IMPORTANT!  This is a rewrite.  Both Bill Breetz and Kurt Strasser, architects of this project,
weighed in with a few comments that I have incorporated in this draft.  If you recirculate, please
use this one.  Thanks.  Pat

Daily Development for Wednesday, March 5, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

This little essay is an update on the NCCUSL Environmental Covenants Act
project - an effort to develop a uniform law that will facilitate reuse of
contaminated real estate following partial clean-up.  It appears
that there is a significant backlog of such properties that now are being
held in suspended animation because their owners cannot transfer  the properties
with confidence that they will be able to enforce indefinitely the
institutional controls intended to protect against further releases of the
contaminants.  This uniform law will address that problem.

Persons who would like to redistribute this article into other publications
may feel free to do so if they credit DIRT and its author.

I.  The Basic  Problem: Partial Clean ups - Permanent Risks:

Two hundred years of industrial activity in America has left a residue of toxic and dangerous
pollution scattered about the nation.   Most often, the pollution consists of underground deposits of
industrial or chemical waste that has the potential to be released through groundwater, exposure to
air, or some other mechanism.  Development of the property creates a danger that such releases will
occur, and consequently much of this property is "frozen" into disuse.

Of course, it is possible in most cases to remove the hazardous substances from the soil, returning
the land to usable condition,  but of the cost of complete removal may be extremely high, and from
an economic standpoint even the restoration of the property to productive use that would result does
not justify the expense.  In some cases, of course, the danger of imminent release is such that
complete removal is necessary, and state and federal agencies are engaged in ordering such removal
regardless of the cost.  Typically, under current law, these agencies can  assess the cost to owners
of the land, to prior owners of the land during times that it was becoming polluted,  and to others
whose actions led to the pollution.  But often landowners point out to the government that there is
a  far more economical solution:  a partial clean-up that leaves many of the substances in the ground,
but isolated and protected from further release.

Agencies often are agreeable to such arrangements, particularly since the removal and redisposition
of the substances carry their own risks.  In fact, sometimes they propose such solutions themselves
as part of an enforcement action to clean up the property.  Still, however, leaving the substances in
place usually requires some actions that will inhibit the future use of the property.  Monitoring must
be carried out, slopes must be maintained controlling the flow of water runoff, excavation must be
limited, and various other affirmative and negative requirements must be imposed to make the partial
clean-up solution work for the long term.  Government agencies are loathe to approve the partial
clean-up solution unless there can be certainty that these controls will continue effective during the
period that the substances remain dangerous - and this period often is measured in decades if not
centuries.

The reuse process, however, often raises questions about the viability of the procedures for
protecting against future release of the substances left on the land.  Of course, in many cases, the
original activity that led to the pollution has long since terminated.  New uses may be the only reuse
possibilities that make sense.  But the current owner of the property may not be the right party to
implement a new use.  If the property is sold, what assurance can there be that the controls necessary
to protect against the release of the hazardous substances can be maintained?

Ironically, many of the polluted properties that present the greatest difficulties are in government
ownership.  An important example is abandoned military bases - proliferating now in the wake of
the end of the Cold War and the decreasing size of the American military.  Although Department of
Defense officials are instructed to dispose of the real estate on these bases, they are also instructed
that they must first insure that any hazardous substances be completely neutralized.  This often
means that a way must be found to control the use of the property for the indefinite future so as to
be certain that hazardous substances stabilized in the property will remain stable.

The concern is not just one of satisfying environmental agencies or government bosses.  The owners
of properties subjected to partial clean-up remain liable for any problems that arise if hazardous
substances indeed are released and migrate to other properties, where the cost of removing or again
isolating them could be high, not to mention damages in tort for any injury to persons or property
the substances might cause.

II.  The Answer: Private Servitudes.

The answer to all these problems, of course, lies in establishing binding, enforceable controls over
the subsequent users of the property once it passes out of the hands of the current owners.  These
controls must bind not only the immediate transferees of the owners, but subsequent owners of the
property as well, on into the distant future.  In other words, the promises and rights that are necessary
to protect against release of these substances must become part of the terms of the transfer of the
properties in which they exist and must thereafter "run with the land"  - must continue to burden
future owners whether or not their transferors specifically imposes the controls upon them as a
condition of transfer.  The vehicle for creating such controls does exist - lawyers call such things
"servitudes."  The term encompasses both affirmative and negative burdens placed upon landowners
that are intended to and do "run with the land."  In this context, these servitudes could   include
obligations to permit access for inspection, duites of maintenance of berms, swales,  plantings,
retaining walls, pumping stations, and the like, prohibitions on excavation, well drilling, or even
broad controls such as prohibitions on use of the property for residential purposes or activities
involving children.

III.  The Glitch: Common Law Uncertainty:

Unfortunately, American common law does not provide an easy method for parties to impose
complex use limitations on properties that will be certainly enforceable as the property passes from
one owner to the next.   The common law has always viewed private use restrictions with some
suspicion, viewing them as potential impediments to the free movement of the property in the
marketplace to the highest and best use.  A party wishing to have full use of property subject to
private restrictions must deal not only with the owner of the fee but must also obtain releases or
permissions from those benefitted by the restrictions.   Because the experience of the law has been
that many of these restrictions are created to last much longer than their probable benefit to the
parties who first required them, legal doctrines have arisen that have have restricted the
circumstances in which these servitudes can be created and maintained.

For instance, many jurisdictions require special legal relationships - "privity" - to exist before the
servitudes can arise or "run" in some ways.   Many require that the beneficiary of the promises itself
enjoy the benefit in the ownership of some other land.   Most also  require that there be some
identifiable relationship between the promises in question and the nature of the property.  Although
various jurisdictions have modified the harshest extensions of these doctrines, many of them due
play an important and desirable role in some cases.  Despite the complaints of generation of law
students who find the rules confusing and sometimes contradictory, the common law has preserved
many of these doctrines for use in most cases.  But the case-by-case nature of common law
jurisprudence has made it very difficult to identify with certainty when courts will set aside these
doctrines and when they will find them valuable and apply them.

None of this, of course, is good news for those interested in being certain that private controls to
maintain the integrity of a partial clean-up of hazardous substances on the land will remain effective,
regardless of who owns the land, for substantial periods of time.  In the words of the old cartoon
strip, those who need to restrict the behavior of future owners into the indefinite future through the
imposition of private land use controls have concluded: "There oughta be a law."

IV.  The Fix to the Glitch - The Uniform Environmental Covenants Act (in draft)

The Joint Editorial Board on Uniform State Property Acts, which advises the National Conference
of Commissioners  on Uniform State Laws concerning real estate issues, identified the problem of
environmental protection servitudes several years ago and recommended a project to draft a uniform
law on the subject.  A committee was formed, headed by Commissioner and JEB member Bill Breetz
of the University of Connecticut Law School, with Professor Kurt Strasser of the University of
Connecticut Law School as the Reporter.  That Committee has been meeting for two years with
advisors from various affected groups, including state and federal environmental regulators,
representatives of major government agencies and private owners with problem properties, and
environmentalist groups, trying to craft a uniform state law that will address the major concerns but
balance the competing interests of insuring continued environmental protection and promoting
transferability of the property for useful purposes while still acknowledging the significance of state
property law concerns.  The author of this piece works with the Joint Editorial Board and has
attended the meetings of the committee in that capacity.

The resulting proposed law is not yet complete, and probably there will be one more "wrap up"
meeting of the committee before a final report is submitted to NCCUSL this summer.  And, of
course, NCCUSL must then approve the proposal for support as a Uniform Law.   But the general
outlines of the proposed law seem to be established at this point.

The law presently is labeled the Uniform Environmental Covenants Act, although in fact many of
the provisions with which it deals are not in fact covenants, but easements.  The generic term for the
group including easements and covenants that run with the land is "servitudes."  Modern real estate
scholars have begun using the term servitude commonly, and there is a new Restatement of
Servitudes.  But advisors suggested that lawyers from prior generations don't really understand the
term "servitude" and there are negative connotations for the term outside of the real estate usage.
Hence, we're going with "covenants," which are defined in the definitions section to mean
"servitudes."

The law removes most common law limitations that might otherwise apply to servitudes created for
purposes of maintaining control against further releases of environmentally hazardous substances
following a partial clean-up.   Specifically, the statute eliminates the requirements of privity, touch
and concern, the requirement for a benefitted parcel, the Rule Against Perpetuities, termination
pursuant to marketable title acts, and the possibility of merger if the covenant is first created by the
owner of the property before it is transferred.  These benefits accrue to new covenants and also to
existing covenants entered into prior to the effective date of the proposed statute.  To fall within the
Act, the covenant must have been entered into as part of an environmental clean up program
consistent with provisions of state law.   Most of the clean-ups are in fact initiated by state or federal
environmental agencies as part of an enforcement action, but the reach of the statute includes
servitudes that are part of a voluntary clean up program that a landowner might undertake in
anticipation of an eventual state enforcement activity, so long as state law sanctions such clean up
projects.

Servitudes entered into after the statute is enacted must not only be part of such a clean up program,
but must in fact be approved by a state or federal environmental agency.  If they are so approved,
they receive not only the benefits described above - neutralization of what otherwise might be
impediments to enforcement - but also the servitudes will survive additional policy based dangers
to their continued vitality, including adverse possession and property tax foreclosure.  Further, the
discretion of state courts to terminate the covenants pursuant to the doctrine often known as
"changed circumstances" is conditioned upon the approving agency's agreement to such termination.

In short,  parties interested in the preservation of controls to monitor and prevent release of
hazardous substances remaining on property following a partial clean up have far greater certainty
that these controls will continue to exist and that the protective purpose will not be eradicated by the
operation of doctrines that traditionally "clear away" servitudes over time.

Of course, such legal protections are not much good if there is no one left to "mind the store" - to
continue to watch to insure that the servitudes are honored.  The statute recognizes that one or more
parties can be designated as "holders" of these servitudes - having the right to enforce their terms
even though the holder has  no particular property that is benefitted by them.  Holders can be the
original owners of the property or other parties who are "potentially responsible parties" for the
original polluted condition, or they can be nonprofit entities, either created for this purpose or already
created with environmental protection purposes.  In fact, it might be practical in some instances to
simply contract with a profit making private entity to be a "holder," and there was talk at the drafting
table of the development of a cottage industry in businesses labelled "Holders R' Us."  The
environmental agencies can also serve as holders, but the agencies have independent authority to
enforce the covenants both through identification of this power in the Act and through their general
enforcement powers to protect against any further release of the substances in question, which they
retain completely notwithstanding the agreement for the partial clean up.  In addition, local agencies
may have the right to enforce the controls under the Act, ad can "potentially responsible parties,"
whether or not they are holders.

The significance of the controls as servitudes - formal interests in land - is critical.  Not only does
this insure that they will be part of the land records - a useful and binding source of information for
future owners of the property, but also that the servitudes will pass with the ownership of the
property.  Further, characterization of property interests helps the treatment of the servitudes in the
case of bankruptcy.  Unfortunately, several government agencies are precluded by their organic acts
from holding property interests, so it was necessary to characterize the "holders" interest or the right
to enforce the servitudes in the hands of these agencies as regulatory powers rather than property
rights.  The drafters spent quite some time seeking a way to describe this "optional characterization.
Although, in part due to the nature of the problem, the resulting language is not particularly graceul,
it likely does accomplish clarity in the Act and consequent proper treatment in courts.

The drafters hope that clarification of what is necessary to insure against further release of these
substances will encourage owners to sell, lenders to finance, and buyers to buy and reuse these
properties.  Considerable attention was devoted at the committee meetings to the fact that such
buyers, notwithstanding compliance with these servitudes, might still ultimately have a risk of
liability, since they would have an awareness of the pollution on the property that would protect them
from obtaining  "good faith purchaser" status available under some environmental laws, at least as
to those conditions.   Ultimately, it was concluded, at least as of the present draft, that providing
further protection for such parties is beyond the scope of the Act, although state legislatures will be
urged to consider amendments to their other environmental laws to provide some protection to these
parties in light of the significant role that they play and in light of the fact that the original parties
causing the pollution remain liable in any event.

Another troublesome issue the committee confronted was the question of local zoning authorities.
Ultimately, again at least for now, it was determined that local agencies necessarily must "buy in"
to the solutions proposed for such temporary clean ups.  Hence, any environmental covenants under
the proposed Act must conform to local zoning and land use regulations when created and are subject
to those regulations in the future.  As to future changes in zoning, the current status of the drafting
is likely not final.  The author believes that it is the Committee's intent that the covenants interact
with zoning changes in the future in the same manner as any private covenant except for the issue
of eminent domain.  For example,  like any other private restriction, these covenants are effective
to control use of the land even where public regulation is more permissive.  Thus if the property is
zoned residential in the future, but the restriction prohibits use of the property for residential
purposes, the restriction will remain in effect.

On the other hand, if the local zoning is changed to prohibit a particular use, and the environmental
covenants require that use, the local zoning would prevail.  The state or federal environmental
agencies could, if this should happen, step in and exercise preemptive regulatory power to prevent
any resulting risk of release of the hazardous substances. The committee would not expect this
scenario to occur  very often, if at all, since local agencies ought to find the environmental covenants
of high importance.  If there has been a "vesting" of the permitted use consistent with other
applicable law, then this use would have the status of a preexisting non-conforming use and could
be continued to the same extent as any other such use.  Should the local agency try to terminate the
use by exercise of eminent domain, the state environmental agency would have to first consent.

Almost every party to the drafting process obtained something from the process that it wanted, but
was forced to compromise on other goals.  The benefit of the Uniform Laws process is that it
"predigests" the various demands of competing interest groups and strikes a balance of these
demands in a relatively neutral setting.  State legislators can be comfortable that the balances struck
through such a process are driven by the objective to get the best solution to the problem, and not
by power politics.  For this reason, many state legislatures are very receptive to the adoption of such
uniform laws.  In light of the need for a solid foundation for the future enforcement of environmental
servitudes, it is anticipated that the Uniform Environmental Covenants Act, if ultimately approved
by NCCUSL, will enjoy rapid acceptance in state legislatures nationwide.