FOR DISCUSSION ONLY

UNIFORM ENVIRONMENTAL COVENANTS ACT

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

Discussion Draft for Drafting Committee Meeting February 28

Chicago, Illinois

May 11, 2003

UNIFORM ENVIRONMENTAL COVENANTS ACT

WITH PREFATORY NOTE AND REPORTER'S NOTES

Copyright ©2003

By

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

March 18, 2003

____________________________________________________________________ ____________________

The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter's notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and the Drafting Committee and its Members and Reporters. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal.

DRAFTING COMMITTEE TO UNIFORM ENVIRONMENTAL COVENANTS ACT

WILLIAM R. BREETZ, JR., University of Connecticut School of Law, Connecticut Urban Legal Initiative, 35 Elizabeth Street, Room K-202, Hartford, CT 06105, Chair

MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132

DAVID D. BIKLEN, Connecticut Law Revision Commission, State Capitol, Room 509A, Hartford, CT 06106

STEPHEN C. CAWOOD, 163 W. Short St., Suite 300, Lexington, KY 40507-1361

BRUCE A. COGGESHALL, One Monument Sq., Portland, ME 04101

FRANK W. DAYKIN, 4745 Giles Way, Carson City, NV 89704, Committee on Style Liaison

THEODORE C. KRAMER, 34 Allerton Ave., Brattleboro, VT 05301-2939

DONALD E. MIELKE, Ken Caryl Starr Centre, 7472 S. Shaffer Ln., Suite 100, Littleton, CO 80127

LARRY L. RUTH, 1233 Lincoln Mall, Suite 202, Lincoln, NE 68508, Enactment Plan Coordinator

HIROSHI SAKAI, 902 City Financial Twr., 201 Merchant St., Honolulu, HI 96813

YVONNE L. THARPES, Legislature of the Virgin Islands, Capitol Building, P.O. Box 1690, St. Thomas, VI 00804

MICHELE L. TIMMONS, Office of the Revisor of Statutes, 700 State Office Bldg., 100 Constitution Ave., St. Paul, MN 55155

KURT A. STRASSER, University of Connecticut School of Law, 65 Elizabeth St., Hartford, CT 06105-2290, Reporter

K. KING BURNETT, P.O. Box 910, Salisbury, MD 21803-0910, President

CARL H. LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402, Division Chair

AMERICAN BAR ASSOCIATION ADVISOR

ROGER D. SCHWENKE, Carlton Fields, PA 1 Harbour Pl., 777 S. Harbour Is. Blvd., P.O. Box 3239, Tampa, FL33602-5950

EXECUTIVE DIRECTOR

WILLIAM HENNING, University of Missouri-Columbia, School of Law, 313 Hulston Hall, Columbia, MO 65211, Executive Director

WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director

Emeritus

Copies of this Act may be obtained from:

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

211 E. Ontario Street, Suite 1300

Chicago, Illinois 60611

312/915-0195

www.nccusl.org

UNIFORM ENVIRONMENTAL COVENANTS ACT

TABLE OF CONTENTS

Prefatory Note 1

SECTION 1. TITLE. 45

SECTION 2. DEFINITIONS. 45

SECTION 3. SUPPLEMENTAL PRINCIPLES OF LAW APPLICABLE. 89

SECTION 4. REQUISITESCONTENTS OF ENVIRONMENTAL COVENANT. 910

SECTION 5. VALIDITY OF ENVIRONMENTAL COVENANT.. 103

SECTION 6. OTHER LAW REGULATING THE USE OF REAL PROPERTY 13

SECTION 7. REQUIREMENTS FOR ENVIRONMENTAL COVENANT. 14RELATIONSHIP TO OTHER LAND USE LAW16

SECTION 7. NOTICE. 17

SECTION 8. RECORDING OF ENVIRONMENTAL COVENANT. 178

SECTION 9. DURATION OF ENVIRONMENTAL COVENANT 19

SECTION 10. MODIFICATION OR TERMINATION OF ENVIRONMENTAL COVENANTAMENDMENT 201

SECTION 11. ENFORCEMENT OF ENVIRONMENTAL COVENANT 23

SECTION 12. COPIES TO LOCAL GOVERNMENT. 25

SECTION 13. NOTICE OF ENVIRONMENTAL COVENANT 26

SECTION 14. RULES. 28

SECTION 15 23

SECTION 12. UNIFORMITY OF APPLICATION AND CONSTRUCTION. 286

SECTION 163. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. 296

SECTION 174. SEVERABILITY CLAUSE. 297

[SECTION 15 (OPTIONAL) REGISTRY; SUBSTITUTE NOTICE] . . . . . . . . . . 27

UNIFORM ENVIRONMENTAL COVENANTS ACT

Prefatory Note

Environmental covenants are increasingly being used as part of the environmental remediation of contaminated real property. An environmental covenant typically is used when the real property is to be cleaned up to a level determined by the potential environmental risks posed for a particular use, rather than to unrestricted use standards. Such risk based remediation is both environmentally and economically preferable in many circumstances, although it will often allow the parties to leave residual contamination in the real property. An environmental covenant is then used to implement this risk-based cleanup by controlling the potential risks presented by that residual contamination.

Two principal policies are served by confirming the validity of environmental covenants. One is to ensure that land use restrictions, mandated environmental monitoring requirements, and a wide range of common engineering controls designed to control the potential environmental risk of residual contamination will be reflected on the land records and effectively enforced over time as a valid real property servitude. A variety of common law doctrines - the same doctrines that led to adoption of the Uniform Conservation Easement Act - cast doubt on such enforceability and this Act addresses those matters.

A second important policy served by this Act is the return of previously contaminated property, often located in urban areas, to the stream of commerce. The environmental and real property legal communities have often been unable to identify a common set of principles applicable to such properties. The frequent result has been that these properties remain vacant, dangerousblighted and unproductive. This is an undesirable outcome for communities seeking to return once important commercial sites to productive use. This Act should significantly aid in that effort by offering a clear and objective process for creating, modifying or terminating environmental covenants and for recording these actions in recorded instruments which will be reflected in the title abstract of the property in question.

Of course, risk-based remediation must be used carefully so that the remedial steps takeneffectively control the potential risk presented by the residual contamination which remains in the real property and thereby protect human health and the environment. When risk-based remediation imposes restrictions on how the property may be used after the cleanup, requires continued monitoring of the site, or requires construction of permanent containment or other remedial structures on the site, environmental covenants are crucial tools to make these restrictions and requirements effective. Yet environmental covenants can do so only if their legal status under state property law and their practical enforceability are assured, as this proposed [Uniform Act] seeks to do.

It is important to emphasize that environmental covenants exist in a larger context of environmental remediation regulation, and they must be considered within that larger context. Thus, environmental remediation is usually based on a statutory command, overseen by a publicgovernment regulatory body, and governed by substantial regulatory controls that implement many requirements in addition to a covenants. EAn environmental covenants arecovenant is one tool used to accomplish remediation.

EAn environmental covenants may be used to ensure that the property restrictions imposed in the remedial decision regulatory process remain effective, and thus protect the public from residual contamination that remains, while also permitting re-use of the site in a timely and economically valuable way. Environmental remediation projects may be done in a widely diverse array of contamination fact patterns and regulatory contexts. For example, the remediation may be done at a large industrial operating or waste disposal site. In such a situation, the cleanup could be done under federal law and regulation, such as the Comprehensive Environmental Response CleanupCompensation and Liability Act (CERCLA) authority. Generally speaking, CERCLA would also apply to remediation done at Department of Defense or Department of Energy sites that are anticipated to be transferred out of federal ownership.

In other situations, state law and regulation will be a more important source ofn effective regulatory policyframework. State law is given a role to play in the federal environmental policy discussed above. Beyond this, state law may be the primary source of regulatory authority for many remediation projects. These may include larger sites and will often include smaller, typically urban, brownfield sites. In addition, many states authorize and supervise voluntary cleanup efforts, and these also may find environmental covenants a useful policy tool. With both state and federal environmental remediation projects, the applicable cleanup statutes and regulations will provide the basis for the restrictions and controls to be included in the resulting environmental covenants.

This Act is intended to apply to environmental use restrictions from residual contamination in any of these different situations. Once the governing regulatory systemauthority and the property owner have determined to use a risk-based approach to cleanup to protect the public from residual contamination, this Act supplies the legal infrastructure for creating and enforcing the implementing environmental covenant under state law.

This Act does not require issuance of regulations. However, many state and federal agencies have developed implementation tools, including model covenants, statements of best practices, and advisory groups that include members of the real estate and environmental practice bars as well as business and environmental groups. Developing and sharing such implementation tools and advisory groups should support the effective implementation of the Act and is encouraged.

This Act does not address or change the larger context of environmental remediation regulation discussed above, and a number of aspects of that regulation should be noted here. Many contaminated properties are subject to the concurrent regulatory jurisdiction of both federal and state agencies. This Act does not address the exercise of such concurrent jurisdiction, and it is not intended to limit the jurisdiction of any state agency. Both federal and state regulatory agencies attempt to concur on the requirements of a specific environmental remediation project. However, the potential exists for separate agencies to insist on separate requirements. Where possible, the best practice in creating environmental covenants is for all regulatory agencies with jurisdiction over the property to concur in the terms of the remediation project and the environmental covenant.

A specific issue arises with federal property that is not anticipated to be transferred to a non-federal owner. There is currently an unanswered question as to whether remediation of such property is subject to State regulatory jurisdiction. This Act takes no position on that question. Where federal property is transferred to a non-federal owner, state agencies will clearly have jurisdiction provided under state environmental law.

Buyers of property subject to an environmental covenant should also be aware that both state and federal environmental law authorize reopening the environmental remediation determination when the relevant statutory standards are met. While such reopeners are rare, they are possible to respond either to newly discovered contamination or new scientific knowledge of the risk posed by existing contamination. Under existing environmental law, the then current owner may have remediation liability. Federal law now provides protection for bona fide purchasers of such property under specified circumstances, and the law of some states may also afford some protection. However, this Act does not provide any such bona fide purchaser protection.

Environmental covenants recorded pursuant to this act will provide constructive notice of the covenant and in many circumstances recording will provide actual notice. However, to ensure that there is actual notice a state or a local recording authority may wish to highlight the existence of environmental covenants with maps showing the location of properties subject to environmental covenants similar to maps used to show the location of zoning or flood plains.

This Act contemplates a situation where a risk based clean-up is agreed to by the regulatory agency and the parties responsible for the clean-up, potentially including the fee owner and the owners of other interests in the property. As a consequence of that agreement, the Act assumes those parties will each negotiate the terms of and then sign the covenant.

The Act assumes the current owners will sign the covenant. Cooperation is not always possible, however. State and federal regulatory systems make a number of parties, in addition to the current owner of a fee simple or some other interests, potentially liable for the cost of remediation of contaminated real property. As a result, a remediation project may proceed even though an owner is no longer present or interested in the property. In those circumstances, the remediation project would be conducted pursuant to regulatory orders and could be financed either by other liable parties or by public funds. However, an environmental covenant may still be a useful tool in implementing the remediation project even in these situations.

When an owner is either unavailable or unwilling to participate in the environmental response project, it may be appropriate to condemn and take a partial interest in the real property in order to be able to record a valid servitude on it. Under the law of some states, states have the power to take that owner's interest by condemnation proceedings, paying the value of the interest taken, and then enter an environmental covenant as an owner. Where there is substantial contamination the property may have little or no market value, and in some states the court presumably would take the cost of remediation into account in establishing the fair market value of the interest taken. See, e.g., Northeast Ct. Economic Alliance, Inc. v. ATC Partnership, 256 Conn. 813, 776 A.2d 1068 (2001). Although effective implementation of this Act may require that the state have a power of condemnation, this Act does not provide a substantive statutory basis for that power, and the State must therefore rely on other State law. Each State considering adoption of this Act should ensure that such a condemnation power is available for this purpose.

Similarly, while this Act provides substantive law governing creation, modification, and termination of environmental covenants, it does not include special administrative procedures for these and does not change the remedial decision making process. Rather, the Act presumes that the State's general administrative law or any specific procedure governing the environmental response project would apply to these activities.

Finally, this Act does not include a section of policy and legislative findings, although some states may choose to use such a section. If such a section is desired, the following version, taken from the Colorado Statute, C.S.R.A. §25-15-317, may be appropriate.

Policy and Legislative Findings.

The [insert name of General Assembly or other State Legislative Body] declares that it is in the public interest to ensure that environmental response projects protect human health and the environment. The [General Assembly] finds that environmental response projects may leave residual contamination at levels that have been determined to be safe for a specific use, but not all uses, and may incorporate activity and use limitations that must be maintained or protected against damage to remain effective. The [General Assembly] further finds that in such cases, it is necessary to provide an effective and enforceable means to ensure the required activity and use limitations remain effective for as long as any residual contamination poses environmental risk. The [General Assembly] therefore declares that it is in the public interest to create environmental covenants to effectuate environmental response projects which protect human health and the environment.

UNIFORM ENVIRONMENTAL COVENANTS ACT

SECTION 1. TITLE. This [Act] may be cited as the Uniform Environmental Covenants [Act].

SECTION 2. DEFINITIONS. In this [Act]:

(1) "Activity and use limitations" means restrictions or obligations with respect to real property.

(2) "Affected local government" means a county, city, municipality, or other unit of local government in which real property subject to an environmental covenant is located.

(3) "Agency" means thea state or federal governmental bodyagency that determines or approves the environmental response project that includes creation of anpursuant to which the environmental covenant is created. The term includes the [insert name of state regulatory agency for environmental protection].

(4) "Common interest community" means real estate with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration. "Ownership of a unit" does not include holding a leasehold interest of less than [20] years in a unit, including renewal options.

(45) "Environmental covenant" means a servitude arising under an environmental response project that imposes activity and use limitations.

(56) "Environmental response project" means a plan or work performed for environmental remediation of real property, conducted: (A) under a federal or state governmental program requiringgoverning environmental remediation of real property, including [insert references to state law requiringgoverning environmental remediation], or

(B) incident to closingclosure of a solid or hazardous waste management unit if the closingclosure is conducted with approval of an agency; or

(C) under a program ofstate voluntary remediation of real property subject to approval and supervision by a governmental authority or by a person authorized by a governmental authority or by statute.

(6clean-up program authorized in [insert reference to state statute or regulation].

(7) "Holder" means a person other than an agency or other governmental body that is named as a holder in, including an owner or agency, that is the grantee of an environmental covenant. The interest of a holder is an interest in real property, except that the interest of a holder that is an agency is not an interest in real property if the environmental covenant so provides.

(78) "Interested party" means any person, other than an owner, that has ana recorded interest in the real property that is subject to an environmental covenant. The term includes a person that has an interest in the real property created by a security instrument.

(89) "Owner" means a person that holdsowns the fee simple in real property that is subject to an environmental covenant.

(910) "Person" means an individual; corporation; business trust; estate; trust; partnership; limited liability company; association; joint venture; government; governmental agency, subdivision, agency, instrumentality or body; public corporation; or any other legal or commercial entity.

(10) "Prior covenant" means a record that:

(A) creates activity and use limitations;

(B) arose under an environmental response project; and

(C) was agreed to before [the effective date of this [Act]].

(11) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

(12) "Security instrument" means a mortgage, deed of trust, security deed, contract for deed, land sale contract, lease, or other document that creates or provides for an interest in real property to secure payment or performance of an obligation, whether by acquisition or retention of a lien, a lessor's interest under a lease, or title to the real property.

(13) "Sign" means:

(A) to execute or adopt a tangible symbol with present intent to authenticate or adopt a record; or

(B) to attach or logically associate an electronic sound, symbol, or process to or with a record with the present intent to authenticate the record.

(14) "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.

Reporter's Notes

The following are examples of subsection (1) activity and use limitations:

(1) a prohibition or limitation of one or more uses of or activities on the real property, including restrictions on residential use, drilling for or pumping groundwater, or interference with activity and use limitations or other remedies,

(2) an activity required to be conducted on the real property, including monitoring, reporting, or operating procedures and maintenance for physical controls or devices,

(3) any right of access necessary to implement the activity and use limitations, and

(4) any physical structure or device required to bye placed on the real property.

The governmental body with responsibility for the environmental response project in question is the agency under this Act. This agency will supply the public supervision necessary to protect human health and the environment in creating and modifying the environmental covenant. The agency, for purposes of this Act, may be either a federal government entity or the appropriate state regulatory agency for environmental protection.

The definition of "agency" makes clear that an environmental covenant is valid if one agency signs it. However, in many circumstances, both a federal and a state agency may have jurisdiction over the environmental contamination which lead to the environmental response project. In this situation, the best practice will be for both federal and state agencies with jurisdiction over the contaminated property to sign the environmental covenant.

Subsection (45) states that an environmental covenant is created to implement an environmental response project. An environmental response project may determine, in some circumstances, to leave some residual contamination on the real property. This may be done because complete cleanup is technologically impossible, or because it is either ecologically or economically undesirable. In this situation, the environmental response project may use activity and use limitations to control residual risk which results from contamination remaining in real property. An environmental covenant is then created to ensure that the activity and use limitations are both legally and practically enforceable.

"Environmental response projects" covered by subsection (56) may be undertaken pursuant to authorization by one of several different statutes. Subsection (56)(a) specifically covers remediation projects required under state law. However, the subsection is written broadly to also encompass both current federal law, future amendments to both state and federal law, as well as new environmental protection regimes should they be developed. Without limiting this breadth and generality, the Act intends to reach environmental response projects undertaken pursuant to any of the following specific federal statutes:

(1) Subchapter III or IX of the federal "Resource Conservation and Recovery Act of 1976", 42 U.S.C. sec. 6921 to 6939e and 6991 to 6991i, as amended;

(2) Section 7002 or 7003 of the federal "Resource Conservation and Recovery Act of 1976", 42 U.S.C. sec. 6972 and 6973, as amended;

(3) "Comprehensive Environmental Response, Compensation, and Liability Act of 1980", 42 U.S.C. sec. 9601 to 9647, as amended;

(4) "Uranium Mill Tailings Radiation Control Act of 1978", 42 U.S.C.sec.7901 et seq., as amended;

(5) "Toxic Substances Control Act", 15 U.S.C. 2601 to 2692, as amended;

(6) "Safe Drinking Water Act", 42 U.S.C. 300f to 300j-26, as amended;

(7) "Atomic Energy Act", 42 U.S.C. 2011 et. sec., as amended.

Whether state law requirements are applicable to active federal facilities is currently an unanswered question. This definition of "environmental response project", and this Act generally, take no position on that question.

Subsection (56)(c) extends the Act's coverage to voluntary remediation projects that are undertaken with approval and supervision by a governmental body under state law. Environmental covenants that are part of voluntary remediation projects may serve both the goal of environmental protection and the goal of facilitating reuse of the real property. However, supervisionapproval of these projects by a governmental body or other authorized party is essential to insureensures that the project serves these goals. This Act is intended to apply only to environmental covenants that are part of such publicly supervised remediation projects.

To protect against possible future liability for further remediation, an owner may wish to provide for remediation of the real property beyond the requirements of minimum applicable regulatory standards. Such provision can be part of the environmental response project if the requirements of governmental approval and supervision are satisfiedrequires that covenants undertaken as part of a voluntary clean-up program must be signed by the agency in order to be effective.

Some states authorize properly certified private parties to supervise remediaton to pre-existing standards and certify the cleanup. For example, in Connecticut and Massachusetts, these are "licensed site professionals". (Massachusetts: MGL ch. 21A §19; 310 CMR 40.1071; Connecticut: CGS §§22a-133o, 22a-133y.) Supervision and certification by statutorily-authorized parties accomplishes the same public function as supervision and certification by the governmental entity. Thus, these environmental response projects are also covered by this definition.

Under subsection (56)(c) environmental response projects may include specific agreements between the owner and the agency for remediation that goes beyond prevailing requirements if authorized by the state voluntary cleanup program. Because the owner may have residual liability for the site, even after remediation and transfer to a third party for redevelopment, the owner may require further restrictions as a condition of creating the environmental covenant and eventual reuse of the real property. The agency's approval and supervision will be sufficient to ensure that any further restriction is in the public interest.

The definition of "holder" is in Ssubsection (67). As the practice of using environmental covenants continues to grow, new entities may emerge to serve as holders, and this Act does not intend to limit this process. A holder may be the agency or any non-governmental person under the broad definition of this Act although the agency and other governmental bodies indentified in an environmental covenant may also enforce the covenant in accordance with its terms pursuant to that governmental body's regulatory authority, including an affected local government. The identity of an individual holder must be approved by the agency and the owner as part of the process of creating an environmental covenant, as specified in Section 4 of this Act. A holder is authorized to enforce the covenant under Section 11 and this section also contains an additional provision concerning whether a holder's power to enforce the covenant is an interest in real property. A holder. A holder has the rights specified in Section 4 of this act and may be given other rights or obligations in the environmental covenant.

Subsection (7)'s definition of a holder specifies that a holder's interest is an interest in real property, unless the environmental covenant specifies otherwise for an agency holder. This provision is included because some environmental enforcement agencies are not authorized to own an interest in real property after the environmental remediation is completed and this provision will enable those agencies to be holders under the Act.

More generally, the nature of a holder's interest in the real property may influence whether its rights and duties with respect to the real property are likely to lead to potential liability for future environmental remediation, should such remediation become necessary. Under CERCLA an "owner" is liable for remediation costs, 42 U.S.C.A. 9607(a)(1). Unfortunately, the definition of "owner" in the statute is circular and unhelpful in evaluating whether a holder is potentially liable under it. 42 U.S.C.A. 9601(20).

In general, a holder's right to enforce the covenant under Section 11 should be considered comparable to the rights covered in an easement and, thus, should not lead to a determination that the holder is liable as an "owner" under CERCLA. The two cases that have considered this question have found that the parties which held the easements were not CERCLA "owners". Long Beach Unified School District v. Dorothy B. Godwin California Living Trust, 32 F.3d 1364 (9^th Cir. 1994); Grand Trunk R.R. v. Acme Belt Recoating, 859 F. Supp. 1125 (W.D.MI, 1994). In each case, the court reasoned that the circular definition of owner meant that the term's most common meaning would prevail. The common law's distinction between an easement holder and the property owner was then applied to find the easement holder not to be an "owner" for purposes of this statute. In each of these cases, the party which held the easement had not contributed to contamination on the property. (The amendments to CERCLA Section 9601(35), Small Business Liability Relief and Brownfields Revitalization Act, Pub. L. No. 107-118, ** Stat. ** (2002)(HR 2869, 107^th Cong. 1^st Session), added the term "easement" to the definition of parties which are in a "contractual relationship" under CERCLA. However, this does not affect whether the easement holder will be held to be a CERCLA "owner".)

Where the holder or another person has more extensive rights than enforcement, a careful analysis will be required. The CERCLA liability cases typically emphasize that a party which exercises the degree of control over a site equivalent to the control typically exercised by an owner of the site will be held liable as an "owner". Under this approach, for example, lessees have been held liable as owners when their control over the site approximated that which an owner would have. See, e.g., Delaney v. Town of Carmel, 55 F. Supp. 2d 237 (S.D.N.Y. 1999); U.S. v. A & N Cleaners and Launderers, 788 F. Supp. 1317 (S.D.N.Y. 1990); U.S. v. S.C. Dept. of Health and Env. Control, 653 F. Supp. 984 (D.C.S.C. 1984.) A holder contemplating extensive control over the site should consider potential "owner" liability carefully.

CERCLA liability also extends to an "operator" of the site (42 U.S.C.A. 9607(a)(1)), and the case law interpreting this definition emphasizes that a party is liable as an operator if it has a high degree of control over the operating decisions and day to day management at the site. Thus, for example, a party which held an easement could be liable as an operator if it's control met this standard. A holder will, in general, have only control authority over the site related to effective enforcement of the environmental covenant and does not typically need more extensive day to day control. However, a holder should be given more extensive control over the site only after careful consideration of the potential CERCLA "operator" liability.

Subsection (98)'s definition of interested party reaches all owners of less than a fee simple interest in the real estate. While such parties are frequently described as "holders" of such an interest, that terminology is not used here to minimize the chance for confusion with the holder as defined in this act. The definition of interested party reaches a person who has an interest solely as security for an obligation so that such person's consent will be required for creation of an environmental covenant under Section 4 and modification under Section 10 if its interest is affected by the covenant or modification. This Act does not create the interest held by any interested party and thus should not effect the liability of any interested party under any other law.

The definition of "Person" in subsection (10) is different than the usual definition in that it includes government entities. The use of the word "Governmental Agency" includes "Agency" as defined in this section but also includes any other agency within the local, state or federal governments.

Subsection (12) defines security instrument broadly. The definition is taken from the Uniform Non-Judicial Foreclosures Act and is used in Section 2 (8) of this Act.

SECTION 3. SUPPLEMENTAL PRINCIPLES OF LAW APPLICABLE.

Unless displaced by the particular provisions of this [Act], the principles of law and equity, including the law of real property and environmental and administrative law, supplement the provisions of this [Act].

SECTION 4. REQUISITESCONTENTS OF ENVIRONMENTAL COVENANT.

(a) An environmental covenant must:

(1) state that the instrument is an environmental covenant executed pursuant to [insert statutory reference to this [Act].]

(12) contain a legally sufficient description of the real property subject to the covenant;

(23) describe the activity and use limitations on the real property, including any rights of access or other rights granted or retained in connection with enforcement of the covenant; and

(3) be signed by the agency, each owner, and the holder.

(b

(4) identify the holder and describe its right to enforce the covenant and any other rights and obligations it has; and

(5) be signed with the formalities of a deed by an agency, all owners, and all holders.

(b) In addition to the information described in (a), an environmental covenant may contain whatever other information, restrictions and requirements are agreed to by the parties, including any:

(1) notice requirements following transfer of specified interests in the property subject to the covenant;

(2) periodic reporting requirements describing compliance with the covenant;

(3) rights of access to the property arising under other law;

(4) notice requirements concerning proposed changes in use of the property, applications for building permits, or proposals for any site work affecting the contamination on the property subject to the covenant;

(5) information concerning the contamination and the remedy, including the contaminants of concern, the pathways of exposure, exposure limits, and a description of the location and full extent of the contamination plume including other properties to which the plume extends.

(6) restrictions or limitations on modification or termination of this covenant in addition to those contained in Sections 9 and 10 of this [Act].

(c) As a condition to signing an environmental covenant, thean agency may require anthe owner or any interested party to subordinate its

(1) provide any title information that the agency may require regarding the real property which will be subject the to covenant; and

(2) obtain a subordination agreement from any person with an interest in the real property which will be subjected to the covenant. The subordination may be contained in the environmental covenant or in a separate record or, in the case of an environmental covenant covering real property in a common interest community, in a record signed by the president or other authorized officer of the executive board of the unit owner'sowners' association. An agreement by a lendern owner of a security interest, tenant, or other interested party to subordinate its interest to an environmental covenant does not impose liability on theat person with respect to the covenant.

Reporter's Notes

This Act does not provide the standards for environmental remediation nor the specific activity and use limitations to be used at a particular site. Those will be provided by other state and federal law governing mandatory and voluntary cleanups. Those standards will then be incorporated into the environmental response project, which, in turn, will calls for activity and use restrictions that can be implemented through creation of an environmental covenant. This section addresses creation of the environmental covenants.

An environmental covenant can be created only by agreement between the agency and the owner. If there is a holder other than the agency or the owner, both the agency and the owner must approve the holder, and the holder must agree to the terms of the covenant. The agency may refuse to agree to an environmental covenant if it does not effectively implement the activity and use limitations specified in the environmental response project.

Where no owner is available and willing to participate in the environmental response project, it may be appropriate for the agency to condemn and take an interest sufficient to record a valid servitude on the property where it has the power to do so.

This Act recognizes that there may be parties whichthat own different interests in real property, other than the fee simple interest, and these are defined as "interested parties" under Section 2 (98) of this Act. Examples include an interest in mineral rights may be owned separately from surface rights, long term leases, mortgages and liens.

In addition to the parties specified in subsection 4(a)(5), other persons may sign the environmental covenant. Under the prevailing environmental law, persons other than the owner or an interested party may be liable for cleanup of the contamination, including contingent future liability if further cleanup is needed or personal injury claims are brought. These could be parties which previously used the property or whose waste was disposed of on the property. Such a person may be a participant in the environmental response project and wish to sign the covenant so as to be informed of future enforcement, modification and termination.

A holder is the grantee of the environmental covenant and the Act requires that there be a holder for a covenant to be valid and enforceable. In addition to enforcement rights, the holder may be given specific rights or obligations with respect to future implementation of the environmental covenant. These could include, for example, the obligation to monitor groundwater or maintain a cap or containment structure on the property. Such rights and obligations will be specified in the environmental covenant.

The Act requires an agency to sign the covenant. In some states it may be necessary to amend the state agency's enabling statute to empower it to so sign.

Subsection (b)(6) contemplates that the environmental covenant may impose additional restrictions on modification or termination beyond those required by this Act. In some circumstances the owner or another party may have contingent residual liability for further cleanup of the real property subject to the environmental covenant and may seek further restrictions in the covenant to protect against this contingent liability.

Subsection (bc) is concerned with prior interests in the real property. If a prior interest is not subordinated to the environmental covenant, and then is foreclosed at some later time, under traditional real property law, that foreclosure would extinguish or limit an environmental covenant. Since such an outcome is antithetical to the policies underlying this Act, the Act contemplates that the agency may, before agreeing to the covenant, require subordination of these interests. At the time of creation of the environmental covenant, the agency must determine whether the prior interest presents a realistic threat to the covenant's ability to accomplish its purpose to protect the environment protection and human health. By subordinating its interest, an owner or interested party does not change its liability with respect to the property subject to the environmental covenant. Any such liability of a subordinating party would arise by operation of other law and not under this Act.

SECTION 5. VALIDITY OF ENVIRONMENTAL COVENANT.

(a) An environmental covenant runs with the land and binds the parties and their successors and assigns.

(b) An environmental covenant that is otherwise valideffective is valid and enforceable even if: (1) it is not appurtenant to an interest in real property;

(2) it can be or has been assigned to a person other than the original holder;

(3) it is not of a character that has been recognized traditionally at common law;

(4) it imposes a negative burden;

(5) it imposes affirmative obligations upon the owner of an interest in the burdened real property or upon the holder;

(6) the benefit or burden does not touch or concern real property;

(7) there is no privity of estate or of contract;

(8) it is subject to similar impediments to enforcement of that interest under the laws of this state; or

(98) it is identified as an easement, covenant, servitude, deed restriction, or other interest.; or

(c9) A prior covenantthe persons identified as owner and holder in the environmental covenant are the same person.

(c) A servitude that creates activity and use limitations and was agreed to before the effective date of this [Act] is not invalid or unenforceable by reason of any of the limitations on enforcement of interests described in subsection (b). This [Act] does not apply in any other respect to such a prior covenantservitude.

(d) This [Act] does not invalidate or render unenforceable any interest, whether designated as an environmental covenant or other interest, that is otherwise enforceable under the law of this State.

Reporter's Notes

Subject to the other provisions of this Act, environmental covenants are intended to be perpetual, as provided in subsection (a),. Covenants may be limited, as provided in Section 9, or modified or terminanted under Section 10.

Subsection (b) and its comments are modeled on Section 4 of the Uniform Conservation Easement Act. One of the Environmental Covenant Act's basic goals is to remove common law defenses that could impede the use of environmental covenants. This section addresses that goal by comprehensively identifying these defenses and negating their applicability to environmental covenants.

This Act's policy supports the enforceability of environmental covenants by precluding applicability of doctrines, including older common law doctrines, that would limit enforcement. That policy is broadly consistent with the Restatement of the Law Third of Property (Servitudes), including §2.6 and chapter 3. For specific doctrines see §§ 2.4 (horizontal privity), 2.5 (benefitted or burdened estates), 2.6 (benefits in gross and third party benefits), 3.2 (touch and concern doctrine), 3.3 (rule against perpetuities), and 3.5 (indirect restraints on alienation). .

Subsection (b)(1) provides that an environmental covenant, the benefit of which is held in gross, may be enforced against the grantor or his successors or assigns. By stating that the covenant need not be appurtenant to an interest in real property, it eliminates the requirement in force in some states that the holder of an easement must own an interest in real property (the "dominant estate") benefitted by the easement.

Subsection (b)(2) also clarifies existing law by providing that a covenant may be enforced by an assignee of the holder. Section 10(ed) of this Act specifies that assignment to a new holder will be treated as a modification and Section 10 governs modification of environmental covenants.

Subsection (b)(3) addresses the problem posed by the existing law's recognition of servitudes that served only a limited number of purposes and that law's reluctance to approve so-called "novel incidents". This restrictive view might defeat enforcement of covenants serving the environmental protection ends enumerated in this Act. Accordingly, subsection (b)(3) establishes that environmental covenants are not unenforceable solely because they do not serve purposes or fall within the categories of easements traditionally recognized at common law or other applicable law.

Subsection (b)(4) deals with a variant of the foregoing problem. Some applicable law recognizes only a limited number of "negative easements" - those preventing the owner of the burdened real property from performing acts on his real property that he would be privileged to perform absent the easement. Because a far wider range of negative burdens might be imposed by environmental covenants, subsection (b)(4) modifies existing law by eliminating the defense that an environmental covenant imposes a "novel'" negative burden.

Subsection (b)(5) addresses the opposite problem - the potential unenforceability under existing law of an easement that imposes affirmative obligations upon either the owner of the burdened real property or upon the holder. Under some existing law, neither of those interests was viewed as a true easement at all. The first, in fact, was labeled a "spurious" easement because it obligated an owner of the burdened real property to perform affirmative acts. (The spurious easement was distinguished from an affirmative easement, illustrated by a right of way, which empowered the easement's holder to perform acts on the burdened real property that the holder would not have been privileged to perform absent the easement.)

Achievement of environmental protection goals may require that affirmative obligations be imposed on the burdened real property owner or on the covenant holder or both. For example, the grantor of an environmental covenant may agree to use restrictions and may also agree to undertake affirmative monitoring or maintenance obligations. In addition, the covenant might impose specific engineering or monitoring obligations on the holder, particularly a charitable corporation or trust holder. In either case, the environmental covenant would impose affirmative obligations. Subsection (b)(5) establishes that neither would be unenforceable solely because it is affirmative in nature.

Subsections (b)(6) and (b)(7) preclude the touch and concern and privity of estate or contract defenses, respectively. They have traditionally been asserted as defenses against the enforcement of covenants and equitable servitudes.

Subsection (b) identifies what the drafters believe to be the principal common law doctrines that have been applied to defeat covenants such as those created by this Act. Drafters in individual states may wish to consider whether references to other common law or statutory impediments of a similar nature ought to be added to this subsection.

Subsection (c) has further provisions for covenants created prior to the date of this Act. It specifies that the defenses covered in subsection (b) will not make prior covenants unenforceable. Beyond negating these specific defenses, this Act does not apply to prior covenants. If the parties to a prior covenant wish to have the other benefits of this Act for that covenant, they will have to re-execute the covenant in a manner which satisfies the requirements of this Act.

Section (d) disavows the intent to invalidate any interest created either before or after the Act which does not comply with the Act but which is otherwise valid under the state's law. Nor does the Act intend in any way to validate or invalidate an action taken by any person to remediate contamination pursuant to a state law that does not require formal governmental oversight or approval. However, a recorded instrument that does not satisfy all the requirements of this Act does not come within the scope of this Act.

SECTION 6. RELATIONSHIP TO OTHER LAW REGULATINGLAND USE OF REAL PROPERTYLAW.