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How Wetlands And Contamination Affect The Use, Development And Value Of Land Gregor I. Mc. Gregor, Esq. © 2005
www. mcgregorlaw. com
PRESENTATION OUTLINE • • • Overview of wetlands and floodplain law Overview of property contamination/cleanup Massachusetts court cases on wetlands Massachusetts court cases on contamination Conclusion
OVERVIEW OF WETLANDS AND FLOODPLAIN LAW
WHO IS AFFECTED? BUILDER? DEVELOPER? CONTRACTOR? LANDOWNER? MUNICIPALITY? LENDER? FACILITY OPERATOR? LANDLORD? ABUTTOR? TENANT?
FIRST, DOES THE PROJECT INVOLVE WORK REGULATED BY A FEDERAL, STATE OR LOCAL WETLANDS PROTECTION PROGRAM? §FILLING §REMOVING §CONSTRUCTING §DREDGING §GRADING §ALTER (broadly defined)
SECOND, WILL THE WORK AFFECT A PROTECTED RESOURCE? Protected Resources Include: WETLANDS = areas inundated or saturated by surface or ground water at a frequency and duration sufficient to support (and normally do support) prevalent vegetation typical of saturated soil conditions (33 CFR § 328 (b) ) §Vegetated Wetlands (marshes, swamps, bogs) §Coastal Wetlands (salt marshes, tidal flats, estuaries, dunes, beaches) FLOODPLAINS §Areas Prone to Flooding §Areas Affected by the Tide or Coastal Flowage OTHER WATER RESOURCES §Rivers, Streams, Lakes, Ponds, Ocean CAUTION: Working definitions of wetlands and floodplains are merely rules of thumb and may vary between different statutes and bylaws.
THIRD, DOES THE PROJECT HARM PUBLIC INTERESTS IN THE RESOURCES? §Public or private water supply §Flood Control §Recreation §Ground water supply §Preventing pollution §Storm damage prevention §Aquaculture §Navigation §Agriculture §Wildlife and its habitat §Shellfish §Fisheries §Other Example: In English, wetlands are natural sponges. Wetlands store surface water and release it during times of low flow. They absorb flood waters and reduce damage elsewhere. They are also natural food factories and produce nutrients. They are also natural housing.
STATE WETLANDS PROTECTION 1. Wetlands Protection Act Adjudicatory Hearing Regulations Basic Procedure Riverfront Area Regulations • Notices of Intent (NOI’s) • What is the Riverfront Area? • Orders of Conditions (permits) • Alternative Test • Requests for Determination (RFD) • Minimize Impact Test • Densely Developed Areas Resource Areas Protected • Previously Developed Areas Work Regulated/ Exemptions • Exemptions Wetlands Values Protected Wildlife Habitat Regulations Time Periods and Deadlines Pesticides on Rights-of-Way Appeals to the DEP 2. Coastal and Inland Wetlands Restriction Acts 3. Chapter 91 Waterways and Tidelands Licenses DEP Inland, Wetlands Regulations DEP Coastal Regulations DEP Administrative Regulations
STATE WETLANDS PROTECTION (cont’d) 4. Coastal Zone Management (CZM) 5. Ocean Sanctuaries and Ocean Mineral Extraction 6. Scenic Rivers 7. Sewage Disposal & Solid Waste 13. Drinking Water Standards 14. Watershed Protection Program 15. Aquifer Land Acquisition Septic Systems Solid Waste Facilities 8. 16. Water Supply Grants 17. Groundwater Quality Standards Water Pollution Control 18. Water Conservation Grants NPDES Permits Storm Water Management 9. 19. Water Management Act 20. EOEA GIS Program/ Biomaps Section 401 Water Quality Certification Program 21. Natural Heritage Program 10. Groundwater Discharge Permits 22. Massachusetts Environmental Policy Act (MEPA) 11. Inter-Basin Transfer Approvals 23. EOEA Wetlands Restoration 12. Underground Water Source Standards
FEDERAL WETLANDS AND FLOODPLAIN PROTECTION 1. Army Corps of Engineers Section 404 Permits Federal Wetlands Regulates Filling and Discharge Alternatives Test Nationwide and Regional Permits • Individual Permits Permit Procedures/ Hearings Massachusetts Programmatic General Permit • Activities Covered By the PGP • PGP Categories and Conditions Exemptions EPA Review and Veto Delegation to States Enforcement
OTHER FEDERAL WETLANDS AND FLOODPLAIN PROTECTION 2. Rivers and Harbors Act 1899 Regulates dredging, structures and water course changes (§ § 9, 10, 13) 3. Executive Orders on Wetlands and Floodplains 4. FEMA Flood Insurance Program 5. Superfund/ Brownfields 6. Endangered Species Act
LOCAL WETLANDS PROTECTION 1. Wetlands and Floodplain Zones Floodplain zoning in Massachusetts held legally valid in Turnpike Realty Co. v. Dedham, 362 Mass. 221, 284 N. E. 2 d 891 (1972), cert. Denied, 409 U. S. 1108 (1973). Wetland zoning upheld in Golden v. Board of Selectmen of Falmouth, 358 Mass. 519, 265 N. E. 2 d 573 (1970). 2. Watershed and Aquifer Zones 3. Site Plan Review Zoning 4. Cluster and Planned Unit Development (PUD) 5. Growth Control Phased Growth Control Transferable Development Rights (TDR’s) Moratoria 6. Other Subdivision Control Land Acquisition Conservation Restrictions Real Estate Tax Breaks Home Rule Bylaws
HOME RULE WETLANDS BYLAWS 1. Overview Local permit program administered by the Conservation Commission Uses general bylaw and ordinance authority in G. L. c. 40 § 21 and Home Rule Amendment to the Massachusetts Constitution , Articles II and LXXXIX 2. Typical Municipal Bylaw Jurisdiction and procedure similar to Wetlands Protection Act but may clarify and expand jurisdiction and requirements beyond Act Usually fewer exemptions than those listed in Wetlands Protection Act Most bylaws allow public hearing on an application to be combined with Wetlands Protection Act hearing 3. Enforcement Typical cease and desist orders, site inspections, and permit revocation Traditional remedies for injunctions in Superior Court under the Citizen Suit Statute, G. L. c. 214, § 7 A, and criminal prosecution Bylaws following the MACC model include the “ticketing” approach outlined in G. L. c. 40, § 21 D
HOME RULE WETLANDS BYLAWS (cont’d) 4. Legal Aspects Incorporates features of the Massachusetts Wetlands Protection Act, G. L. c. 131, § 40 and adds tougher procedures and standards Upheld in Lovequist v. Conservation Commission of Dennis, 379 Mass. 393 N. E. 2 d 858 (1979) 5. Quasi-Judicial Process Find the relevant facts Apply the standards Con. Com promulgates its own written rules under bylaws 6. Hearings and Permits Hear evidence at public hearing and decide based on record Set conditions which can be stricter than Act 7. Power to Deny If applicant fails to meet burden of proof, refuses reasonable Con. Com information requests, meet performance standards, or meet conditions adequate to protect values Any decision must be supported by substantial evidence, after proper procedures, and not be an unconstitutional taking of property
HOME RULE WETLANDS BYLAWS (cont’d) 8. Hearings and Permits Conservation Commission • Entertains applications • Holds public hearings • Issues decisions • Enforces bylaw and Act • Promulgates own regulations with submittal requirements, design specs, and performance standards • These may go beyond DEP regulations • Fewer constraints on continuing hearings • Decision based on the document record at the hearing
HOME RULE WETLANDS BYLAWS (cont’d) 9. Burden of Proof Applicant has burden of proving that the work proposed will not harm the interests protected by the bylaw. 10. Appeals to Court/ DEP A local decision rendered by the Con. Com under a local bylaw is appealable by certiorari. The statute of limitations for such a court complaint is 60 days. Review is on the record, not de novo. There are no new witnesses. Appeal to the DEP is due as usual within 10 days of the date of issuance of the Con. Com decision. An applicant seeking a permit who challenges a Con. Com decision must be successful in both the DEP and Superior Court. A project opponent needs to be successful in only one forum. Plaintiff in court tries to prove legal errors apparent on record caused manifest injustice.
“HAZARDOUS WASTE” • These words can spook buyers, sellers, banks, investors, landlords, tenants, and brokers • Developers disappear from the landscape when they see signs of hazardous waste • Business expansions are cancelled for the fear of discovering or disturbing past contamination • Government agencies which acquire property by purchase, eminent domain, condemnation, tax title, gift, or otherwise, get cold feet when waste is found before the purchase and sale • This fear of liability is natural, considering that innocent landowners can be liable for acquiring contaminated land even if they were not aware of the contamination at the time of acquisition
SUPERFUND LIABILITY • Nature of the liability – Liability may attach to any contaminated real estate, not just “federal Superfund sites” – Strict, joint, and several, and retroactive liability – CERCLA (Comprehensive Environmental Response Compensation Liability Act) 42 U. S. C. §§ 9601 -9675 • All “Potential Responsible Parties” (PRPs) – Generators – Transporters – “Arrangers” of transport, treatment, or disposal – Disposers – Owners – Operators – Past or present
STATE REQUIREMENTS • Massachusetts Superfund Statute, M. G. L. ch. 21 E, §§ 1 -18 • States can implement stricter standards – MA petroleum products – MA, NH, CT Superliens against land or business revenues – NJ & CT Site assessments are required prior to transactions involving industrial property
CONTAMINATION IS MANAGEABLE • The presence of contamination need not render property unusable or unsellable • Someone needs to take charge and manage the problems • Parties to a transaction can find many ways to “hold the deal together” • Contaminated real estate can be bought and sold without unreasonable fear of liability • It is very possible to make money buying and selling dirty property
INFORMATION AS INSURANCE Almost every piece of municipal, industrial, agricultural or commercial real estate has some contamination Commercial buildings Factories Vacant lands Farmland Warehouses Since 1980, 44, 418 federal sites have been assessed, with 11, 312 sites presently active on the Superfund list
FIND THE CONTAMINATION • It is naïve to buy a cheap assessment in the hope that it will be “clean” • ASTM standards set a framework for conducting Phase I and Phase II environmental site assessments
DO CAREFUL SITE ASSESSMENTS A properly done site assessment should include: Permit and enforcement history Surface and Topography groundwater flows Geologic setting Building and utility layouts Presence of tanks and piping Prior waste disposal Conditions of all buildings and structures Prior uses, industrial, commercial or agriculture
STRUCTURE TRANSACTIONS TO REDUCE RISK Decisions to purchase or develop land or facilities should be based on the nature and scope of contamination, anticipated cleanup costs, activity and use limitations, and potential future liability • Control liability – – Delay the closing or acquisition until cleanup is complete Deposit purchase money in escrow until the property or operation is clean Personally do the cleanup, deducting costs from the purchase price Contract cleanup duties between buyer and seller, using a formula • Carve off the contaminated areas – Do not own or operate the dirty site, buy only the clean portion – Purchase or lease less than fee interest in property, such as an easement, the air rights, or the upper floors – Lease the clean parts of the site or building – Loan operating funds, taking back principal and interest
DISTANCE BUYERS FROM THE CONTAMINATION • Utilizing different business entities may enable sophisticated purchasers to minimize liability • Limited partnerships may allow limited partners to avoid liability by staying out of day-to-day management activities • Subsidiaries may provide liability protection – Generally, parent corporations will not be held liable for the actions of subsidiary corporations, which are financially independent and make unconstrained business decisions – Liability chiefly arises from ownership and management • Remember, corporate officers and employees engaged in illegal toxic waste disposal may be personally liable, even when acting on behalf of the business
CONTRACTS CAN PROVIDE ADDED PROTECTION • Contracts enable the parties to share and shift the financial burdens of cleanup costs through indemnification agreements • But, Superfund statutes provide that the fundamental legal liability remains and cannot be shifted • Common liabilities can be allocated among private parties only • Courts have refused to recognize and enforce indemnification agreements between parties and the government
CONTRACT TO COVER THE ESSENTIALS Condition of property Purchase money holdbacks Management of the cleanup Liability releases Government liaison Reimbursement formulas Cooperation in defense Warranties and representations Purchase price adjustments Circulation of progress reports Cooperation on insurance claims Government cleanup orders Escrow deposits Contingencies about future claims Covenants not to sue Arrangements against third party claims Cost-sharing arrangement
CREATIVE FINANCIAL ARRANGEMENTS • Lenders are protected from owner/operator liability where they do not exercise decision-making control or actively manage the facility prior to foreclosure • Careful banks protect against potential liability through their own requirements: – Site assessments – Conditioning loans on cleanup – Indemnity clauses – Notification requirements
LEGAL CLAIMS AND DEFENSES • CERCLA establishes some statutory defenses and limitations – Act of God – Act of war – Third party acts or omissions • Innocent purchaser defense – A prospective purchaser must make an appropriate and detailed prepurchase environmental investigation • Other CERCLA exemptions – – Involuntary transfer exemption De micromis party exemption Municipal solid waste generators Contiguous landowners
INSURANCE COVERAGE • Old Comprehensive General Liability (CGL) policies may provide cleanup funds and other response costs due to their “long tail” coverage • Household, vehicle, umbrella, or other personal insurance may also provide some coverage • Contractors may have liability insurance • Consultants may have errors and omissions coverage • Need to submit a sophisticated statement of claim: – – – – Dates of contamination Nature of contamination Response actions Cleanup costs Appraisals Existence of policies Legal basis for believing coverage exists Amount of claims to date
MANAGE PROPERTY PROACTIVELY • Contamination problems do not “get better” after the deal, unless dealt with • Recruit a team of engineers and environmental scientists • Designate a responsible manager • Document completion of the cleanup • Do periodic environmental audits to stay in compliance – – – Superfund hazardous substances Massachusetts Oil and Hazardous Materials (OHM) Resources Conservation and Recovery Act (RCRA) Toxic Substance Control Act (TSCA) Federal Insecticide Fungicide and Rodenticide Act (FIFRA) Solid wastes • Asbestos • Radon • PCBs • LUST • Lead Paint • Ureafromaldehyde Foam Insulation (UFFI)
SUE THE RESPONSIBLE PARTIES • For cleanup cost-recovery, • Valid federal or state, property damage, personal Superfund or common law injuries, breach of contract, claims may lie against: fraud, misrepresentation, or compliance with government Consultants Contractors regulations Generators Disposers Present Former operators Tenants operators Transporters Former site Partners owners “Arrangers” Parent Present site corporations owners
MASSACHUSETTS COURT CASES ON WETLANDS • Donlon v. Board of Assessors of Holliston, 389 Mass. 848 (1983). • Richards v. Board of Assessors of Nantucket, 59 Mass. App. Ct. 1108 (2003). • Espahbodi v. Town of Sudbury, 1998 WL 1248006 (Mass. Super. , 1998). • YMCA of Quincy v. Sandwich Water District, 16 Mass. App. Ct. 666 (1983). • Quest Enterprises, Inc. v. Town of Westford, 15 Mass. L. Rptr. 81, 2002 WL 2017175 (Mass. Super. 2002).
Donlon v. Board of Assessors of Holliston, 389 Mass. 848 (1983) • Taxpayers satisfied burden of presenting persuasive evidence of overvaluation with respect to lots between. 41 and. 45 acres in size, which were almost exclusively overlaid by protected wetlands. • The Supreme Judicial Court held that it was unfair to assess such lots as buildable. • The appellants satisfied their burden of presenting evidence of overvaluation and the decision of the board to sustain the assessors’ valuation was not supported by substantial evidence. The assessor had testified that the wetland composition of the seven lots in question did not affect their valuation.
Richards v. Board of Assessors of Nantucket, 59 Mass. App. Ct. 1108 (2003) • Taxpayer claimed land was overvalued because of wetlands present. There was no testimony as to the effect on the value of potential inability to replace or expand the existing structure. • Appeals Court ruled that property already improved with a home was not overvalued even though there wetlands on the property.
Espahbodi v. Town of Sudbury, 1998 WL 1248006 (Mass. Super. , 1998) • Although the Superior Court assumed there was some reduction in land value due to wetlands on the property, the taxpayers failed to establish with a degree of reasonable probability what the reduction was. This was due in part to expert witness’ testimony concerning the diminution in value of the property. • The Court observed that, since the expert used an income approach to base his opinion of the diminution in property value due to presence of wetlands, it was not very helpful. • The Court concluded that diminution in value cannot be determined with one figure derived from the comparable sales approach and the other figure derived from an income approach.
YMCA of Quincy v. Sandwich Water District, 16 Mass. App. Ct. 666 (1983) • 41. 51 acres of a 525 acre campsite owned by the YMCA was taken by eminent domain by the Sandwich Water District. The portion of the campsite taken by the district was undeveloped and wooded and had access only by dirt road. Prior to the taking, the land had been tested for well sites by a private consulting firm, and the district contemplated locating three wells on the property, each capable of pumping 700 gallons per minute. • The trial court used the gross income approach to determine the value of land. The Appeals Court ruled that net income should have been used instead. • The Appeals Court reinforced the rule that: “The market value to which the petitioner is entitled should be made up of the value in the market of the land apart from its special adaptability for water supply purposes, plus the sum a purchaser would have added to that value on the chance the land might be some day used as a water supply. ”
Quest Enterprises, Inc. v. Town of Westford, 15 Mass. L. Rptr. 81, 2002 WL 2017175 (Mass. Super. 2002) • Quest, a developer, sought to recover from the Town of Westford on the ground that the Town, by the application of its wetlands bylaw to lot 9 of the plaintiff’s subdivision, accomplished a regulatory taking and must compensate plaintiff for the fair market value of the property. • Superior Court held and Appeals Court affirmed that the court must consider a parcel as a whole and not as individual lots. Therefore, lot 9 has some value even if it is not a buildable lot so there was no regulatory taking of that particular lot merely because there wetlands. • Quest also sought to recover based on its investment-backed expectations. The price paid by Quest should have reflected the limitations imposed by the Bylaw, so recovery on that theory was barred. • The Courts also held that a reduction in the number of houses that an owner may build is a diminution in value and not a taking.
MASSACHUSETTS COURT CASES ON CONTAMINATION • Reliable Electronic Finishing Co. , Inc. v. Board of Assessors of Canton, 410 Mass. 381 (1991). • Flanagan v. Board of Assessors of Worcester, 57 Mass. App. Ct. 1116 (2003). • Hill v. Metropolitan District Commission, 439 Mass. 266 (2003).
Reliable Electronic Finishing Co. , Inc. v. Board of Assessors of Canton, 410 Mass. 381 (1991) • Taxpayer appealed from a decision of the Appellate Tax Board denying an abatement of local real estate tax assessed against contaminated property. • The Supreme Judicial Court held that the taxpayer failed to prove the anticipated cost of cleaning up the site on the date of assessment or the effect that the contamination had on the fair cash value of the property and, thus, failed to meet its burden of proving that it was entitled to abatement of local real estate taxes.
Flanagan v. Board of Assessors of Worcester, 57 Mass. App. Ct. 1116 (2003) • Taxpayer appealed a decision of the Appellate Tax Board that refused to abate his real estate taxes due to property contamination. The Appeals Court affirmed this decision. • Taxpayer asserted that his implementation of a groundwater treatment system was a remediating measure due to the contamination. The board found, however, that this system was necessary anyway due to the manufacturing business operated on the property. • As a result the taxpayer failed to meet burden of quantifying the adverse effects of contamination or remediation on the value of his property. • Even if taxpayer had established the effect of the existing contamination on the fair cash value of the property, he still failed to establish that the assessors’ valuation did not take that into account, or otherwise was incorrect.
Hill v. Metropolitan District Commission, 439 Mass. 266 (2003) • Massachusetts courts have yet to specifically delineate the scope of permanent v. temporary damages, but the decision in this case provided a template for the practical application of the temporarypermanent model for determining damages. • The Supreme Judicial Court focused on the actual, physical harm to the property and the real impact, if any, on its use arising out of the contamination. This method was used as opposed to determining the harm through economic losses associated with its use. • The Court found no evidence demonstrating that the contamination to the property was not reasonably curable or remediable. • The analysis in this decision suggests that it will be rare for a property owner to recover “stigma” damages. In stigma cases, instead of focusing on the impact of contaminants on the property and asking whether they are temporary or permanent, the claimed perception of potential buyers is looked at to see if those perceptions will be permanent.
CONCLUSION A careful real estate appraiser or tax assessor understands the impact of wetlands and contamination on market value, and so applies established appraisal methods to that calculation. The proper focus is on demonstrable impacts in the real estate market, which appraisers and assessors must take into account.