News & Events: The Uniform Environmental Covenants Act in Nevada

The Uniform Environmental Covenants Act in Nevada

By: Gregory J. Walch, Esq. and Dean S. Bennett, Esq.

The Uniform Environmental Covenants Act (“UECA” or the “Act”) was adopted by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) in August, 2003. In 2005, Nevada became the eighth state in the nation to incorporate UECA into its state statutes. UECA is codified in Nevada as Nev. Rev. Stat. 445D.010 – 445D.220, and took effect on October 1, 2005.

Environmental covenants, also called “institutional controls” or “land use controls,” can be used for a variety of purposes by the owners of contaminated land, the agencies that regulate such matters, and persons involved in contaminated land transactions.

In the usual case, environmental covenants are used when a contaminated site is cleaned to the point where the governing environmental agency allows for a “risk-based” closure based upon specified, limited, future uses. Because the agency believes the threat to human health is insignificant, the agency will allow a certain amount of pollutants to remain in place; provided the site is used only for certain purposes (e.g., industrial purposes rather than playgrounds) or construction occurs only in prescribed ways (e.g., with vapor barriers); and further provided that the owner agrees to record a covenant enforceable against successors setting forth such use or construction limitations.

In the past, one of the challenges faced by property owners undertaking risk-based clean-ups was how to make certain that successor owners of the property would abide by the use limitations and ongoing clean-up or monitoring requirements. Environmental covenants entered into by the present owner and recorded against the property were not always enforceable against successors due to certain limitations placed on such covenants by the common law.

For example, in Fifth Circuit’s 2002 decision, El Paso Refinery v. TRMI, 302 F.3d 343 (5th Cir. 2002), the Court declined to enforce a real covenant against a successor grantee that purported to release the grantor from liability for future environmental clean-up activities on the property. The Court found that the covenant only affected the grantor personally, and had no direct impact on the land itself. Therefore, because the covenant did not “touch and concern” the land, it was unenforceable as to successors in interest. Id. at 357-58. As demonstrated in El Paso Refinery, an environmental covenant usually lacks at least one of the required common law elements. Therefore, prior to UECA, an environmental covenant’s validity and enforceability against successors in interest was always uncertain.

Without a guarantee that an environmental covenant would bind successors, many owners chose to close and fence contaminated property rather than conduct a risk-based clean-up and return the property to the stream of commerce. This created abandoned and underused properties within cities and encouraged suburban sprawl instead of urban revitalization. As noted by the UECA drafters, “[l]arge numbers of contaminated sites are unlikely to be successfully recycled until regulators, potentially responsible parties, affected communities, prospective purchasers and their lenders become confident that environmental covenants will be properly drafted, implemented, monitored and enforced for so long as needed.” UECA Prefatory Note, (2003).

UECA aims to eliminate the impediments to the enforceability of environmental covenants created by the common law. The Act specifically negates the effect of common law elements on environmental covenants by stating:

2. An environmental covenant that is otherwise effective is valid and enforceable even if:

(a) It is not appurtenant to an interest in real property;

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

(d) It imposes a negative burden;

(e) It imposes an affirmative obligation on a person having an interest in the real property or on the holder;

(f) The benefit or burden does not touch or concern real property;

(g) There is no privity of estate or contract;

(h) The holder dies, ceases to exist, resigns or is replaced; or

(i) The owner of an interest subject to the environmental covenant and the holder are the same person.

Nev. Rev. Stat. 445D.140 (2) (a)-(i).

As a result of the increased certainty that environmental covenants are enforceable against successors, property owners are more likely to undertake risk-based clean-ups and return their properties to the stream of commerce. “This Act should encourage transfer of ownership and property re-use by offering a clear and objective process for creating, modifying or terminating environmental covenants…” UECA Prefatory Note (2003). Owners will have confidence that the environmental covenants placed on the site to restrict use, require ongoing monitoring, or necessitate the construction of permanent containment or other remedial structures, will be enforceable for as long as needed. Widespread use of UECA as a tool for managing risk-based clean-ups will work to the benefit of all interested parties, and especially to the benefit of the communities in which these contaminated sites are located.

Certain minimum requirements must be met for an environmental covenant to be subject to the protections of UECA. These include the following :

1. The covenant must identify that it is subject to UECA;

2. The covenant must contain a legally sufficient description of the property subject to the covenant;

3. The covenant must identify the use limitations;

4. The covenant must identify the parties entitled to enforce the environmental covenants (defined in UECA as a “holder”);

5. The covenant must be signed by the applicable federal or local agency overseeing the environmental response project, every holder and, unless waived by the agency, every owner of the fee simple of the real property subject to the covenant;

6. The covenant must identify the name and location of any administrative record for the environmental response project reflected in the environmental covenant; and

7. The covenant must be recorded in the official records for each county in which the subject property is located.

See Nev. Rev. Stat. 445D.130; see also Nev. Rev. Stat. 445D.170.

Additional notice requirements and limitations also apply with respect to the creation of an environmental covenant subject to UECA, as well as any proposed modification or termination of any such covenant. Because of the importance of satisfying the specific requirements of UECA, any attempt to draft an environmental covenant intended to be subject to UECA should be attempted with the assistance of experienced counsel.

BIOGRAPHIES

Gregory J. Walch, Esq., is a shareholder of Santoro, Driggs, Walch, Kearney, Holley & Thompson in Las Vegas, Nevada. Mr. Walch received a B.S. in Agricultural Engineering from Iowa State University in 1985, and engineered water supply and groundwater systems with Layne Western Company for industrial and municipal clients through 1989. Mr. Walch received his Juris Doctor in 1992 from Lewis & Clark Northwestern School of Law, and has since practiced environmental, water, land use, mining, eminent domain, and administrative law in the Southern Nevada area.

Dean S. Bennett, Esq., is a shareholder of Santoro, Driggs, Walch, Kearney, Holley & Thompson. Mr. Bennett received a B.S. magna cum laude in Managerial Economics from the Brigham Young University in 1994, and a Juris Doctor cum laude from J. Reuben Clark Law School in 1997. Mr. Bennett practices primarily in real property law.