What's Developing | Winter 2020-21

As a statewide group, collectively we are looking toward the future and considering the current and potential impacts of COVID-19 on the land development industry. We are working hard to help you navigate the many novel and complex business and legal issues that are arising. You can find the new federal and state government actions which we are tracking here.

WHAT TO DO WHEN THE DIRT IS DIRTY -
EVALUATING ENVIRONMENTAL ISSUES IN
REAL ESTATE TRANSACTIONS

What do real estate attorneys, professionals, and developers need to know about environmental issues when doing deals? Stearns Weaver Miller attorneys recently explored that question in great depth.

Jeffrey A. Collier, Jacob T. Cremer, and F. Joseph Ullo, Jr., with assistance from Nicole A. Neugebauer, recently authored a comprehensive chapter on environmental issues to consider in real estate transactions in the Florida Bar treatise "Florida Real Property Complex Transactions." The Chapter evaluates various bases for contamination liability and provides negotiation and documentation strategies to consider for both existing and potential contamination. The Chapter also provides an analysis of key federal laws creating these liabilities, such as the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and comparable Florida laws.

In this issue of What's Developing, we summarize from that Chapter some important considerations for property owners, prospective purchasers, and lenders in real estate transactions involving contaminated property.

I. CERCLA - A Federal Basis for Environmental Liability

Congress enacted CERCLA in 1980 to address releases of toxic or hazardous substances and future spills of hazardous substances in the wake of several environmental disasters. CERCLA imposes strict liability, which means liability can be imposed on a person for a "release" of hazardous substances even if the person was only negligent or not the cause of the release. Statutory defenses are extremely limited. CERCLA generally assigns strict liability to the current property owner even if the previous property owner was the individual responsible for creating the problem.

There are four categories of parties who are potentially liable for cleanup costs under CERCLA. These are usually referred to as a "potentially responsible party" ("PRP"):

Current owners and operators of the facility;
Prior owners and operators who, at the time of the disposal of any hazardous substance, owned or operated the facility at which the hazardous substances were disposed;
Arrangers, which are entities that arranged for the disposal or treatment of hazardous substances at the facility;
Transporters of hazardous waste who have selected the site of disposal or treatment.

A PRP may be able to use one of CERCLA's statutory defenses and liability protections. There are general defenses, like an act of God or an act of war, and more specific defenses such as the innocent landowner defense, the bona fide prospective purchaser ("BFPP") defense, and the contiguous property owner defense.

The innocent landowner defense may exempt a landowner from liability if they can establish that, at the time the landowner acquired the facility, they did not know or have reason to know that any hazardous substance was disposed of at the facility. To claim this defense, the landowner must have (1) conducted an "all appropriate inquiries" ("AAI") review into the previous ownership and uses of the facility, and (2) must have taken reasonable steps to stop an existing release or prevent a future one. The principal problem with this defense is its inapplicability to property that the prospective purchaser knows, or has reason to know, is contaminated.

Congress expanded the CERCLA defenses to include a BFPP. To qualify, property purchasers must satisfy several statutory requirements such as providing evidence that the hazardous substances were disposed of prior to the purchaser acquiring the property and cooperating with authorized persons for conducting response and remediation activities. In addition, the purchaser cannot be affiliated with another PRP for the site through a familial, contractual, or business relationship.

The contiguous property owner defense provides liability protection for landowners who own property that is, or may be, contaminated, but is not the original source of the hazardous substance contamination. Like the BFPP defense, the contiguous property owner defense has several statutory requirements to qualify. Unlike the BFPP defense, this defense does not provide liability protection to purchasers who knew, or had reason to know, that the property was contaminated.

II. Liability under Florida Law

In Florida, Florida Department of Environmental Protection ("FDEP") administers several important Florida laws regarding environmental liability, including the Florida Resource Recovery and Management Act ("Florida Act"), which governs the regulation of solid waste, including the permitting of solid waste disposal facilities. The Florida Act also contains CERCLA-like liability provisions for losses and damages resulting from a release or threatened release of hazardous substances.

Subject to very limited statutory defenses, a person can be liable for all costs of removal and remediation of hazardous substances incurred by FDEP, plus damage and injury to natural resources. While there has been much less judicial construction of the Florida Act than CERCLA, because the Florida legislation is modeled upon federal law, Florida courts will give comparable parts of the Florida legislation the same construction as the federal courts give the federal legislation. One important dissimilarity is that unlike CERCLA, the Florida Act does not expressly exempt innocent purchasers or mortgage holders. It does, however, provide a defense for a violation that is proven to be solely the result of an act of government.

Another important basis for environmental liability in Florida is the Pollutant Discharge Prevention and Control Act, which also at times is referred to as the Water Quality Assurance Act, or as the Spill Prevention Act. This Act prohibits the discharge of what it defines as "pollutants" into coastal waters, beaches, and adjoining lands. Like CERCLA, this Act imposes strict liability.

III. Due Diligence Considerations

Parties to a real estate transaction involving property that may be contaminated should conduct a thorough environmental assessment. There are sound business and risk management reasons to undertake an environmental assessment, especially an assessment that provides the parties with a reasonable estimate of the costs for cleanup and the time required to complete that remedial process. Environmental assessments - at least one that would meet the AAI requirements of the EPA's rule - also allow property owners to qualify for landowner liability protections such as those available to BFPPs. The purpose of an environmental assessment is to determine the risks attributable to environmental laws that may be associated with purchasing or leasing land, lending money to be secured by land, or purchasing a business. These risks must be known before the closing of the transaction so that a purchaser or lender can assess the effect of these risks and their impact on the viability and structure of the transaction.

To comply with the AAI requirements, CERCLA and the EPA have provided several factors and considerations to determine whether a purchaser had reason to know of contamination, including (1) the results of an inquiry by an environmental professional, (2) interviews with past and present owners and operators of the property, (3) searches of recorded environmental liens, and (4) reviews of federal, state, and reviews of local government records on waste disposal and underground storage tanks on the property. Failure to comply with the AAI requirements eliminates the availability of the BFPP defense. The EPA and statutory requirements for AAIs are encompassed by the standards of the nationally recognized American Society for Testing and Materials ("ASTM"), which developed and codified two procedures for conducting AAIs - Phase I and Phase II assessments. Apart from the ASTM protocol and the EPA AAI Rule requirements for a qualified assessment, there is no definitive checklist for the items that must be covered in an assessment. Therefore, it is essential that the company conducting the assessment be given some guidelines as to the scope of the assessment.

IV. Opportunities under the Florida Brownfields Redevelopment Act

In 1997, the Florida Legislature enacted the Brownfields Redevelopment Act. Brownfield sites are sites where an expansion or redevelopment of the site may be complicated by actual or potential environmental contamination. Brownfields present both an opportunity to statutorily limit liability in a way that is unique to Florida law, as well as an opportunity for economic development incentives that are also unique to Florida law.

Upon the initiative of the local government or the property owner, the local government may designate qualifying Brownfield sites as "Brownfield areas," which then entitles the owner of the contaminated site or another person responsible for site rehabilitation to negotiate a "Brownfield Site Rehabilitation Agreement" ("BSRA") with either FDEP or the local government. Once qualified by a Brownfield designation, affected sites and their owners also could receive Brownfield redevelopment tax credits and funding. As of early 2020, the economic incentives available for Brownfields include a unique combination of: (1) Voluntary Cleanup Tax Credits to offset up to 100% of site rehabilitation or solid waste removal costs, (2) the Brownfield redevelopment jobs bonus refund for up to $2,500 for each new job created with a Brownfield area, and (3) the refund of sales taxes paid on building materials for certain projects.

Please consult the Florida Bar treatise for more detailed treatment of these topics. This Chapter, titled "Environmental Issues in Real Estate Transactions," was included in the tenth edition of the treatise and was published on November 9, 2020. It can be purchased at this link.

Our growing Land Development, Zoning & Environmental team is uniquely qualified to evaluate current and future environmental liability exposure in a variety of complex real estate transactions. Please contact us should you have any questions.

LEGAL UPDATE

Third DCA Holds Florida Executive Order 20-244 Does Not Expressly Preempt Local Governments from Establishing Curfews in Response to COVID-19

Miami-Dade County ("County") appealed the trial court's issuance of a temporary injunction that prevented law enforcement from enforcing several emergency orders issued by the county, which implemented, among other restrictions, a curfew in response to COVID-19, against Miami Gardens Square One, Inc. ("Tootsie's"), an entertainment venue. By issuing the injunction, the trial court reasoned that the curfew was expressly preempted by the Florida Governor's Executive Order No. 20-244 ("EO 20-244"). The Third DCA reversed, holding that EO 20-244 did not expressly or impliedly preempt local governments from establishing curfews. Moreover, the court held the County's curfew did not conflict with EO 20-244 and was therefore enforceable. View More

Second DCA Holds That Florida Department of Transportation Placed a Land Use Exaction on Owner's Property and Was Not Exercising Proprietary Power by Conditioning a Drainage Collection Permit on Reconstruction of the Drainage Connection System

Murphy Auto Group, Inc. ("Murphy") sought to develop their commercially zoned property and have it anchored by a car dealership. As part of the project, Murphy sought a drainage connection permit to connect Murphy's property to U.S. Highway 27. Florida Department of Transportation ("FDOT") required that Murphy, at their sole expense, reconstruct the drainage collection system as a condition for approval of the drainage collection permit. Upon doing so, Murphy filed an inverse condemnation action, asserting that the drainage improvements exacted by FDOT were an unconstitutional taking because they were not roughly proportional to the project's drainage impacts. The trial court held that FDOT was exercising its proprietary powers and Murphy's claim for damages was barred by sovereign immunity. The Second DCA reversed, holding that this was "a land use exaction because it burdened Murphy's right to develop its commercial property by providing access to and from the dealership." View More

Middle District of Florida Holds That the United States Army Corps of Engineers Did Not Need to Prepare an Environmental Impact Study Because Their Environmental Assessment Accurately Identified the Pertinent Environmental Circumstances, Examined Controlling Data, and Articulated a Satisfactory Explanation

In 2018, the U.S. Army Corps of Engineers ("Corps") and the City of Sarasota ("City") proposed a beach nourishment project to repair Lido Key's eroding shoreline. The project involved dredging and borrowing sand from nearby areas, some of which fell within "Outstanding Florida Waters," which are subject to special protections under Section 403.061(28), Fla. Stat. The Corps analyzed the project under the National Environmental Policy Act ("NEPA") and determined that no Environmental Impact Study ("EIS") was required because the project had no significant impacts. Save our Siesta Sands, Inc., ("SOSS2") sued the Corps, arguing the Corps' environmental assessment and findings failed to address the project's full environmental effect and violated NEPA, the Clean Water Act ("CWA"), the Endangered Species Act ("ESA"), and the Marine Mammal Protection Act ("MMPA") because the findings were based on inadequate and incomplete information. The Middle District of Florida disagreed, concluding that the Corps had completed a thorough review of the project's environmental effects and arrived at rational conclusions. View More

Third DCA Holds Landowners Are Owed Compensation for the Taking of Citrus Trees Under Both Section 581.1845, Florida Statutes and Inverse Condemnation

In October of 2000, a class of homeowners brought suit against the Florida Department of Agriculture and Consumer Services ("FDACS") for the removal of a class of residential homeowners' healthy citrus trees. In 2006, and again in 2017, the court issued two liability orders. The 2006 liability order required FDACS to compensate the homeowners; the 2017 liability order did not. On appeal, the court affirmed the 2006 liability order, but reversed the 2017 liability order. The court reasoned that the 2017 liability order, which denied the homeowners compensation, was incorrect because the legislature had clearly intended for homeowners to be compensated for the takings. The court additionally reasoned that the 2006 liability order was correct, noting that, while the applicable statute provided a minimum compensation amount, the compensation could go beyond the minimum. View More

Fourth DCA Holds Landowners May Testify in Bert Harris Act Cases, but Experts May Not if Their Valuation Method is Contrary to Statutory Requirements

Ocean Concrete, Inc. ("Landowner") purchased property in Indian River County (the "County") to operate a concrete batch plant. When the County removed concrete batch plants from the allowed uses on the property, the Landowner sued under the Bert Harris Act (the "Act") for compensation due to the frustration of its investment-backed expectations. At trial, the Landowner was allowed to testify on behalf of its own property; however, the trial court excluded the County's two experts due to their use of incorrect valuation methods. On appeal, the court affirmed the trial court's decision to allow Landowner testimony, but exclude the County's expert testimony. The court reasoned that (1) Landowner testimony had been historically allowed in prior precedent if certain conditions were met, as they were in this case, and (2) the trial court correctly excluded the County's experts due to their prohibited valuation method. View More

Second DCA Holds That Under Inverse Condemnation, No Compensation is Owed to a Grocery Store When the Store is Inextricably Intertwined With Drug Activity

A grocery store owner ("Landowner") sued the City of Fort Myers (the "City") when the City forced the store to temporarily close in response to drug activity on the property. The Landowner specifically sought damages for inverse condemnation. The City responded by arguing that the "Nuisance Exception"-which would allow the City to avoid compensating the Landowner if the grocery store and drug activity were inextricably intertwined-applied in this situation. Both the trial court and the appellate court agreed with the City, reasoning that the Landowner had been warned numerous times and had failed to work with the City to resolve the issues. View More

Second DCA Holds That Abandonment of a Nonconforming Use Requires Permanent Intent by the Property Owner to Abandon the Use

Persaud Properties FL Investments, LLC, ("Persaud") owns property in the Town of Fort Myers Beach ("Town") on which it operated a bar and restaurant. The property was located in two zoning districts, one which allows alcohol to be served and one which does not. Persaud was able to serve alcohol on the property due to a grandfathered, nonconforming use that existed when Persaud purchased the property. In 2014, Persaud temporarily halted the bar and restaurants' operations in order to renovate the property. As a result, the Town issued a determination letter in 2019 that Persaud had abandoned its nonconforming use. Persaud brought suit challenging the determination, arguing that abandonment only occurred when a property owner intended to permanently abandon the use. The trial court ruled in favor of the Town. On appeal, the Second DCA reversed, citing to numerous Florida court decisions holding that abandonment required an intent to permanently abandon the nonconforming use. Thus, the Second DCA reversed the trial court's decision in favor of Persaud, reinstating the nonconforming use. View More

TEAM MEMBER SPOTLIGHT

*Non-Lawyer

Cynthia D. Spidell, MBA, AICP*

Associate Director of Planning, Tampa

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Cynthia's Practice: Cynthia is a certified planner with over 23 years of experience in the public and private sectors and serves as an in-house consultant in the Firm's Land Development, Zoning & Environmental group. Her strong public/private sector relationships and intimate understanding of local regulations afford her the ability to easily navigate, mediate and resolve complex land use, zoning, and permitting matters amidst competing interests at all levels of the regulatory planning process. Cynthia provides an ability to identify and effectively deal with key land use and permitting issues and routinely works with clients to strategically analyze properties and maximize opportunities for development. For more information on Cynthia, please click here.

Recent Experience: Prior to joining the Firm in November, Cynthia spent 4 years with Ardurra (formerly King Engineering) where she served as Project Manager for several transformative projects throughout Central and Southwest Florida including in Hillsborough, Manatee, Pasco, Pinellas and Sarasota Counties. Prior to Ardurra, she spent 11 years with the Pasco County Board of County Commissioners, 9 of which were in a planning capacity and 2+ as Capital Budget Coordinator.

Before her planning career, Cynthia had a diverse and extensive career in Investment Banking, working for nearly a decade at multinational investment banks. Cynthia's strong fiscal background, combined with her understanding of land development trends, was an essential skill set in her capacity as Capital Budget Coordinator for Pasco County and is a unique and valuable asset to clients.

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IN THIS ISSUE

What to Do When the Dirt Is Dirty - Evaluating Environmental Issues in Real Estate Transactions

Legal Update

Team Member Spotlight: Cynthia D. Spidell, MBA, AICP

Meet The Team