Changed cleanup laws = environmental redlining? I think not.

19 Jan 2011

An environmental consultant I know took the position that the change to Michigan’s law regarding BEAs may cause environmental redlining.  While I agree that the change on BEAs appears to be a step “backwards,”  I strongly doubt that there will be much change in lending practices once the Michigan lending community gets used to the amended law.

The old BEA, which was a cutting edge approach nationally, allowed a new owner, occupant, tenant or foreclosing lender of a piece of environmentally impaired property to get an environmental “get out of jail free” card with respect to the old contamination that was approved by the MDEQ.  This wasn’t easy and it wasn’t free.  It did make Michigan different from the rest of the country, which typically would not allow someone to take over contaminated property and not clean it up (although Michigan landowners and occupants were and are obligated to exercise “due care” with respect to the contamination).  

As regular readers of this Blog know, Michigan amended its environmental laws to make it easier to achieve closure status following remedial work (without changing the standards for cleanups).  As the amendments were moving through the Legislature, the MDEQ urged a change that would move Michigan somewhat into line with the rest of the country – eliminating the BEA approval option and making the BEA more about assessing the current condition of property and not about ensuring that one could distinguish between past contamination and possible future contamination. The BEA itself was changed but not eliminated.

If I had had my way, the BEA program would not have changed except that BEAs denied by the MDEQ would have been subject to the Review Panel program under the law.  As the MDEQ became more and more risk averse, it became almost impossible to get a BEA approved, killing deals, where hazardous substances were to be used in the future that overlapped those already at the site (Category S BEAs).

This change to the 15 year old BEA program has caused some lenders to review their lending practices but, as they realize that the “new” BEA program still provides liability protection for new owners, operators, tenants and foreclosing lenders, I expect that they will continue to make loans based on properly conducted BEAs.  In short, if a borrower can still document that it can distinguish between past contamination and future contamination, lenders will still lend.  One difference is that, rather than relying on MDEQ  approval, lenders may narrow the field of consultants whose work they approve, as reliability will be more important than ever.

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