Recently proposed regulations implementing a controversial 2008 environmental reporting law threaten to dramatically alter the course of environmental due diligence in Maryland. The Maryland Department of the Environment (MDE) has proposed long-anticipated regulations implementing provisions of the law that would require the disclosure to MDE of the results of environmental investigations that are routinely conducted in commercial real property transactions. The proposed regulations require a "responsible person" who is in possession of information indicating the presence of released hazardous substances in the environment above certain threshold levels to report that information to MDE, no matter when the release may have occurred.
The required reporting of historic or "legacy" contamination will make sellers of commercial and industrial properties reluctant to allow prospective buyers to conduct traditional environmental due diligence if the results of the environmental investigation have to be reported to State environmental authorities and expose the Seller to potential remedial liability. This will significantly affect the sale of such properties if prospective buyers are unable to conduct the requisite "all appropriate inquiry" necessary to sustain the "innocent purchaser defense." Under federal law, Lenders will likewise be unwilling to finance the purchase of properties when all appropriate inquiry cannot be conducted. This could have a ruinous impact on the commercial real estate market in Maryland.
MDE's initial attempt to adopt regulations implementing the statute cratered in 2011 when the agency withdrew the regulations proposed in 2009 in response to a storm of protests and negative comments. Although the agency has tried to address some of the previous concerns, the underlying statute requires the disclosure of certain information if uncovered during environmental due diligence.
State law defines a "responsible person" to include, among others, the owner or operator of a site containing hazardous substances. MD. CODE ANN., ENVIR. § 7-201(t)(1). State law excludes persons who acquire their interest through inheritance or bequest; lenders; and those who meet the Comprehensive Environmental Response, Compensation, and Liability (CERCLA) definition of "innocent purchaser," among others. MD. CODE ANN., ENVIR. § 7-201(t)(2).
The proposed regulations require that a responsible person "report immediately the indication of a release of a hazardous substance." The reporting obligation is in part triggered if contamination is present at threshold levels in surface or subsurface soils, a private water supply well, site groundwater, surface water, a seep, or sediment. Reporting thresholds are contained in Hazardous Substance Notification Standards: Guidance for the Hazardous Substance Reporting Notification Regulations, June 2014, which is incorporated by reference to the regulations. A draft of the Reporting Form is also available.
The report of an "indication of a release" of a hazardous substance must include information on:
- the location of the site;
- the contact information for the responsible person;
- the name and address of the owner or operator;
- the site's zoning;
- a list of hazardous substances identified;
- the media in which hazardous substances were detected;
- a summary of the past and present operations at the site;
- proximity of humans to the release;
- actions taken to investigate and remediate; and
- information on property that is known or suspected to be affected by the release.
Reporting is to occur in most cases as soon as practicable and within 30 days from discovery of information acquired before October 1, 2009. This is a burdensome obligation with little precedent elsewhere in the country. Unfortunately, MDE has little choice but to issue proposed regulations in light of the statutory obligation to do so. The length of time it has taken to get the regulations proposed speaks volumes about the impact these regulations will have.
The proposed regulations were published in the Maryland Register on October 31, 2014. Comments on the proposed regulations will be accepted through December 1, 2014 and may be sent to Mr. James Carroll, Manager, Land Restoration Program, Maryland Department of the Environment, 1800 Washington Blvd., Suite 625, Baltimore, MD 21230-1719, or call 410.537.3437, or email to firstname.lastname@example.org, or fax to 410.537.3472. A public hearing has not been scheduled.
It is critical that the commercial real estate industry prepare comments on these regulations. If a party does not participate in the review and comment period, they will not be able to challenge the regulations once they are finalized. Ultimately, the underlying statute needs to be changed.