Law Changes to Jumpstart New Development Investment

In December 2010, some significant changes to Michigan's environmental contamination clean-up law were passed. The goal of this bipartisan legislative initiative was to encourage contamination clean-ups by providing predictability in the process, certainty in the result, and demanding accountability of state government in managing the process. This overhaul of the environmental clean-up law is the most significant change in that program in over fifteen years and among the last bills signed into law by Governor Jennifer Granholm.

Some of the most significant changes are as follows:

New Exemptions to Environmental Liability in Real Estate Transactions.

Obtaining an exemption to environmental liability in property transactions has been significantly altered from past practice. In the past, the Michigan Department of Environmental Quality (MDEQ) adopted rules and specific procedures which had to be followed to obtain a qualified Baseline Environmental Assessment (BEA) exemption. The new law changes the BEA process, so that now a BEA consists of a Phase I Environmental Site Assessment (which meets federal standards under the All Appropriate Inquiry [AAI] rule) and some evidence of contamination on the premises. The new law eliminates the responsibility to do exhaustive environmental studies and extensive analysis of air, soil and groundwater in order to qualify for a BEA exemption to contamination liability. This can result in a savings of thousands or tens of thousands of dollars in transaction costs when purchasing property. Of course, additional protection can be obtained by performing a more detailed environmental analysis but it is not required in order to achieve basic liability protection.

The Government now Bears the Burden of Proving Environmental Clean-up Liability.

Under the old law, the government could establish environmental liability simply by proving that your name appears somewhere in the chain of title on a piece of contaminated property. The burden of proof was on the property owner or other defendant to prove that they weren't liable for the contamination. Such an exercise was frequently daunting and always expensive. With the new changes, the government maintains the obligation to prove, by a preponderance of evidence, that the property owner or defendant was "responsible for an activity causing a release of a hazardous substances into the environment." This will level the playing field in courtroom disputes with the MDEQ and aligns Michigan's clean-up law with the "innocent-until-proven-guilty" doctrine of fairness understood by Michigan's citizenry.

Contamination Clean-ups can

now be Self-Directed and do not Require Specific State Approval Under Most Circumstances.

The new law allows parties who must conduct environmental clean-ups to do so in a way that does not require the government's oversight, so long as the clean-up proceeds in a responsible manner. The new law also allows for more flexible "site specific" clean-up options, whereby adherence to a generic state standard need not be followed if a party conducting a clean-up can show, in a scientifically provable way, that the clean-up is safe for the environment.

Obligation to Follow State "Guidance" is now Eliminated.

The MDEQ, under the old law, required the use of their guidance documents before they would approve an environmental clean-up. The new law precludes the MDEQ from enforcing or requiring the adherence to any MDEQ-issued guidance. This eliminates literally thousands of pages of de-facto regulation churned up by MDEQ without peer review, stakeholder input and outside the scrutiny of elected State officials.

The New Law Creates an

Administrative Appeal Panel

Where You can Appeal Disputes with the DEQ in a Cost and Time Efficient Manner.

Under the old system, if you disagreed with the decision of the MDEQ on a clean-up plan, you had no meaningful choice other than to do whatever the MDEQ demanded, unless you wanted to be subject to stiff and prohibitive fines and penalty assessments. You could never challenge the MDEQ's decision-making until after your clean-up process was complete and, at that point, a challenge of the MDEQ's decision-making meant nothing. Now, if you disagree with a MDEQ decision or position, you can appeal to a review panel who has independence from state government and can render a decision on your dispute within six months. If you are unhappy with the decision of the review panel, you have a further right to appeal to a circuit court judge. Thus, a mechanism now exists which allows for independent dispute resolution without "betting your company" as the old system required. This reform adds transparency to MDEQ's decision-making and opens this process to the public. Review panel meetings are subject to Open Meetings Act requirements.

Case Closure Letters

are now Reliable.

The new law creates a new administrative process by which a person can request a "No Further Action" letter once they feel they have achieved the appropriate clean-up level. The prior closure process resulted in a letter which was filled with caveats and exceptions which essentially meant that closure and finality were subject to the whim and future decision-making of the MDEQ. Under the new law, receiving a "No Further Action" letter means that the site clean-up is acceptable, liability is discharged, and the site is removed from the list of environmentally contaminated sites in the state.

Property Owners not Liable for Contamination have some Additional Responsibilities

Under the New Law.

As part of the balance in providing new incentives for the development of contaminated clean-up sites, there are some additional "due care" responsibilities for owners of contaminated property. Among these responsibilities are the obligation to provide access to the site for people or agencies who wish to conduct environmental response activities, such as contamination clean-up. Additionally, these owners must comply with any restrictive covenants or other controls established on the property to manage environmental contamination at the property. Finally, municipalities will now have obligations to manage property consistent with these due care obligations, if the municipality invites or allows the public to use that property.

Clean-up Categories for Contamination Clean-ups have been Reduced from Seven to Two.

The new law establishes only residential and non-residential clean-up standards which will allow for a more streamlined process in managing clean-ups. This change requires "green" decision-making in that the effects of digging and trucking contamination around the State must be weighed with other factors in selecting a clean-up that is most environmentally protective in a holistic sense.

The goal of these changes is to provide a more predictable process for Michigan citizens and businesses to utilize when performing environmental contamination clean-ups. It is hoped that the new process will result in new investment in contamination clean-ups now that the process is streamlined, self-managed, and certain. Reliability, predictability and certainty will hopefully remain the cornerstone concepts as the new law is implemented.

Quandt is an equity member of the law firm of Zimmerman, Kuhn, Darling, Boyd, Quandt and Phelps, PLC, in Traverse City. He is a former enforcement specialist for the Michigan Department of Environmental Quality and Michigan Attorney General's office.

Smits manages the Environmental Engineering Department at Inland Seas Engineering, Inc. A state-licensed, professional engineer and professional geologist, Smits has been involved in designing and implementing cleanups and brownfield redevelopment in Michigan and several other states since 1988.

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