A Little Background on Ground Lease Liability Relief at Renewable Energy Sites

The conventional approach to the reuse and redevelopment of contaminated Brownfield sites has long been to fully characterize both the onsite and offsite contamination, conduct much (or all) of the cleanup, and then, and only then, begin site redevelopment.  This cleanup/delayed development model has evolved this way primarily because developers have historically preferred taking full fee title to properties, with the developer/buyer often not “closing” on the fee title purchase until much of the cleanup has occurred.  This approach has been utilized, historically, as a means to avoid “owner” liability under CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act), and state statutes, until the risk of such liability can be fully accounted for.

With the advent of California’s SB 989 law and its anticipated progeny in other states, this conventional “remediate first, build later” approach to the reuse and redevelopment of contaminated sites is destined to change.  Under the “Bona Fide Ground Tenant” provisions of SB 989, for example, a bifurcated cleanup approach, and an early, expedited development, is allowed where development rights are acquired via a long-term ground lease instead of a fee title purchase.

The general concept under the Bona Fide Ground Tenant model is to allow a ground lease developer to “bifurcate” cleanup between onsite near-surface human health issues and the deeper soil and groundwater issues, as well as any contamination migrating offsite.  The Bona Fide Ground Tenant developer must merely make its own development safe for the intended human use, and at that point development can occur.  In California, the site owner remains on the hook to do a full cleanup, but those cleanup efforts can occur while the development project is being entitled and built, or even after the project is up and running.

Ground Leases at Renewable Energy Sites

It turns out that renewable energy projects are a perfect fit for the ground lease cleanup/liability bifurcation model.   Renewable energy projects typically utilize a ground lease instead of a fee title land purchase, and these projects are always on a very constrained budget, where extensive cleanup obligations and liability unknowns are non-starters.

The general consensus from many regulators across the country, including many folks at EPA, is that most renewable energy projects situated on contaminated sites should not be subject to significant liability concerns.  The thought process appears to be that the act of disturbing small amounts of soil, especially for such a productive “green” purpose for the land, shouldn’t result in project-paralyzing liability concerns.

However, especially for utility-scale PV installations, the need to “move dirty dirt” through site grading or other earthmoving activities is often a must.  And it is this earth-moving, as well as the incurring of “de facto owner status” (from certain long-term leases) under CERCLA, that brings about cleanup liability uncertainties that could well deter the siting of otherwise viable renewable energy projects on Brownfield sites.

The general statutory overlay for cleanup liabilities at the federal level, the CERCLA statute, provides that parties are in the statutory liability scheme  if they are either an “owner”, “operator”, “transporter” or one who “arranges for disposal” of any of a huge list of “hazardous substances”.  Section 107(a)(1) of CERCLA specifically provides that “the owner and operator of a vessel or facility . . . from which there is a release . . . of a hazardous substance, shall be liable for . . . (A) all costs of removal or remedial action incurred by the United States Government . . .”  This is why parties generally do not like to buy properties that are (or could be) heavily contaminated.  As the new owner they are potentially liable for all of the cleanup costs associated with that contaminated property, even though they (as the new owner) were not in any way involved with causing the contamination.

A ground tenant can be deemed an “owner” of a contaminated property, for CERCLA liability purposes, if the lease is for a long period of time (e.g., 30 years) and if that ground tenant has virtually complete control over how the property is used during that tenancy.   Moreover, in addition to this potential CERCLA liability as a de facto “owner” under CERCLA, a tenant who conducts site development activities, such as grading or earth removal activities, may likewise find itself liable under CERCLA as an “operator” or “transporter”.

Thus, while most regulators may believe that renewable energy developers should not be saddled with the potential for significant site cleanup responsibility, existing law at the federal level may provide otherwise.  It is these uncertainties as well as liability uncertainties at the state level that make exploration of a nationwide Bona Fide Ground Tenant model a must.

In my next blog entry, I will explain how individual state efforts are critical, and will outline some of the outreach we are doing to help organize state ground lease liability relief “working groups”.  Feel free to contact me over the next couple of weeks, especially as we get closer to the Philadelphia “Brownfields 2011″ conference.