contaminated property.

New Due Care Requirements.

Notice of Migration to Owner
of Affected Adjacent Property

Under Part 201, a purchaser can protect itself from liability for environmental contamination that exists at a parcel being acquired by conducting what is known as a baseline environmental assessment, or BEA. In order to maintain its non-liability status, however, that purchaser must exercise "due care" with respect to the contamination that exists. The new Part 201 rules add a few due care requirements. If an owner of contaminated property has "reason to believe" that contamination is migrating beyond the property boundary at a concentration in excess of the most stringent residential criteria, then the property owner must notify not only the Department of Environmental Quality ("DEQ"), but also the owner of the "affected adjacent property." Moreover, the decision is to be based on "reasonable inferences" that can be made from available data. In short, if a property owner has a reasonable basis to believe, based upon available data, that contamination is migrating beyond the property boundary, that property owner must notify the owner of the affected adjacent property. Some concerns have arisen regarding whether this may have a chilling effect on transactions involving contaminated property. Even if an owner is not liable for cleanup of the contamination, notice to adjacent property owners may trigger unwanted claims or lawsuits against the property owner for diminution in property value based upon a nuisance or trespass claim. This notice to adjacent property owners must be made within 45 days of the time that a person has reason to believe that there is a condition that is subject to the notice provision, or within nine months of the effective date of the rules, whichever is later.

Undertake Response Activity to Mitigate Erosion or
Dispersion of Surface Soils

The due care rules also now impose a requirement on non-liable owners of contaminated property to undertake appropriate "response activity" (presumably some cleanup) at the property, if necessary, to "mitigate off-property risks resulting from erosion of surface soils . . . or from dispersion of particulate or volatile hazardous substances in surface soils." In situations where contamination exists near the surface, buyers of contaminated property will need to be mindful of this new requirement.

New Requirements of Liable Parties.

Must Obtain Access to Conduct Remediation

Under Part 201, a liable party has an affirmative obligation to pursue remediation of the contamination in accordance with the law. Sometimes, a liable party is required to access property not owned by the liable party in order to complete a cleanup. It is common for such liable parties to negotiate access agreements with neighboring property owners. Under the new rules, if a liable party is unable to obtain voluntary access, he or she must petition a circuit court for access within one year of the effective date of the rules, or one year of having reason to believe that access to another person's property is necessary to complete a cleanup, whichever is later. Failure to petition a circuit court for access, according to the new rules, will subject the liable party to penalties under Part 201, which can be severe. Also, the rules expressly state that the obligation of a liable party to conduct a cleanup under Part 201 does not create a right of access to another person's property. In other words, a liable party will simply have to rely on negotiating with the owner of the property, or filing a petition in circuit court to obtain the necessary access. It is imperative for a liable party who transfers contaminated property to reserve a right to access from not only the transferee, but future owners of the property as well.

Section 14 Obligations for Liable Parties
Who Own or Operate Contaminated
Sites on or After June 5, 1995

A liable party who previously owned or operated a "facility" continues to have the affirmative obligations under Section 14 if he or she owned the property on or after June 5, 1995, and he or she had knowledge at the time of transferring the property that the property was a facility. This further illustrates why it is so important for a liable party who transfers contaminated property to reserve a right of access from not only the transferee, but future owners of the property as well.

Must Provide Notice of Migration to
All Affected Property Owners

A liable party must now provide a notice of migration to all affected property owners, not just the adjacent affected property owner. Notice must also be provided to the DEQ. The requirement to notify shall be based on reasonable inferences that can be made from available data, and must be provided within 45 days of the time that the liable party has reason to believe that there is a condition that is subject to the notice provision, or within nine months of the effective date of the rules, whichever is later.

When Is a Remedy Complete?

One of the most controversial aspects of the new rules was the determination of when a remediation is complete. The regulated community wanted to achieve finality if it complied with all the existing cleanup standards, and not be required to reopen a cleanup if the standards change in the future. Because of the controversy, the language in the rules does not provide the greatest clarity on this issue. Notably, an "interim response activity," described in more detail below, can result in a "complete" cleanup. Certain conditions automatically nullify a conclusion that a cleanup is complete, including unknown conditions, remedy failure, failure to maintain a reliable mechanism for ongoing compliance or inadequate financial assurance.

Interim Response Activities and DEQ Involvement.

The new rules provide significant details regarding "interim response activities" and it appears likely that the majority of cleanups will be done in the form of such interim response activities. The primary reason is that there are so many requirements to achieve a final "remedial action plan," or RAP. Under the new rules, a party can "complete" a cleanup at a site by conducting an interim remedy. Unlike a final RAP, an interim response activity can often be completed without involvement by the DEQ. Notably, however, there are certain elements of remediations that require DEQ involvement. If a "limited" cleanup is conducted at a site, either a restrictive covenant or local ordinance will likely be necessary in order to complete the remediation. If a party wants to achieve finality when it conducts such a remedy, it will be necessary to obtain DEQ approval of either the restrictive covenant or the ordinance. On the other hand, if a party wishes to conduct a cleanup to "unlimited," or generic criteria including residential, commercial or industrial, it may be possible to complete such a closure without DEQ involvement. In order to complete a cleanup to generic commercial or industrial criteria, the property owner must execute and record a "notice of approved environmental remediation," or NAER, with the Register of Deeds. This is a document similar to a restrictive covenant, but essentially allows unlimited uses of the property for the specific zoned use (i.e., commercial or industrial). The rules do allow the use of a standard form of NAER for such cleanups. In short, the only practical way to achieve a "complete" remedy without DEQ involvement is to clean up the site to generic criteria.

The Cleanup Criteria Applicable to Discharges of Contaminated Groundwater to a Surface Water Body Will Drive Many Cleanups.

Mixing Zones Are Allowed for Venting Groundwater

The cleanup criteria that apply to the discharge of contaminated groundwater to a surface water body are known as the groundwater/surface water interface, or GSI, criteria. There have been many controversies concerning the application of GSI criteria to remediations. Issues include the compliance/monitoring point location, and whether a "mixing zone" would be allowed for discharges of contaminated groundwater. The rules do allow the use of mixing zones (which are also allowed for direct discharges) for the venting of contaminated groundwater to surface water bodies. The mixing zone takes into account dilution and dispersion that results from the flow of the receiving river or stream. A mixing zone request must be approved by the DEQ.

GSI Compliance Point Is Determined With Vertical Wells
as Close as Practical to the Surface Water

The GSI compliance point is to be established by installing "vertical wells" in the groundwater "as close as is practical" to the surface water. The rules go on to state, however, that samples from GSI monitoring points "shall be representative of groundwater, not surface water, and account for seasonal or periodic shifts in groundwater flow direction." It is common along most rivers in Michigan for the groundwater to flow away from the river during the season of the highest precipitation, particularly in the spring when the level of the rivers is generally higher than the level of the groundwater. This rule suggests that a monitoring point within that zone should not be sampled during that time period. The DEQ has expressed its view that a well can be located in such a zone close to the surface water body, but simply should not be sampled during the time period that the surface water level is higher than the groundwater and groundwater movement is away from the surface water body. The rules tend to support that interpretation, since they specifically state that this requirement does not preclude installation of monitoring points in a flood plain.

Alternate Compliance Points
May Be Approved by the DEQ

The rules allow a party to propose alternative compliance points if certain demonstrations are made. There may be instances, for example, when a party wants to use angled wells to obtain samples immediately beneath the surface water body, right near the point where groundwater vents to the surface water. While this item may seem technical or obscure, the GSI compliance point can have a significant impact on the cost of a cleanup. In the end, the GSI criteria will drive the cleanup of many of the contaminated sites in Michigan, particularly since it will not be possible to obtain restrictive covenants or other institutional controls to address impact to surface water.

Liable Party Must Assess the Impact of
Venting Groundwater to Storm Sewers

A liable party must now also assess the impact of venting groundwater to storm sewers. If a storm sewer intersects the water table, the GSI criteria must be met at the storm sewer, unless it can be demonstrated that groundwater does not vent into the storm sewer system. This requirement could get out of control and result in costly investigations. Consultants should use a practical approach to satisfy this requirement. For example, in many cases, it may be appropriate to sample from the storm sewer both upstream and downstream of the plume of contamination. If there is no increase in the compound(s) of concern, then no further investigation should be necessary.

Conclusion.

The new Part 201 rules are the result of years of discussion between the DEQ and stakeholders. In many instances, the rules affirm what has been done in practice since 1995. In a few instances, the rules will have an impact on how cleanups are conducted throughout the state. Finally, there is at least some concern that some of the new requirements may affect transfers of contaminated property.

* * * *

Environmental Alert is published by Warner Norcross & Judd LLP to inform clients and friends of new developments. It is not intended as legal advice. If you need additional information on the topics in this issue, please contact your Warner Norcross attorney or any member of the Firm's Environmental Group at 616.752.2000.

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