Property owners and developers in Maryland have dodged another bullet, at least for now, with respect to their environmental reporting obligations. On October 31, 2014, the Maryland Department of Environment (“MDE”) proposed onerous reporting obligations, which would typically require a seller to report a release of a contaminant, even if the contamination was only discovered from a buyer’s due diligence. Fortunately for residential and commercial owners and developers, these regulations were recently and automatically withdrawn due to inactivity; however, this is likely only a temporary reprieve from these reporting obligations.
By way of background, in 2008 Maryland passed a law (Environment Article Sec. 7-222(d)) requiring “responsible persons” (i.e., current and certain former owners and operators of a site) to report environmental sampling results to MDE if the results indicated a release of a contaminant(s). Regulations from MDE are needed to implement this law. The purported rationale for these regulations is to identify locations of potential hazardous substance sites and ensure that appropriate safeguards are in place and adequate cleanup conducted.
In 2011, implementing regulations initially proposed by MDE were defeated by lobbyists. On October 31, 2014, MDE again proposed regulations, but on November 13, 2015, these regulations were automatically withdrawn by operation of law because no activity had occurred within one year.
Because the overarching law requiring reporting is still on the books, MDE will need to propose new enacting regulations at some point. While it is impossible to know for sure what the new regulations will require, prior versions suggest there may be cause for concern. Here are some issues to keep an eye out for:
- The regulations could require that most sampling results be reported, including results showing naturally occurring substances, since MDE’s threshold levels for hazardous constituents are generally very low. The prior regulations required reporting of naturally occurring substances that exceeded these thresholds, but allowed a reporting entity to explain that the substances existed in nature at these elevated levels.
- Prior versions of the regulations have not contained a “grandfather” clause that would excuse owners/ operators from reporting old sample results if they still have them in their files.
- The prior regulations have been silent on MDE’s response once it receives a report. This could be a big issue for real estate transactions. If MDE receives a report, it could compel participation in one of its cleanup programs. Aside from the costs, the process for clearing a site is lengthy and will tie up the property for an uncertain amount of time.
- In the face of these types of regulations, sellers will likely be reluctant to allow buyers to conduct traditional environmental due diligence since the results may have to be reported to MDE and could lead to potential remedial liability. This would mean that prospective buyers would be unable to conduct the “all appropriate inquiry” necessary for the “innocent purchaser defense” under CERCLA. Additionally, lenders may be unwilling to finance the purchase of properties under these circumstances. One potential work-around would be to allow such due diligence, but only if the buyer agrees to not share its results with the seller.
Once MDE proposes its new enacting regulations, the public will have at least 30 days to provide comments. While it is unclear what exactly MDE will propose, owners and developers should keep an eye out for these new regulations and be ready to provide comments to address their potential pitfalls.