In a significant regulatory change that will impact real property transactions and loan financings, the Maryland Department of the Environment (MDE) joins a handful of states that requires the reporting of historical petroleum contamination above applicable cleanup standards or action levels if discovered or detected while conducting environmental due diligence investigations. The revised regulation at COMAR 26.10.08.01.B took effect on June 13, 2022.

The regulation now imposes upon the environmental consultant or person conducting an environmental site assessment and/or the owner of the property a duty to report to MDE the following –

• Within two hours, the visual detection of petroleum free product; or
• Within forty-eight hours, the receipt of an analytical laboratory report showing petroleum contamination above certain limits.

The new reporting obligation now clarifies that historical conditions of petroleum contamination above applicable cleanup standards must now be reported to MDE’s 24-hour Emergency Response Division (at 1.866.633.4686). In contrast, prior regulations (which used present tense gerunds, such as releasing, discharging or spilling) were interpreted by some to address only active releases, discharges, or spills of petroleum substances, and did not expressly cover historical conditions for which the amount and duration of any release, discharge or spill were unknown. Prior regulations also required the reporting of free product detection.

"Further, the new reporting requirement will impose greater burdens on real property owners during the negotiation of real property transactions or loan financing in Maryland. For example,

• Prospective sellers of real property with potential petroleum impacts could be reluctant to permit prospective purchasers to conduct environmental site assessments, such as a Phase I or Phase II Subsurface Investigation, for potential soil and groundwater contamination;
• Prospective sellers and sellers of petroleum impacted real property can no longer shield themselves from potential liability as a “responsible party” by not receiving the results of environmental site assessments, as the consultant will now be required to report its findings to MDE if petroleum is detected at or above the applicable standard, which invariably will identify the property owner;
• Prospective sellers of potentially oil impacted real properties may seek greater use of “No Look,” “No Dig,” or “No Hunt” clauses that prevent a purchaser from conducting invasive soil and groundwater investigations in exchange for contractual indemnifications or other protections;
• Prospective sellers may have a greater incentive to proactively undertake the environmental site assessment and other due diligence work themselves to better control and understand the scope of due diligence work, and any resulting remediation work;
• For financing or refinancing considerations, the real property owner or prospective purchaser may have little choice but to permit or require an environmental site assessment to comply with a lender’s due diligence requirements.
• Closings may be delayed as a result of the parties seeking “no further action” letters from MDE’s Oil Control Program.

In an effort to address the potential deterrent effect of the reporting requirement on the performance of environmental assessments as part of due diligence, an additional provision was added. This provision states that the consultant or property owner may not be considered the person responsible for the discharge unless they otherwise meet the definition of a person responsible for the discharge, which remains unchanged.

It is noteworthy that Maryland enacted a similar law in 2008 for non-petroleum hazardous substances to address concerns with historical contamination at §2-222(d) of the Environment Article, Maryland Code Annotated, which was to have required the reporting by a responsible person in possession of sampling results detecting non-petroleum hazardous substances above certain regulatory thresholds. However, MDE never finalized regulations to implement this statute, and thus the statute is not being enforced. One can only wonder if the promulgation of the new reporting regulation for properties historically impacted by petroleum will be a harbinger of MDE’s future efforts to promulgate a similar regulation for hazardous substances.

Real property sellers should understand the implications and added risks of this new regulation and discuss a plan of action with an environmental consultant and attorney when entering into a real property transaction and/or loan financing. We are working alongside our clients to navigate this significant regulatory change in order to mitigate the risk and burdens it may impose. 

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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