Brownfields are commercial or industrial properties that have been abandoned or are underutilized and (typically) are environmentally impacted or suspected to have environmental impacts. Brownfields can exist in urban, suburban, or rural areas. The objective of brownfields-enabling legislation is to foster the clean-up of these properties and return them to the tax rolls. Brownfields received their initial impetus from the federal government and now many states have their own enabling legislation. Successful brownfields programs typically convey to the purchaser indemnities and tax incentives and, if needed, low interest loans. ESA has returned many brownfield properties to the tax rolls.
Here are some key issues you should know about brownfields:
Covenants Not-to-Sue: A Covenant Not-to-Sue is an indemnification granted to the brownfields developer by the ruling governmental agency that says third parties may not seek claims against the developer for past contamination or acts or practices that led to contamination. The theory behind this covenant is that those investing in brownfields can be thought of as “white knights” who seek to remediate properties for the purpose of redeveloping and/or selling it. Under the New Jersey SRRA, the Covenant Not to Sue is no longer a separate item, but rather is intrinsic to (and incorporated within) the Remedial Action Outcome (RAO).
Tax Incentives: New Jersey and other states now have programs that provide tax incentives in “urban enterprise zones.” In New Jersey, for example, you can receive a graduated 10-year tax deferral for undertaking a brownfields project in the targeted urban zones. In addition, consider filing a tax appeal at the very beginning of your project. Many developers save significant dollars by appealing their taxes up front.
Protection Against Clean-Up Cost Over-Runs: You can protect yourself against cost over-runs that can occur when cleaning up your site. This protection is available as a single-premium insurance product. This typically makes the most sense when your cleanup could exceed $1,000,000.00.
Low Interest Loans: Some government agencies have available low interest loans for qualified development projects. Some of this money can be applied against site investigation and clean-up.
Municipalities: Municipalities have special rights, privileges, and powers relative to brownfields. Each municipality should take full advantage of these. By the same token, private developers also need to identify these rights and privileges so they can work more effectively within their municipality. Further, ESA cautions private developers from creating an adversarial position with their municipalities because, if the municipality so chooses, they can use these rights to hamper your transaction. Your host municipality makes a far better friend than enemy.