We frequently field questions from clients who are thinking about selling their retail petroleum dispensing facilities and have concerns about environmental situations that could impact their ability to sell a piece of property. For that reason, we decided to take a different approach with this particular blog.
Bill Alpine, Esq., Technical Expert for ATC, sat down to answer hypothetical questions from Rusty Savignac, who has personal experience dealing with a location that had significant gasoline and diesel contamination that was discovered in 1998 from underground storage tanks (USTs). At that time, Rusty and his business partner opted to remove the USTs and leave the gasoline market. The location recently sold after four years on the market.
Rusty: I’m thinking of selling my existing gas station. I have a current Certificate of Compliance (COC) that was issued by the Massachusetts Petroleum Product Cleanup Fund (21J Fund) and have no idea about the underground soil or water conditions. I understand that a potential buyer will likely want to know about any contamination. If I have an environmental site assessment (ESA) performed and contamination is discovered, what happens next?
Bill: As any lawyer will tell you, sometimes it is necessary to ask five questions in order to be able to answer one. In the essence of keeping the attention span of our readers, I will make a few assumptions. I will assume for this hypothetical that:
- This facility is located in Massachusetts and there are no known releases that are on file with the Massachusetts Department of Environmental Protection (MassDEP).
- The ESA determined that there was an Eligible Release as defined by the 21J Fund (i.e., a release of gasoline or diesel from a UST that is ultimately used to propel a motor vehicle or boat) that occurred at the site.
- The term “ESA” means the standard practice in the industry defined by the American Society of Testing and Materials (ASTM 1527-13).
- The person ordering the ESA is the current property owner.
The first thing that needs to happen is to file a Release Notification Form (RNF) with the MassDEP. The 21J Fund does not reimburse for costs incurred prior to the Release Notification with the MassDEP. It is crucial, therefore, that the notification is filed promptly in order to fully preserve reimbursement rights associated with the required assessment and remediation activities at the site. I will also note that coordination of your MassDEP filings to comply with the 21J Fund’s regulations, policies and guidelines is critical to maximizing your reimbursement.
Rusty: Is there a way to conduct an ESA without having to report unsatisfactory results to DEP?
Bill: I am going to assume that by using the term “unsatisfactory results,” you mean that there has been some triggering event that falls within the purview of requiring the filing of a RNF with the MassDEP. As such, the answer to that question is likely going to be no. The response to this situation could vary depending on whether someone other than the current property owner is conducting the ESA or whether a Massachusetts Licensed Site Professional is involved. For purposes of this discussion, however, this is the most accurate answer.
Rusty: Is there a range of expected costs for an ESA?
Bill: Typically, an ESA can range anywhere between $1,800 and $3,000, depending on the extent of the agreed-upon scope of work. It is important to note that when we refer to the term ESA, it does not include any type of subsurface investigation or testing of groundwater or soils. The basic premise of conducting an ESA is to determine whether there has been any previous releases or threats of releases of hazardous chemicals at a site. If, however, an owner wants to have a more expansive investigation involving an analysis of the subsurface soils and groundwater (commonly referred to as a Phase II), that cost could range between $15,000 and $25,000. Variations in cost would be attributable to such things as whether it was a simple same-use transaction or a more complicated redevelopment of the site and its buildings.
Rusty: Can you explain how the 21J Fund works for those facility owners that are fortunate enough to possess a COC?
Bill: The 21J Fund operates similarly to an insurance fund. There are three basic steps that any owner must adhere to in order to secure coverage. First, obtaining a COC which is similar to possessing a certificate of insurance. The COC merely demonstrates that at the time it was obtained, the facility was in full compliance with all regulations pertaining to the use, operation and maintenance of USTs. Second, after a release is discovered, the Responsible Party has to file an Application for Eligibility. If it is determined that an Eligible Release occurred (as defined in previous response above), the 21J Fund will issue its own separate release number. At that point, the Responsible Party can proceed with the third step of the program, which is the Application for Reimbursement process. This allows the Responsible Party to file costs associated with the Eligible Release. While getting to the third step in the process is in fact the most desirable outcome, UST owners should be aware that obtaining maximum reimbursement requires strict adherence to the 21J Fund’s regulatory criteria, allowable maximums under the Reimbursement Fee Schedule and certain timing limitations.
Rusty: What if there is a release from underground hydraulic lifts or an underground waste oil tank? Are those remediation expenses reimbursable by the 21J Fund?
Bill: This is a great question and one that often catches a seller and a buyer off-guard. The simple answer is no, those costs are not eligible for reimbursement. As stated earlier, to be eligible for reimbursement, the release must be from a UST system that stores gasoline or diesel used to propel a motor vehicle or boat.
Rusty: If remediation needs to be done, can a buyer purchase the site as-is, conduct their own remediation work, and still be reimbursed by the 21J Fund?
Bill: A buyer certainly is capable of taking on the responsibility of remediating a site without conducting any form of upfront due diligence. There are, however, a couple of cautionary suggestions that should be factored in by any prospective buyer. First, the buyer should verify the amount of money remaining under the 21J Fund’s per occurrence maximum ($1.5 million). If the cost of remediation is anticipated to exceed the available 21J Fund balance, a buyer may want to renegotiate this into the purchase price. Second, as stated throughout this discussion, the 21J Fund does not provide for reimbursement for anything not falling strictly within the regulatory definition of an Eligible Release. As such, costs associated with, among other things, fuel oil and waste oil USTs and hydraulic lifts, should at a minimum be considered into the equation.
Rusty: Should I avoid having an ESA done myself and allow a potential buyer to conduct their own assessment?
Bill: This is one of those questions that unfortunately has no straight answer. An ESA provided by a seller potentially comes with certain implications that any seller should take into consideration. The seller-provided ESA unequivocally establishes the warrantees and representations that form a major component of the transaction. A seller could potentially find itself in a contentious situation later on should a buyer make a claim for costs associated with a condition that was not included in the ESA. Furthermore, in many situations, a buyer may choose not to accept a seller-provided ESA due to their own concerns over transparency.
Typically, a properly drafted purchase and sale agreement will require a seller to disclose any known environmental conditions. The buyer is then the party tasked with conducting the ESA. This serves not only to insulate the seller from any later claims by the buyer for failing to disclose, but also places the parties at equal bargaining strength.
Rusty: If USTs were removed long before the existence of the 21J Fund, does that mean that the 21J Fund won’t help with any remediation costs?
Bill: Unfortunately, the answer to this question is yes. The 21J Fund legislation specifically requires that USTs needed to be in operation on or after April 1, 1991. Furthermore, when the 21J Fund regulations were promulgated, there were certain deadlines that were established with respect to obtaining a COC. If a facility had not filed for a COC by 1998, it is not eligible to do so for purposes of receiving reimbursement for existing releases.
Rusty: Is there a way that a buyer can assume all environmental risks and liability and indemnify me and my family so we don’t have to worry about having to pay for an expensive cleanup years down the line?
Bill: The simple answer is yes, you can contractually agree to shift the burden upon the buyer. This is usually done through properly drafted provisions in a purchase and sale agreement. Unfortunately, a contractual indemnity is only as good as the security and the entity behind it. If the buyer becomes insolvent, and the only security to the indemnity is the mere language of a purchase and sale agreement itself, a seller just might find itself back under the scrutiny of the MassDEP. There are many factors that need to be evaluated when deciding to go this route. It is imperative that any seller considering this option consult with an attorney fluent in the nuances of Massachusetts environmental laws.
FUELING A BETTER FUTURE
From acquisition to federal storage tank compliance, ATC’s retail petroleum team has the broad market experience for any need throughout the United States. Whether our clients are in need of geotechnical/construction materials testing services, remediation system design or emergency response, we can mobilize quickly to get the job done.
Additionally, ATC employs a staff diverse in the many facets of state reimbursement cleanup fund regulations. With a staff that possesses such an expansive knowledge base, we are able to maximize our clients’ rate of return on their reimbursement filings. Our reimbursement staff continuously works with our in-house technical experts throughout the life of the cleanup process to ensure that all possible costs are fund eligible. Our reimbursement staff routinely participates in state reimbursement cleanup fund work groups. Our participation assists tremendously with our abilities in advocating our clients’ interests relative to regulatory initiatives and policy development.
Rusty Savignac is the current President of the New England Service Station and Auto Repair Association, Inc. (NESSARA). He and a partner operated Paxton Garage, Inc. in Paxton, MA from 1974 through 2015. Rusty currently does mobile diagnostic assistance and module programming for other shops.
William Alpine, Esq. is a Technical Expert for ATC Group Services, LLC. Bill counsels the company staff and its clients on environmental due diligence and state fund recovery matters. Bill was previously the Executive Director of the Commonwealth of Massachusetts 21J Fund from 1994 to 2005. Bill can be reached at (781) 932-9400 or firstname.lastname@example.org.
The views expressed in this article for informational purposes only. The content is not, nor is it intended to be, legal advice. Information in this article is used to illustrate the experience of the writers. The information in this article should not be relied upon as a prediction as to the outcome of any particular transaction. You should consult an attorney for advice regarding your individual situation. Any liability with respect to actions taken or not taken based on any contents of this article is specifically disclaimed.