Jeffrey C. Dobbins
Lisa Ehlers
Executive Director
Legal Assistant
Wendy Johnson
Deputy Director/
General Counsel
OREGON LAW COMMISSION
MEMORANDUM
DATE:
June 19, 2008
TO:
Oregon Law Commission Program Committee
FROM:
Kevin Mehrens
RE:
Project Proposal: Implementation of Uniform Environmental Covenants Act
This Project Proposal requests that the Oregon Law Commission’s Program Committee
approve the formation of a work group to study and make recommendations on implementing
into Oregon law the Uniform Environmental Covenants Act made by the National Conference of
Commissioners on Uniform State Laws (NCCUSL). The work group would be formed with the
goal of producing legislation for the 2009 session.
1.
The Problem: The risks associated with properties encumbered by the existence or
perceived existence of hazardous materials result in continuing non-use of otherwise viable
property.
Developers are wary of purchasing lands that may be contaminated with hazardous
material. These lands, called brownfields, whether actually contaminated or not, go undeveloped
because developers fear the cost of investigating and cleaning the property. The Uniform
Environmental Covenants Act (the Act) has two primary goals. The first goal is to “ensure that
land use restrictions . . . will be reflected on the land records and effectively enforced over time
as a valid real property servitude.” Uniform Environmental Covenants Act, Prefatory Note
(available at: http://www.law.upenn.edu/bll/archives/ulc/ueca/2003final.htm) (last visited: April
7, 2008) (hereinafter the Act). The second goal is to “return previously contaminated property . .
. to the stream of commerce.” Id. These goals are accomplished by negotiating and recording
covenants that run with the land thereby allowing the owners of that property to engage in
responsible risk-based cleanups and then transfer or sell the property subject to state-approved
controls on its use.
The Oregon Department of Environmental Quality (DEQ) already has in place certain
incentives for developers considering purchasing contaminated properties. For instance, the
DEQ can enter into Prospective Purchaser Agreements (PPA). O.R.S. § 465.327. A PPA is a
legally binding contract between the DEQ and a prospective purchaser of contaminated land that
limits the prospective purchaser’s liability for contamination, in exchange for a substantial public
benefit.1 Id. These PPA’s, however, are contracts between the DEQ and the prospective
1
The statute states that a substantial public benefit can be: “(A) The generation of substantial funding or other
resources facilitating remedial measures at the facility in accordance with this section; (B) A commitment to
perform substantial remedial measures at the facility in accordance with this section; (C) Productive reuse of a
Willamette University College of Law
245 Winter Street SE, Salem, OR 97302 Telephone: (503) 779-1391 Fax:(503) 779-2535
purchaser only. No other parties are bound to them and the benefits and burdens do not run with
the land.
2.
History of the Reform Efforts
The NCCUSL promulgated the Uniform Environmental Covenants Act in 2003. The Act
“establishes uniform procedures for the creation, amendment, termination, and enforcement of
environmental covenants.” Andrea Ruiz-Esquide, The Uniform Environmental Covenants Act:
An Environmental Justice Perspective, 31 ECOLOGY L.Q. 1007, 1008 (2004). Environmental
covenants are used to limit potential exposure to contaminants that are left on contaminated
properties and provide notice and protection to purchasers of such lands in an effort to encourage
their development.
There have been many efforts throughout Oregon to create methods for redeveloping
brownfields. Among the groups that have endeavored to solve the problems of brownfields are
the DEQ through its voluntary cleanup programs and PPAs and the Portland Brownfield
Program2. All of these efforts have centered on cleanup and development by a single landowner,
in contrast to the Act, which envisions a continuous and binding system for all future owners of
the land.
The Oregon Legislative Assembly has not yet considered implementing the Act into
Oregon law. A task force did meet in October, 2006 to discuss the Act, however, that discussion
did not focus on how to implement the revisions in Oregon.3 Therefore, should the Program
Committee authorize a work group on the revisions, the work group would have little Oregonspecific groundwork for its efforts. At the same time, however, the work group would not have
to work from a blank slate in that 23 states (including the District of Columbia and the Virgin
Islands) have adopted the Act4. The experiences of these other states might prove helpful to an
Oregon work group. In addition, the Act includes extensive comments to help guide and explain
its goals.
3.
Scope of the Project
Implementation of the Act will not result in any substantive changes to the cleanup
standards already in place in Oregon. See, O.R.S. §§ 465.200-.545. Once a site has been cleaned
up, whether cleaned under a total cleaning theory or a risk-based approach, the Act “supplies the
legal infrastructure for creating and enforcing the environmental covenant under state law.” The
Act, Prefatory Note. Oregon allows for a risked based cleanup system for remediation of
hazardous sites. O.R.S. § 465(1)(b)(A); see O.A.R. §§ 340-122-0100 to 340-122-0115. The Act
intends for covenants to be “implemented only at the end of the decision making process.” Kurt
A. Strasser, The Uniform Environmental Covenants Act: Why, How, and Whether, 34 B.C.
ENVTL. AFF. L. REV. 533, 551 (2007). This means that after a site has been cleaned to the
vacant or abandoned industrial or commercial facility; or (D) Development of a facility by a governmental
entity or nonprofit organization to address an important public purpose.” O.R.S. § 465.327(d).
2
The Portland Brownfield Program is a branch of the Portland Bureau of Environmental Services and provides site
assessments, clean-up funds and technical assistance for sites throughout the city.
3
See Appendix A for list of invitees to the October, 2006 meeting.
4
In addition, 9 states have introduced legislation in 2008.
2
appropriate level, the covenant is negotiated between the Department of Environmental Quality
and the owner of the property and then recorded on the land records.
To help delineate the scope of the project, the remainder of this section summarizes the
Act by breaking apart each section. Then this memo outlines the existing Oregon law that would
be changed by enacting the Act. The sections are as follows:
Section 1 – Short Title
This section is simply a short title for reference and citation purposes. Many Oregon
laws have short titles, some don’t. Inclusion or exclusion of this section will have no effect on
the substantive law.
Section 2 – Definitions
This section lays out 9 definitions applicable to the Act. Under the definition of Agency
in subsection (2), the Oregon Department of Environmental Quality (the Agency) should be
substituted into the brackets. Notable in this section is the definition of environmental covenant.
The definition expressly states that the covenant is a servitude. This helps to ensure that the
covenant will run with the land and not be considered merely “a personal common law contract
between the agency and the owner of the real property at the time the covenant is signed.” The
Act, section 2, comment 5.
Also noteworthy under the definition of environmental covenant, is that the covenant is
created in response to a cleanup project. This means that certain cleanup projects may leave
residual contamination.5 The covenant then contains the use restrictions in order to control the
remaining risk. See, section 4, infra.
Under the definition of environmental response project in sub-section 5(A), the brackets
requiring a reference to the Oregon law governing environmental remediation should read:
O.R.S. §§ 465.200-.545. This stretch of statutes is the Oregon law regarding hazardous waste
and hazardous material removal and remediation. Under sub-section 5(C), the state statute
regarding the Oregon voluntary cleanup program is O.R.S. § 465.325.
Another important definition is “holder”. A holder is defined as “the grantee of an
environmental covenant as specified in Section 3(a).” The Act, Section 2(6). The Agency and
the landowner negotiate the identity of the holder. The significance of the holder is that “[a]
holder is authorized to enforce the covenant under Section 11. A holder has the rights specified
in Section 4 of this Act and may be given additional rights or obligations in the environmental
covenant.” The Act, section 2, comment 11; section four is covered infra. Any person can serve
as holder, including either the landowner or the DEQ.
Section 3 – Nature of Rights; Subordination of Interests
This section outlines the rights that the holder of the covenant has as well as the rights of
the Agency that is a party to the covenant. The holder is the grantee of a covenant. A holder’s
interest is an interest in real property, whereas the agency’s interest, if the agency is not a holder,
is not an interest in real property. By making the holder’s interest a real property interest, the
drafters help to ensure that the covenant will run with the land. This section also confirms all
5
The level of cleanup required is outlined in O.R.S. § 465.315.
3
“contractual obligations that an agency may assume in” the covenant. The Act, section 3,
comment. This means that those obligations are enforceable by “parties adversely affected by
any breach.” Id.
The Act also deals with the issue of existing mortgages and other prior interests in the
property. The traditional rule of first in time, first in right still applies. This means that a
covenant entered into with out the approval and subordination of a prior interest is not valid as
against that prior interest. To solve this problem, the Act encourages the subrogation of prior
interests to the covenant. This means that the Agency can use the prospect of subrogation as a
bargaining chip when negotiating the covenant. Prior lien-holders are not required to
subordinate their interests, however, there are incentives for them to do so. If a “cleanup and
subsequent re-use of the property can be accomplished, the property value will likely increase,
thereby increasing the real value of the mortgage as well.” Strasser, 34 B.C. ENVTL. AFF. L.
REV., 542. Also, the Agency can insist on subordination of interests when negotiating the
covenant, thereby insuring “that that the covenant is not vulnerable to an existing mortgage.” Id.
While prior interest holders are not required to subordinate their interests, they will likely want to
because the Agency can require that subordination before cleanup efforts begin and require
subordination as a prerequisite to signing the covenant. Also, those cleanup efforts will almost
certainly increase the value of the property and thus the value of the senior lien-holder’s interest.
Section 4 – Contents of Environmental Covenant
The Act includes required contents for a covenant and permissive content.
Required content
>The covenant must expressly state that it is an environmental covenant.
>It must contain a legally sufficient description of the property.
>It must describe the activity and use restrictions on the property
>It must identify and be signed by every holder, the agency and the fee simple
owner of the property.
>It must identify the name and location of “any administrative record for the
environmental response project reflected in the” covenant.
Permissive content
>Requirements for notice following transfer of interest, applications for building
permits or proposals for any site work affecting the contamination of the
property.
>Requirements for reporting compliance with the covenant
>Rights of access to the property
>A brief description of the contamination and remedy
>Limitations of amendments or termination of the covenant
In addition to the required and permissive contents, this section also allows the Agency to
require certain parties who have an interest in the property to sign the covenant or else the
covenant is not valid. This, as discussed in the prior section, allows the Agency to holdout from
entering into a covenant until the prior, or senior, interest holders have signed on to the
agreement; thus subordinating those prior interests to the covenant.
4
Section 5 – Validity; Effect on Other Instruments
This section is important because it deals with the validity of covenants in relation to
traditional common law of property doctrines. The Act makes clear that if the covenant complies
with the requirements in the Act, it is valid despite any conflict with existing common law. The
Act, section 5(b). The Act states that it is valid even if: (1) it is not appurtenant to an interest in
real property, (2) it a can or has been assigned, (3) it is not a character that has traditionally been
recognized at common law, (4) it imposes a negative burden, (5) it imposes an affirmative
burden on a person having an interest in the real property, (6) the benefit doesn’t touch and
concern the land, (7) there is no privity of estate or contract, (8) the holder dies, (9) the owner of
an interest subject to the covenant and the holder are the same person.
The common law requirements in Oregon for a covenant to run with the land are: “(1)
The covenant must touch and concern the land; (2) the original parties to the covenant must
intend that the promisor's successors in title be bound; (3) there must be a benefit in the use of
the land resulting from performance of the promise; and (4) there must be privity of estate.”
Cascade Shopping Center v. United Grocers, Inc., 106 Or. App. 428, 432 (1991). Therefore,
covenants formed under the Act could directly conflict with existing Oregon common law.
However, as the Act makes clear, an environmental covenant created under the Act, would be
valid despite its conflict with existing Oregon common law. It is within the legislature’s
authority to change the common law as long as that action does not run afoul of other provisions
of the Oregon Constitution. Or. Const. Art. XVIII, § 7; see, 15A Am. Jur. 2d Common Law §
15; see example, Lakin v. Senco Products, Inc., 329 Or. 62, 78 (1999). Since the requirements
for a valid covenant do not implicate a substantive right of the people, any legislative
modifications to those requirements will not violate the Oregon Constitution.
Section 6 – Relationship to Other Land-Use Law
This section, as the comment notes, clarifies that the “Act does not displace other
restrictions on land use laws, including zoning laws, building codes . . . and the like.” The Act,
section 5, comment. In other words, any use, structure or other action that would have been
prohibited under the existing planning scheme cannot be made valid through the use of the
covenant. The comment in the Act gives two good illustrations of this principle:
The Act contemplates that an environmental covenant might, for example,
prohibit residential use on a parcel subject to a covenant. Under conventional
real property principles, without references to this Act, such a prohibition or
restriction in an environmental covenant will be valid even if other real
property law, including local zoning, would authorize the use for residential
purposes.
Alternatively, a covenant might, at the time it is recorded, permit both retail
use and industrial use on a vacant parcel of contaminated real property while
prohibiting residential use. Assuming all retail and industrial uses were
permitted by local zoning at the time the covenant is recorded, the
municipality might, before construction begins, change that zoning to bar
5
industrial use. If such a zone change is otherwise valid under state law,
nothing in this Act would affect the municipality’s ability to “down zone” the
parcel.
The Act, section 6, comment.
Section 7 – Notice
The Act requires that a copy of the covenant be given to: (1) each person that signed the
covenant, (2) each person holding an interest in the property, (3) each person in possession of the
property, (4) each unit of local government in which the property is located. Id., section 7(a). If,
however, notice is not given, this will not invalidate the covenant. Id., section 7(b). The Act
contemplates that “the extent and manner of giving notice rests in the discretion of the” DEQ.
The Act, section 7, comment.
Section 8 – Recording
This section requires that the covenant be recorded with the appropriate local body. In
Oregon, this is the office where deeds and other devices are recorded in the specific county
where the property is located. See, O.R.S. § 554.190; O.R.S. § 554.190. Oregon has a racenotice recording statute; therefore, an unrecorded covenant will not be valid against a subsequent
bona fide purchaser for value, who records first. O.R.S. § 93.640. This section is designed for
states that have a grantor/grantee index for recording real property interests. Oregon is such a
state; therefore, the section can be adopted as is. See, O.R.S. § 205.160.
Section 9 – Duration; Amendment by Court Action
Covenants under the Act are perpetual unless: (1) they are limited by their terms to a
specific duration, (2) they are terminated by a court pursuant to the Act, (3) they are terminated
by the foreclosure of a senior interest holder or, (4) they are terminated through an eminent
domain proceeding. The Act, section 9(a). A judicial termination is based on the traditional
doctrine of changed circumstances.6 There are 2 specific requirements for judicial termination
under the doctrine of changed circumstances, first, the Agency must approve of such an action
and second, all the parties to the covenant must be given notice of the proceeding.
Section 10 – Amendment or Termination by Consent
Under this section, the parties are free to amend or terminate the covenant provided all
the parties, or their successors in interest, consent to the termination or modification. While this
sounds simple, it can, in application, be very difficult to determine whom, exactly, the successors
in interest are. In such a case, section 10(a)(3) “provides a judicial mechanism by which the
need for absent parties’ consent may be avoided.” The Act, section 10, comment 7. If a court
finds that the “person no longer exists or cannot be located or identified with the existence of
reasonable diligence” then the court can waive the consent requirement as to that person. Id.,
section 10.
6
For an example of the doctrine of changed circumstances in the context of real property covenants see, AMJUR
COVENANTS § 236.
6
Section 11 – Enforcement of Environmental Covenant
This section states that injunctive or other equitable relief is available to any party to the
covenant, the municipality in which the property is situated, as well as “any person whose
interest in the real property or whose collateral liability may be affected by the alleged violation
of the covenant.” Id., section 11. The brackets in subsections (a)(2) and (b) should read: the
Oregon Department of Environmental Quality. The basic purpose of this provision is to grant
standing “on persons other than the agency and other parties to the covenant because of the
important policies underlying compliance with the terms of the covenant.” The Act, section 11,
comment 2. While the Act does extend standing to bring a suit to many persons, it does not
provide any authority for citizen suits. Other laws, however, may authorize such a suit. The
Oregon Administrative Procedures Act (APA), for instance, grants standing to review a rule of
an administrative agency to “any person.” O.R.S. § 183.400(1). The question then is what form
of agency action is the act of negotiating and entering into a covenant. If it is rulemaking, then
the Oregon APA allows for citizen suits.
Section 12 – Registry; Substitute Notice
This section calls for the creation of a registry for environmental covenants created under
the Act. Oregon already has the Environmental Cleanup Site Information Database created by
the DEQ pursuant to ORS 465.220. However, this registry is only used for listing the sites
themselves and the status of the cleanup efforts. A new registry could be created under the Act.
This section includes many bracketed portions that are to be filled in by the State according to
their specific rules. If Oregon were to adopt the Act, and particularly this section, subsection (a)
should read (with highlighted portions being those specific to Oregon):
The Department of Environmental Quality shall establish and maintain a registry
that contains all environmental covenants and any amendment or termination of
those covenants. The registry may also contain any other information concerning
environmental covenants and the real property subject to them which the
Department of Environmental Quality considers appropriate. The registry is a
public record for purposes of O.R.S. § 192.420.
The creation of a new registry is not necessary. The covenants could simply be recorded
in the same manner as other interests in property are currently recorded: with the appropriate
body of the county in which the land is situated.
Section 13 – Uniformity of Application and Construction
This section states, in its entirety: “[i]n applying and construing this uniform act,
consideration must be given to the need to promote uniformity of the law with respect to
its subject matter among states that enact it.”
7
4.
Changes to Oregon Law
The Oregon common law of servitudes would be changed by the Act, but only with
regards to covenants created under the Act. The Act would make no substantive changes to any
of Oregon cleanup laws.
5.
Law Commission Involvement
Due to the environmental nature of the Act, there will likely be interest and comments
from individuals and groups across the state. The Oregon Law Commission is well suited to
bring these various groups together and work toward a unified proposal that could be introduced
to the Legislative Assembly in the 2009 session. In addition, the Act comes from NCCSUL,
which makes this a good project for the Commission. Commission Chair Lane Shetterly, a
NCCUSL member, has expressed interest in further tying the Commission’s efforts to the
NCCUSL’s proposals. This effort would be consistent with the Commission’s operating statutes,
which specifically identify NCCUSL recommendations as a subject of the Commission’s law
revision agenda. ORS § 173.338(1)(b). Examining the Act would be consistent with the
Commission’s statutory charge.
While discussion will surely abound surrounding the Act, other states which have
adopted the Act have seen support from many environmental groups as well as developers. For
example, in Washington, SB 5421 (the Act) had the support of: the Sierra Club, Nature
Conservancy, NW Energy Coalition and the Washington Environmental Council, among other
environmental groups.
6.
Project Participants
Commission staff has not to date identified specific individuals in Oregon who might
make good work group members for this project. An ideal work group composition, however,
would include a mix of developers, environmental and land use attorneys, non-profit
environmental groups, representatives of the DEQ and academic professionals who have taught
or studied environmental or land use law.
Conclusion
The Act provides legislation that greatly enhances developers’ ability to make use of
underdeveloped land. At the same time, the Act is conscience of environmental concerns. The
NCCUSL promulgated the Act to enable these brownfields to reenter the stream of commerce.
The Program Committee of the Oregon Law Commission should approve the formation of a
work group to study implementation of the Act. By adopting the revisions, Oregon could bring
the state’s environmental laws up to date and make them consistent with the laws of a growing
number of states.
8
Appendix A: Invitees to October, 2006 Meeting regarding UECA
Meeting Invitees
Joe Willis
Jeff Christensen
Charlie Landman
Bob Danko
David Ashton
Jack Munro
Ken Sherman
Michael Abendhoff
Glenn Klein
John Ledger
Randy Tucker
Tom Zelenka
John DiLorenzo
Susan Grabe
Max Miller
Kim Stafford
Jeffrey Keeney
Cyndy Mackey
Don Pyle
jwillis@schwabe.com
CHRISTENSEN.Jeff@deq.state.or.us
landman.charles@deq.state.or.us
danko.robert@deq.state.or.us
David.Ashton@portofportland.com
johnmunro1@comcast.net
ken@shermlaw.com
AbendhMR@bp.com
glenn.klein@harrang.com
ledger@aoi.org
tucker@metro.dst.or.us
tzelenka@schn.com
johndilorenzo@dwt.com
sgrabe@osbar.com
max@tonkon.com
kims@tonkon.com
jeffk@tonkon.com
Mackey.cyndy@epa.gov
PyleD@LanePowell.com
Schwabe, Williamson & Wyatt
Oregon DEQ
Oregon DEQ
Oregon DEQ
Port of Portland
Lobbyist, Oregon Land Title Ass’n
Oregon Bankers Association
BP America Inc.
Harrang Long Gary Rudnick
AOI
METRO
Schnitzer Group
Davis Wright Tremain
Oregon State Bar
Tonkon Torp LLP
Tonkon Torp LLP
Tonkon Torp LLP
EPA Region 10
Lane Powell Spears Lubersky LLP
Call-in Invitees
Kenneth Schefski
William Breetz
Lori Cora
Lori Cohen
Kelly Cole
Schefski.Kenneth@epamail.epa.gov
william.breetz@uconn.edu
cora.lori@epa.gov
cohen.lori@epa.gov
cole.kelly@epa.gov
EPA
UConn School of Law
EPA Region 10
EPA Region 10
EPA Region 10 (guessing on email)
Addition possible invitees
Bernie Bottomly
bbottomly@portlandalliance.com
9
Portland Business Alliance