Brownfield Redevelopment: Opportunities and Constraints

By Donna S. K. Shier

New clean up standards, development experience and an active market combine to make redevelopment of contaminated sites feasible and attractive. The increased predictability and flexibility of Ontario's new process means new opportunities for profitable development. Developers and municipalities, working with experienced environmental counsel and consultants can meet the needs of lenders and insurers and satisfy the concerns of Ontario's Ministry of the Environment (MOE) and the public to revitalize abandoned or under utilized properties

Learning from the U.S.

In the U.S. the Superfund experiment resulted in enormous process costs,a large portion of the fund was spent on legal battles over who was responsible for contamination. As a result, the system has evolved. Clear standards, limited liability and incentives have successfully encouraged brownfield development.

Ontario has implemented the most important of these factors clear, achievable clean up standards, through the Guideline For Use At Contaminated Sites in Ontario (the Guideline). The Guideline, along with supporting documents, has established a process operated by proponents and their qualified environmental consultants, rather than government.

U.S. municipalities have utilized tools such as incremental tax financing, dedicating a portion of tax revenues from a site towards clean up costs. Some Ontario municipalities have been actively lobbying the province for similar powers. It would be consistent with the government's philosophy to permit more flexible use of municipal resources to improve local conditions. We hope to see some action soon in this regard.

On the liability front, developers, lenders and municipalities hope that the provincial government will follow the lead taken by some American states.

In the U.S., many states have laws limiting proponents' liability once a site has been cleaned up to meet appropriate standards. Until Ontario follows suit, development parties will still have to carefully sift the opportunities from the albatrosses. There are plenty of opportunities.

The government, through the Ministry of the Environment's Deputy Minister, has promised to further consult with development groups, the Bar Association and other stake holders towards resolving this issue.

Brown Fields

The term 'brownfield' refers to a property, generally in an urban setting, that is unused or underutilized due to actual or suspected contamination, usually attributed to a former use of the property. Brownfield sites range from former gas stations to electroplating plants, foundries and chemical plants. 'Brownfield' is used to contrast with 'greenfield,' a development term for undeveloped, unserviced property; often farmland.

Experts estimate that there are about 3,000 brownfield sites in Canada,a tiny fraction of the number that the U.S. has to deal with.

Ontario's Clean Up Guideline

The establishment of clear standards, through the deployment of the Guideline For Use At Contaminated Sites in Ontario, provides significant opportunities for developers. MOE involvement is far more limited than in the past.

The Guideline offers a range of clean up standards and options based on the intended final land use. This flexibility means that developers can find creative combinations of land uses, clean up options, and project phasing that can meet local and provincial requirements, satisfy lenders and bring profitable developments to market within predictable time frames.

Redevelopment of contaminated land will usually require some remediation,driven either by municipal requirements or those of lenders. On urban brownfield sites, remediation will often be coupled with an SSRA (site specific risk assessment) to determine the extent to which remediation must be done and beyond which contamination may be left on site.

Benefits of Redevelopment

Municipalities benefit. Every urban site that is redeveloped displaces some of the pressure for sprawl and the resulting need for expanded services and infrastructure. Redeveloped urban sites intensify the use of existing infrastructure. Improving the use of an urban site will increase the tax revenue. Sites redeveloped for commercial or mixed use attract jobs and economic benefits to the community. Cleaning up and improving abandoned or underutilized sites im proves quality of life in neighbour hoods.

Enlightened municipalities see developers as allies in the process of redeveloping brownfield sites.

Some municipalities are working on creative ways to bend restrictive municipal, planning and assessment legislation to find incentives to help developers offset potentially burdensome clean up costs. For example, Hamilton Wentworth is exploring incentives to promote clean ups that will benefit both communities and developers. Developers may be able to offset clean up costs against charges for planning, services and infrastructure.

Lenders are becoming more sophisticated, assessing the risks, underlying value of the development and the credibility of the developer's plan and consultants.

Major Canadian banks and the CMHC are now willing to look at financing development on sites where contaminants are left onsite pursuant to an SSRA, so long as conventional factors like business case and strength of covenant are satisfactory.

Identifying Opportunities

Until the last two decades, environmental issues rarely shaped investment or development decisions in Canada. Then governments introduced legislation establishing clean up liability, putting the chill on many investment and real estate deals. Now, new clean up standards, an active real estate market and experience mean that some contaminated sites can present attractive financial opportunities.

Creative approaches to financing and clean up will resuscitate many sites that were passed over in previous decades. Analyzing the business case requires a thorough understanding of site conditions, the extent and nature of contamination, and remediation options. It may look attractive to purchase a deeply discounted property where onsite treatment promises to reduce a specific contaminant of concern to acceptable levels over ten years. The deal may be less attractive if the by products of the treatment create a different contaminant that may have to be dealt with later.

It is also important to factor in the assessment, clean up and approval process. These are timeconsuming, and a realistic timeline is critical. Development with certain types of remediation measures will only be approved after peer review and consultations with the municipality and with the public.

Where marketability is a key factor, such as in singlefamily residential development, some types of contamination may push clean up costs too high.

Less expensive options, such as leaving contamination onsite, even buried at depth, means that sales will be subject to the uncertain effect of stigma on home sales.

On the other hand, some industrial, commercial, or even highrise residential uses generate sufficient income to offset the impact of limited marketability.

Rental or business income expectations, combined with a discounted purchase price, can make a profit able medium to long term investment.

A developer who acquires a thorough understanding of the property and environmental issues, will be able to identify a real opportunity.

To succeed, it is vital to lock in adequate financing to carry through to the end of this process. To achieve this the developer must understand:

• the availability of planning and other municipal approval;
• the marketability of the project;
• how to deal with the MOE and the neighbours; and
• the extent to which the investment can be recovered if the development is not completed.

Municipal Involvement

Budget constraints have reduced provincial participation and municipal responsibilities have been enhanced. Municipalities have an arsenal of planning and development tools that they have begun to use to require owner/developers to:

• provide information about the site's condition;
• conduct site investigations;
• effect monitoring or remediation plans, all prior to, or as conditions of development approval.

Municipalities can offer incentives that materialize after a development is built.

However, municipalities are rarely able to finance the cost of preparing a brownfield for development. Municipalities routinely ask developers to bear the municipality's costs in having an independent environmental consultant review the work of the developer's consultants.

The Planning Act

Ontario provincial land use planning policy states: Contaminated sites will be restored as necessary prior to any activity on the site associated with the proposed use such that there will be no adverse effect.

It is no coincidence that the policy statement uses the Environmental Protection Act expression 'adverse effect.' One of the major guiding principles for the development of the Guideline's 'effects based criteria' was: remediation of contaminated sites will take place to levels that will protect against potential adverse effects or the likelihood of adverse effects to human health, ecosystem health and the natural environment and which will result in the removal of free product and waste materials.

Under the Guideline, municipalities have greater involvement in, and greater power over the utilization of contaminated land.

For many types of development applications, municipalities are authorized under the Planning Act to pass bylaws prohibiting the use of land and the erection of buildings on land that is contaminated.

The Guideline recommends that municipalities use this power: provincial or municipal agencies may decide to make use of this Guideline or may direct proponents to use this Guideline. For example, use of the Guideline criteria may be a condition of a municipal permit, a condition of granting an approval for a plan of subdivision, or as a condition of granting a rezoning or site plan approval.

Ipso facto municipalities have more involvement in the process of clean up and the extent of clean up. Many planning approval authorities now assess properties against the Guideline before granting, or as conditions of development approvals.

The Guideline establishes a four step process for development approval:

1. Initial site assessment: Phase 1 site assessment to identify potential or actual contamination.
2. Sampling and analysis: Phase 2 site assessment to locate, delineate and quantify the contamination.
3. Remedial work plan: The preparation and implementation of the 'plan to restore the site to the appropriate conditions and verify that restoration has taken place.'
4. Completion: Documentation of the first three stages.

The Guideline creates the document called a Record of Site Condition (RSC).

Acknowledgment of the RSC by the MOE is the only formal MOE step in the site remediation process. The MOE has made very clear that the RSC is not an MOE signoff. Responsibility for the clean-up is that of the site owner and his qualified environmental consultant both of whom must sign the RSC.

In some cases, formal MOE acknowledgment is waived by the parties. For SSRAs and other situations where contaminants remain onsite, MOE acknowledgment includes imposition of an administrative order and registration of a Certificate of Prohibition on title to the property.

Process and Openness

In the past, contaminated land transactions took place between vendor and purchaser alone. The parties agreed on the extent and nature of the clean up work to be done, exchanged reports, exchanged money and maintained confidentiality.

Those days have come to an end. Municipalities are consistently becoming involved, and asking for RSCs signed by the property owner and the environmental consultant as a condition of development or redevelopment. Lenders want assurance that sites meet the standard.

Municipal involvement, public consultation and peer review of the developer's environmental consulting work can all figure prominently in the planning for development or redevelopment of contaminated land. This is particularly true where site specific risk assessment is used, where a public process is inevitable. Site specific risk assessments are very useful for development, but they can be costly and protracted. However, in appropriate cases an SSRA and the resultant clean up can be significantly less expensive than a full scale clean up. In many cases, the cost of a full scale cleanup will outweigh the value of the property. In these situations SSRA must be utilized.

This may mean a more lengthy and costly process. Cost and delay of process must be weighed on each site against the cost of a more comprehensive, less controversial clean up. Knowing this, a developer, aided by experienced environmental counel and consultants, can weigh the costs and timelines of each approach and determine the course to take based on the business case.

Development of contaminated land can rarely be accomplished quickly or secretly, but it can most certainly be done. There are many opportunities for developers and municipalities to work together to enhance communities and add value for both.

Donna S. K. Shier is a partner at Whims & Shier, an environmental, municipal and land use law firm. Certified as an Environmental Law Specialist by the Low Society of Upper Canada, she specializes in contaminated Site issues relating to development transactions or approvals.

Economic Development Journal of Canada | Economic Development Journal of Canada, 2015