Member Article

Tennessee’s urban centers continue to be attractive markets for investment in residential, office and mixed-use developments. While most sophisticated real estate developers and investors are aware of land use and zoning requirements associated with projects in heavily regulated urban centers, many may not be aware of certain environmental issues that can derail a project. 

• “Urban soil” is different. In areas that have been developed for decades – or even for more than a century – certain impacts to soil can be ubiquitous. The former practice of heating most indoor space with coal, for instance, led to the widespread deposition of coal cinders and ash. In modern environmental parlance, these are “polycyclic aromatic hydrocarbons” or PAHs, and there are established risk-based screening levels for them. In some areas, lead levels can be elevated based on the use of foundry sand as fill material. None of these conditions are necessarily tied to contamination sources on the property, but under existing environmental law, they likely mean that any soil excavated must be approved for landfill disposal, rather than used at an unregulated fill site, which can significantly affect construction costs. The Tennessee Department of Environment and Conservation (TDEC) has been struggling to develop a systematic approach to allow the appropriate reuse of such urban soil that balances the interest in avoiding unnecessary regulation and filling landfills with relatively harmless dirt against the desire to prevent contaminated soil being deposited in previously pristine areas. The process is still in development, but is likely to include minimum standards for due diligence, and different levels of approval required for soil with varying levels of hazardous constituents present.
  
  
• “Vapor intrusion” isn’t a horror movie. While the pathway was not widely recognized until the last decade, volatile contaminants like gasoline or solvents are capable of migrating through soil, accumulating under buildings, and entering occupied spaces over time. (This can be true in some cases even when significant soil contamination is not present.) Vapor intrusion can lead to a risk level to those living in a building that exceeds EPA screening levels. To address the potential risk, the due diligence plan for sites with any nearby potential sources of volatile organic compounds should include soil gas sampling, which evaluates the presence of vapors in the air pockets between soil particles. If problems are detected, implementing a vapor intrusion mitigation plan – which usually includes subslab collector pipes, and vents to atmosphere – is much less expensive to implement during construction, when it can be incorporated into foundation plans, rather than being retrofitted by drilling under an existing building.
  
  
• Arsenic, unlike old lace, is everywhere. At least in Middle Tennessee, naturally occurring arsenic levels in soil are frequently far higher than EPA’s risk-based screening levels. Sampling results frequently show arsenic at ten or twenty times EPA’s residential standard of 0.68 parts per million. Based on its own database of background samples, TDEC typically considers any arsenic level under 10 parts per million to be representative of naturally-occurring arsenic.
  
  
• TDEC offers simple options for managing environmental liability risk. TDEC has a well-developed Voluntary Cleanup Program (VCP) within its Division of Remediation that can assist with evaluation and management of risk to human health and the environment posed by existing site conditions. In its simplest form, the VCP can consist of TDEC providing feedback on the existing scope of investigation and data on a site, helping to identify open questions left by the materials provided. Ultimately, TDEC issues a “No Additional Action” letter determining that based on the information it has reviewed (including the development plans or land use restrictions, if they are relevant to addressing public exposure), the agency does not believe additional action is necessary to protect human health and the environment at the site. While this does not offer any binding legal covenants, it typically is a relatively quick consultation process, which is often enough to satisfy a lender balking at the last minute, or help a purchaser get comfortable with risk to proceed to closing.
  
  
• “Brownfield” should be a badge of honor, not a dirty word. If a site has relatively complex issues, or if the parties to the transaction prefer to have a more legally binding determination of the scope of their potential liability, TDEC offers a Brownfield Voluntary Agreement to parties that are not responsible for the contamination at the site. A prospective purchaser can work with TDEC to review its due diligence materials, conduct any necessary additional investigations, agree upon any measures needed to address any risk posed by existing conditions (taking into account the future development plans), and receive a legal release of liability from TDEC in exchange for the work completed. That release applies to “successor parties” as well – so it can increase the marketability of the property, or the ability to use it as collateral for a loan. The Brownfield Voluntary Agreement typically includes a provision granting protection against lawsuits from other parties seeking to recover remediation costs related to the conditions addressed in the agreement. Given that the release and protections are legal remedies, and that they are limited to the scope of the “matters addressed” in the agreement, it is important that a voluntary party carefully craft it with their counsel. Having a Brownfield Voluntary Agreement is an indication that so long as the owner complies with the requirements of the agreement, TDEC will be happy.
  
  

 The economic disruption caused by the pandemic has created both challenges and opportunities for commercial real estate developers in Tennessee, particularly in or near urban centers where environmental risks may be elevated. By incorporating these state-specific considerations early the project planning process, developers can reduce the likelihood of costly delays due to environmental liability issues.

Click here to read more.