07/29/2004
Conditional Closures: Another Cleanup Remedy

by Doug Hillman and Jeremy Porter

“I want you to clean it up so I never have to worry about it again.” Our client looked at us with the exasperated face of someone who had spent more than $50,000 on three environmental consultants, only to learn that he had a lot more bills coming. “Get rid of it all, so it never comes back to bite me. How much will it cost?”

“Probably close to $500,000.”

He frowned and sighed heavily. The land was worth half that, and the operating business was barely profitable. In addition, site disturbances from cleanup activities would shut down operations for 3 months.

“Well,” he said, “what else can we do?”

Although cleanup of contaminated property to the most stringent applicable levels across a site is preferred, aggressive cleanup actions such as removing all contaminated media are often economically infeasible. Innovative in-situ technologies can substantially reduce cleanup costs but often leave low levels of contaminants in place that still exceed cleanup levels.

Property owners are then faced with a choice between a cleanup they can’t afford and one that does not give them what they want — a clean site. Recognizing this, Washington’s Model Toxics Control Act (MTCA), provides mechanisms for site closure that allow alternative cleanup standards with certain conditions.

Obtaining Site Closure

The first step to site closure under MTCA is to establish appropriate cleanup standards, and the second step is to select and implement an appropriate cleanup action. The successful outcome is a site that not longer poses a threat to human health or the environment, as acknowledged by a “no further action” letter from Ecology that brings closure.

Closure can serve as a critical hurdle for projects involving property transfer, financial lending and redevelopment.

Conditional closures provide a means for obtaining the sought-after “No Further Action” letter when the substantive requirement of human health and environmental protection has been achieved, yet all cleanup standards have not been reached. Conditional terms of the closure are designed to provide Ecology and the public with assurance that non-compliant conditions are controlled. Such a compromise can meet the objectives of both the site owner and Ecology.

Conditional site closure should be considered when it is not practicable to attain cleanup standards that are protective of unrestricted land use.

Certain tests are required to determine whether conditional closure is appropriate in lieu of additional remediation. These include demonstrating the following: 1) potential human health and environmental exposure pathways are controlled; 2) measures can be taken to assure continued protection; and 3) the costs of additional cleanup are disproportionate with the reduction in risk. If any of these test are not passed, Ecology will likely require additional cleanup prior to approving closure.

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Conditional Closure Requirements

Conditional closures approved by Ecology will contain requirements that are unique to the specific conditions at each site. These requirements typically include one or more of the following provisions:

• Institutional controls that maintain protectiveness (e.g., fences, engineered caps)
• Restrictive covenant legally recorded to acknowledge residual hazardous conditions and/or restrict land use activities
• Compliance monitoring at defined intervals and locations to assess long-term effectiveness of the cleanup action
• Contingency plan that defines in advance the supplemental actions that will be taken if post-closure conditions fail to meet established criteria
• Periodic Ecology review, generally on a 5-year cycle

The site-specific requirements of conditional closures necessarily come with future potential risk attached. Certain costs, such as scheduled monitoring, are well understood. However, the potential for incurring costs associated with contingency actions should post-cleanup conditions degrade can be difficult to estimate.

Consideration must be given to both the probability and the projected cost of any contingent remedy.

Conditional closures add a level of complexity to property transactions as future risks and costs must be negotiated and assigned. Purchase and sale contracts can be used to assign specific responsibilities (for example, third-party claims, groundwater monitoring costs), but such language can limit the pool of potential buyers. Furthermore, indemnification clauses are limited by the financial worthiness of the buyer / seller. Lenders may also hesitate to finance projects that possess future potential risk.

Two financial tools are commonly used to facilitate transactions involving future potential environmental risks: escrow holdback accounts and insurance policies. Escrow accounts are funded at closing and are used to finance specific activities over a negotiated period of time (for example, 5 years of groundwater monitoring). Environmental liability and remediation cost-cap insurance policies are available as a means of minimizing the future potential risk for buyers and sellers.

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Successful Conditional Closures

The principal advantages of pursuing a conditional site closure include reduced upfront costs, flexibility in timeframe, and efficiency. Conditional closures can also facilitate transactions that otherwise would be halted by uncertainty and discomfort with potential risks. Keys to a successful conditional closure strategy include:

• Careful analysis of potential future risks and costs. The greatest potential risk (and the most common deal killer in property transactions) is that which is unknown.
• Upfront communication with Ecology. Although Ecology does not preapprove independent cleanup actions, it can issue opinion letters that support an intended cleanup strategy. This is particularly important for conditional closure, because acceptance relies on Ecology’s judgment that cleanup has been conducted to the extent practicable.

At sites where it is impracticable to treat or remove all contaminated materials, focused or “hot-spot” removal of the main source (e.g., underground storage tanks and/or highly contaminated soils) is often a necessary step. However, if contamination extends beneath load-bearing structures, cleanup alternatives may be limited and even focused hot-spot removal can be costly. In this case, two strategies are commonly applied:

• Applying in situ technologies that treat or remove the majority of contaminants while minimizing above-ground disturbances. This can be an effective method of source reduction, but may take months or years depending on the technology used.
• Deferring cleanup in conjunction with redevelopment.

In the latter scenario, conditional closure provides a mechanism to defer cleanup so that work can coincide with redevelopment activities that provide improved access and less costly remediation. Better yet, redevelopment may involve sub-grade improvements. In this case, cost savings are significant as excavation serves the dual purposes of cleanup and redevelopment. Remediation incurs only the incremental cost of soil quality profiling and proper disposal.

Conditional site closures are an attractive way to obtain Ecology approval for site cleanup because they can save time, reduce project costs and facilitate transactions. The substantive regulatory requirement for protection of human health and the environment is achieved via exposure pathway controls, but certain conditions are placed on the property to confirm that conditions remain sufficiently protective.

The property owner benefits from a cost-effective cleanup and the public benefits from remediation that otherwise may have been too costly an undertaking.

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