A previous blog post addressed lender liability for environmental conditions on property a lender might acquire as a result of foreclosure. Another issue lenders in Connecticut must consider prior to foreclosing on a property is the Connecticut Transfer Act. The Transfer Act requires transferors of "establishments" to make specific disclosures to transferees regarding the environmental condition of the property being transferred and also requires one party (usually either the transferor or transferee) to be a certifying party, i.e., the party responsible for all investigation and remediation of the property in accordance with Connecticut's Remediation Standard Regulations (or "RSRs").

An establishment includes properties where certain enumerated operations have occurred at any time since May 1, 1967: dry cleaners, auto body repair, and furniture stripping; as well as any property where greater than 100 kg of hazardous waste was generated in any one month, on or after November 1, 1980; and/or where any hazardous waste, generated at a different location, was recycled, reclaimed, reused, stored, handled, treated, transported or disposed of.

When a transfer of an establishment occurs, certain form filings must be made with the Connecticut Department of Energy and Environmental Protection ("DEEP") unless the transfer is excluded by statute. Two such exclusions are: the conveyance of an establishment through foreclosure and the conveyance of a deed in lieu of foreclosure to a lender (as defined in the previous blog post on this issue). However, this exemption does not include a lender's subsequent transfer of the property to a third-party buyer (e.g., via a quitclaim deed). Accordingly, any transfer of an establishment from a lender to a third-party buyer is considered a "transfer of establishment" and, for this reason, appropriate Transfer Act forms must be filed and one party must agree to be the certifying party responsible for the investigation and any required remediation of the property. If a transferor (in this case, the lender) fails to file the appropriate forms with DEEP, the transferor, by statute, is liable for the full cost of investigating and remediating the property.

When a transfer of an establishment occurs, certain form filings must be made with the Connecticut Department of Energy and Environmental Protection…

In a limited number of circumstances, the efforts necessary to show that the property complies with the RSRs may be minimal, but will still require the retaining of a Licensed Environmental Professional ("LEP") to confirm that the site meets all requirements. At a minimum, the LEP will need to conduct environmental investigations to certify that the property does not require remediation. More commonly, the efforts needed to demonstrate compliance with the RSRs can be costly-requiring significant investigation, some degree of remediation, and potentially filing an Environmental Land Use Restriction on the land records. For these reasons, prior to selling a property to a third-party (or better yet, prior to foreclosing or accepting a deed in lieu of foreclosure), lenders should confirm that the property is not an establishment. And if it is an establishment, lenders should take all steps necessary to comply with the Transfer Act.