Industry Insights

New proposed “Released Based Cleanup Regulations” may impact more properties and real estate transactions than the current Transfer Act

The Connecticut Department of Energy and Environmental Protection (CT DEEP) recently published notice of its intent to adopt new Release Based Cleanup Regulations (RBCRs).  The draft regulations and associated documents can be found here:  eRegulations – Regulation Making Record For Tracking Number PR2024-025 (ct.gov).

The proposed RBCRs are intended to eliminate impediments to real estate transactions imposed by the current Transfer Act.  However, it remains unclear whether the RBCRs will accomplish that goal.  An evaluation of the most basic question regarding the new regulations – what is reportable and therefore subjects a site to the new RBCRs – shows that the new regulations may affect properties that would not previously have been subject to the Transfer Act.  Therefore, instead of promoting economic development, the new regulations could actually stifle growth.

The current draft of the new regulations states that a release is reportable under the RBCRs by a person who is a “creator” or “maintainer” of a release that has been “discovered.”  The term maintainer includes those who own a property with a release, regardless of whether they created it or not.  The question of whether a release is reportable under the new RBCRs will often turn on what is considered a “discovered” release.

Under the new RBCRs, one way a release is considered “discovered” is if there is lab data showing pollution above a reporting limit.  However, the draft RBCRs provide an exception to this rule by stating a release is not considered discovered if the only evidence of that release is historic data available or generated before the date the RCBRs come into effect.  This raises the question: if a parcel not subject to the Transfer Act is being sold, and the only evidence of a release on that parcel is an old investigation report of the property, will this exception keep the transaction outside the scope of reporting?  While the answer is seemingly a clear yes, the exception may not function when the practicalities of real estate transactions are considered because potential buyers may perform additional investigations during due diligence, and as a result, properties with historic reports of contamination (even those that would not have been subject to the Transfer Act) may end up being subject to the RBCRs.

A common scenario involving historic contamination illustrates the problem.  Consider the hypothetical sale of land with a gas station, and assume this property is not subject to the Transfer Act.  Suppose the gas station property had a prior investigation that revealed some minor contamination, but again, no information that would subject it to the Transfer Act.  From a legal standpoint, this investigation would be considered historic data generated before the RBCRs came into effect – thus, not requiring a report which would subject the property to the RBCRs.  From a practical standpoint, it is likely this investigation will be disclosed to the prospective buyer as part of due diligence.  The buyer then has two choices – not investigate further, in which case the legal exception may achieve its purpose or, investigate further, and create data generated after the RCBRs came into effect, thus making any contamination discovered, old or new, subject to reporting and compliance under the RBCRs.

As a practical matter, it is likely that many potential buyers with knowledge of historic contamination are going to either want their own investigation of the subject property, or they will simply walk away from the transaction.

Therefore, the new regulations will have one of two impacts.  First, the regulations may drag in many sites not currently subject to the Transfer Act process.  Second, the regulations may simply reduce the amount of necessary due diligence parties may want to undertake.  There are certainly more non-Transfer Act commercial/industrial properties than Transfer Act properties. These include many sites with historical contamination, often with petroleum issues but which do not trigger Transfer Act applicability.  Many owners of these properties may not sell to anyone who requires due diligence following the effective date of the new regulations.

Conclusion

Should these new regulations become effective, it is difficult to see how they signify progress from a regulatory perspective. The proposed system will likely capture many sites that are not currently subject to the Transfer Act and will also pose a real concern to parties wishing to conduct typical environmental due diligence.

In any case, these regulations will certainly make it more difficult to navigate through the complexities of a transaction involving environmental issues.

Our firm is ready to help you with environmental regulatory questions should you need any assistance.