Environmental Covenants – They “Run With the Land”

When vapor intrusion has been identified as a concern and mitigation systems are installed in buildings, the Minnesota Pollution Control Agency (MPCA) is now often requiring that the property owner record an environmental covenant. These covenants ensure that future owners are aware of vapor conditions. Covenants also require the owner to operate and maintain installed systems to prevent vapors from entering the structure.

When Are Covenants Used?

Environmental covenants are a type of institutional control used at Superfund and Brownfield sites when:

1. Soil or groundwater contamination remains in place;
2. There are soil vapors concerns; or
3. Operations and maintenance obligations will be required into the future for an unspecified length of time.

How Does a Covenant Affect Property?

An environmental covenant, which is recorded on county property records, can be used as a tool to restrict activities. Land use may be restricted to industrial or commercial use only.  Soil disturbance may be banned in certain areas.  The installation of wells or use of groundwater may be prohibited. Affirmative obligations may also be mandated through a covenant.  For example, an asphalt or cement cap that covers areas of impacts may be required to be maintained.  An owner may need to operate, maintain and monitor remedial actions.  Continuous operation of a pumping system may be required to prevent migration of contaminated groundwater. With increasing frequency, sub-slab depressurization systems are required to be operated without interruption to ensure building occupants are not exposed to potentially harmful tetrachloroethylene (PCE) or trichloroethylene (TCE) vapors.

Why Use a Covenant?

At many polluted sites a comprehensive cleanup is not possible. Contamination may be present deep underground. Removing soil contaminants from groundwater may be technically infeasible or cost prohibitive. When contaminants remain at a site or if a property is located near a disposal site or source of a release, structures on a property may be impacted from harmful soil vapors.

Regulatory authorities review the risks associated with documented contamination on a site-by-site basis. Also, a determination is made whether industrial, commercial or residential end uses are appropriate. In addition, at sites where impacts are not fully remediated, precautions are often required to ensure that risks are properly managed and the health and safety of occupants is not compromised.

An environmental covenant supplements remedial or cleanup measures. Finally, with a covenant in place, property owners, prospective purchasers, tenants, lenders, community members and state and local officials all may have a higher measure of confidence that the affected property can be safely occupied and used productively into the future.

Used In Minnesota and Across the Country

Environmental covenants are used in states that have enacted the Uniform Environmental Covenants Act. Minnesota is one of 25 states that have adopted the law.[1] Minnesota’s law was enacted in 2007. In states where the uniform law has not been adopted, state regulatory agencies may use other legal tools to attempt to restrict property use. However, there are often legal impediments to placing restrictions on impaired property. As a result, activity or use restrictions that regulators seek to place on impaired property may not be enforceable.

What Are the Key Terms in an Environmental Covenant?

An environmental covenant contains several provisions that affect the current and future use of real property. The MPCA has issued a template for the environmental covenant currently used by the MPCA. Generally, terms of a covenant include:

• Once it is recorded, an environmental covenant “runs with the land.” The provisions of a covenant govern the use of the property and generally are in force in perpetuity. Terms can be changed, but only with the agreement of the state regulatory agency and the owner.
• A property may be subject to activity and use restrictions. For example, soil disturbance in areas where contamination remains or interference with remedial measures may be prohibited.
• A property owner may also have to perform affirmative obligations. A property owner may be required to maintain, operate and monitor response actions such as the equipment designed to remove tainted groundwater or vent harmful soil vapors from beneath a building.
• State and local authorities must be provided with notice. Authorities are typically granted an easement which provides them with the authority to enter the property to inspect systems and safeguards.
• The environmental covenant must be disclosed when property is sold or transferred.
• The state agency, in Minnesota, the MPCA, may enforce the environmental covenant by filing a civil action and seeking an injunction. The MPCA may also seek civil penalties under its enforcement authority for violations of the terms of an environmental covenant.
• Moreover, the MPCA requires that an owner (and any successive owner) to document periodic inspections and annually certify compliance with the terms of the environmental covenant.
• An environmental covenant needs to be recorded with the Recorder’s Office in the county where the property is located. A correct legal description is required. Also, a description of the background, past investigation and cleanup actions, any ongoing requirements and the location and type of remaining contamination must be included and should be carefully drafted.
• As noted above the MPCA has a preferred template. Nonetheless, it is possible to negotiate revisions to some of the standard terms.
• When there is a mortgage on the property the MPCA also has a Consent of Mortgagee template.

Careful Review Recommended

Recording an environmental covenant on property has long-term implications. If the property is subject to a mortgage or financing, notification, consent and further action may be required. Therefore, it is prudent for a property owner to review the terms of an environmental covenant carefully with counsel before it is executed.

Contact

Please see the disclaimer at the bottom of this page that relates to limitations on this blog and to legal advice. Thanks to associate Joseph Reutiman for his assistance in preparing this blog.  Finally, for information on environmental covenants and how a covenant may affect property, please contact:

Joseph G. Maternowski

Hessian & McKasy, PA

Work:  612-746-5754

jmaternowski@hessianmckasy.com