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UECA Deadline for Conversion of Deed Restrictions Fast Approaching

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Brownfield developers have been living with the Uniform Environmental Covenants Act (UECA) in Pennsylvania since it became effective in February 2008.  At the time it became effective, we all knew that it required that deed restrictions put in place prior to February 18, 2008 would have to be converted to UECA environmental covenants (ECs) five years down the road.  Well, February 18, 2013 is now almost upon us, and as far as I can tell, no one is doing much to prepare for that date.  Like everything else, there are two strategies that can be pursued.  Property owners can be proactive or they can sit around and wait for something bad to happen.  I’m in the camp that thinks that property owners should be proactive when it comes to the UECA conversion requirement.

Here is what property owners should be doing to address the upcoming deadline.  First, anyone who currently owns one or more brownfield sites in Pennsylvania should be taking an inventory of those sites and determining whether any of those sites have deed restrictions containing activity and use limitations that were put in place prior to February 18, 2008.  You can figure that out by looking at the deed.  An activity and use limitation that would subject the property to the UECA conversion requirement is any kind of engineering or institutional control put in place in order to demonstrate attainment or maintenance of an Act 2 standard or to demonstrate satisfaction of a corrective action requirement under the Storage Tank Act.  So, for example, say you completed an Act 2 site remediation at a brownfield site in 2005 and you demonstrated attainment of the Site Specific Standard by putting a cap (asphalt parking or a building) in place over some contaminated soil.  Prior to UECA, the remediator would put a deed restriction in the deed imposing that engineering control on the property, which would identify the location of the contaminated soil and cap and require the property owner to maintain the cap.  Now, under UECA, the current owner of that property would be obligated to take action to address the requirement that those prior existing deed restrictions be converted to a UECA covenant on or before February 18, 2013. 

Does that mean that anyone with a such a deed restriction, as noted above, needs to quickly put together an UECA covenant and get it into PADEP before February 18, 2013?  The answer is no.  Subsequent to UECA’s signing, PADEP adopted regulations at 25 Pa. Code Chapter 253 that implement UECA.  Section 253.10 deals with the conversion requirement.  In the regulations, the Department opened up a giant loophole to the conversion requirement by allowing property owners who otherwise would have to convert their deed restriction to a UECA covenant to simply send in a letter and request a waiver of the conversion requirement "until the property is transferred to a new owner."  Thus, the simplest thing for property owners to do is to send in a written request for the waiver sometime before February 18, 2013.  That would postpone the need to impose a UECA covenant until such time that the property is sold.  One requirement to be aware of is that when a written request for a waiver is filed, the property owner must include proof that the deed restriction was previously recorded.   In addition to the option of requesting a waiver, property owners could just go ahead and prepare a UECA covenant and submit it to PADEP prior to February 18, 2013, if they just wanted to get it over with. 

One thing to keep in mind is that the Department cannot impose any additional restrictions in the environmental covenant that aren’t in the existing deed restriction that is being converted.  So, for example, most deed restrictions don’t include any requirement to perform periodic compliance monitoring or file annual reports with PADEP.  UECA covenants, however, typically include language in Section 7 (found in the model EC on PADEP’s website) that impose compliance monitoring requirements.   A deed restriction converted to an UECA covenant should not have a monitoring requirement unless it’s in the original deed restriction.   That comes straight out of Section 253.10(b) which states: "The Department will not require, but may allow" an EC to contain restrictions or requirements not contained in the existing deed restriction.  

How is failure to comply with the UECA conversion requirement likely to come up in the real world?  Here is how I see it coming up.  Let’s say you have a property transaction involving a brownfield site that occurs after February 18, 2013.  Let’s assume you are representing the seller.  The buyer asks to see the deed or gets a title report and they determine that a deed restriction was imposed on the property back in 2005 as part of an Act 2 cleanup.  The deed restriction wasn’t converted to an EC and no written waiver was requested.  Arguably, this is a violation of UECA, and under the language of most asset purchase agreements, this would constitute a breach of the covenant to comply with law.  What if the lender or the buyer says that they won’t close until that breach is remedied?  Now, you’ve got to delay your closing while the seller or the seller’s counsel prepares an environmental covenant and submits it to PADEP for review and approval.  That could take several weeks or longer.  If the deed restriction had already been converted to an EC, there’d be no delay.  Question — what’s the likelihood in that scenario that PADEP would seek to impose fines or penalties on the seller for its failure to comply with UECA?  I think the likelihood would be very low.  First, UECA has an enforcement provision but it doesn’t include seeking monetary fines or penalties.  Second, this really isn’t a high priority for the Department’s enforcement efforts.  There is no environmental harm from the failure to convert a deed restriction to an EC.  The deed restriction still exists.  It’s really just a paperwork violation, and nothing more.

Before I wrote this entry, I called Troy Conrad in PADEP’s Central Office to see what message the Department wants to get out on the conversion requirement.  Troy said we should expect to see some announcements or press releases from the Department in the near future regarding the conversion requirement.  They are encouraging property owners to apply for the written waivers that were made available by the UECA regulations.  While the Department does plan to enforce the requirement, Troy acknowledged that it would be very expensive and time consuming for the Department, on its own, to figure out what properties have deed restrictions subject to the conversion requirement.   As a result, it’s really in the Department’s interests for property owners to be proactive and apply for the waivers and then convert to ECs when those properties are sold.  According to Troy, when PADEP grants a waiver request, it will put that information into the UECA registry, so the information is then publicly available and searchable on PADEP’s website.  Troy also suggested that property owners carefully consider whether the activity and use limitations imposed on a property even require a UECA covenant.  He made a good point in noting that deed acknowledgments and deed notices don’t necessarily trigger the conversion requirement (such as those required under HSCA or SWMA) and that you need to take a careful look at how the regulations define "instrument", since only "instruments" are subject to the conversion requirement.   I think that’s very sound advice.   Troy also suggested that if anyone has any general questions about the conversion requirement, they can send in a question to Central Office, since the land recycling program still has a Q&A section on its webpage.    For questions about specific sites, he suggested the property owner contact the respective PADEP regional office ECP program staff for those clarifications.   Troy said there’s been no flood of waiver requests or UECA conversions, so it’s likely that people are still considering their options or just haven’t focused on the requirement.

As noted above,  I’d recommend that brownfield property owners be proactive when it comes to the UECA conversion requirement.  That involves looking at property deeds, determining whether those deeds contain deed restrictions that would be covered by the UECA conversion requirement, and applying for written waivers.  Under Section 253.7, an UECA covenant ordinarily requires a $500 fee, but fees are not required for EC’s or waiver requests submitted under Section 253.10, provided the person submitting the EC or waiver request did not cause or contribute to the contamination.    

It’s really amazing how quickly those five years flew by.