Environmental Law

Using Buyer-Seller Agreements in PA Brownfield Transactions

By M. Joel Bolstein

One of the most helpful tools available to developers involved with brownfield redevelopment projects in Pennsylvania is the Buyer-Seller Agreement.   It's a 3 way agreement in the form of a CO&A between the buyer, the seller and PADEP.  Under the terms of the Buyer-Seller Agreement, the seller agrees to remediate the property in accordance with Act 2 and attain one or a combination of the Act 2 remediation standards.  The PADEP gives the buyer a Covenant Not to Sue at the time the agreement is signed.  The seller agrees to comply with a schedule ( which is usually very generous) for moving the site through the Act 2 process.  When PADEP approves the seller's Act 2 Final Report, then both the seller and buyer receive a statutory release of liability (consistent with Act 2 Section 501) and the release runs with the property.  The beauty of the Buyer-Seller Agreement is that it allows the transaction to proceed.  The buyer takes possession of the property, knowing that the seller is bound by a CO&A with PADEP to remediate the property in accordance with Act 2.  Also, the seller gets paid for the property, and it can use the proceeds of the sale to complete the remediation work.  It is particularly useful in the situation where the contamination on site has no impact on the buyer's plan for using the property.

I just completed a transaction that included signing a Buyer-Seller Agreement with PADEP, which  provides an excellent example of how they can be used.  In my transaction, our client was selling a small strip mall in a highly commercialized area.  The buyer's due diligence discovered low levels of PCE in the groundwater, most likely from historic operations at a dry cleaner within the strip mall.   Our consultant did a more complete site characterization and determined that the PCE in the groundwater (while above the Act 2 medium specific concentrations -- the drinking water standard), did not pose a risk to people who would be on the property (because the property was connected to public water and there were no vapor intrusion issues) and the PCE wasn't going to migrate off-site and impact any drinking water wells or surface water.  The Seller committed to meeting the Act 2 Site Specific standard, which involved performing quarterly groundwater sampling (Act 2 requires 8 quarters which can be reduced to 4) and imposing a deed restriction prohibiting the use of the groundwater for drinking water purposes and limiting the use of the property to non-residential uses.  I drafted up the Buyer-Seller Agreement using the model agreement on PADEP's website .   It's basically a cookie-cutter agreement and PADEP counsel will expect you to fill in the blanks and submit it for their review.  I've found that the review usually takes about four to six weeks because the Environmental Cleanup Program staff will need to review the site assessment and approve the work plan.  If the transaction is moving quickly, you can ask PADEP to expedite the review and then it depends on their workload.   In our case, PADEP approved our Buyer-Seller Agreement in a few weeks, allowing both parties to be comfortable going forward with the closing.              

Most of the lawyers at PADEP who work with the Act 2 program are very comfortable with Buyer-Seller Agreements.  The statistics I've seen show that PADEP enters into an average of 15 to 20 Buyer-Seller Agreements each year.  That's on top of the hundreds of other projects that go through the Act 2 program every year.  If you are representing a developer looking to buy contaminated property in Pennsylvania, you should always consider asking the seller to enter into a Buyer-Seller Agreement if contamination is discovered during the pre-closing due diligence.    

Unfortunately, there are lots of states that don't have anything like a Buyer-Seller Agreement.  Developers in those states may want to consider asking their state environmental agencies to follow Pennsylvania's lead.   

Full post as published by PA Brownfields Environmental Law on August 02, 2007 (boomark / email).