As most of you know, the Department of Environment and Conservation has, on a historical basis, utilized “no further action” letters to acknowledge and document the Department’s determination that it will not require a liable or responsible party [1] to take further environmental response action at a site. Before the amendment to the voluntary oversight and assistance program statute (T.C.A. §68-212-224) in 2001 that authorized the Department to enter into brownfield voluntary agreements and brownfield consent orders, a “no further action” letter was the established method that the Department could provide any comfort or assurance that a party had taken the appropriate action at a contaminated property.

But how comforting or assuring is a “no further action” letter? Environmental practitioners can read a typical “no further action” letter and understand that it has limited effect. “No further action” letters typically contain cautionary language to the effect that if additional information should be discovered concerning the site, the Department reserves the right to reevaluate the no further action status of the site. I counsel clients and other parties that a “no further action” letter is simply an “administrative closure” and is limited in effect. It is not a contractual commitment, and it does not commit the Department to any course of conduct. Another potentially limiting effect of a “no further action” letter is that it may be issued to address a specific action undertaken in a limited area of a contaminated site. In simplest terms, a “no further action” letter cannot be read as indicating that the property has no other environmental conditions or that no additional environmental response action will be required.

Despite the limitations of a “no further action” letter, they do serve to reduce the risk for a property owner or a prospective property owner. And like many of you, I have been involved in real estate transactions where a “no further action” letter was one of the conditions of closing. However, many people associated with real estate transactions do not appreciate the limitations of a “no further action” letter—they assume that a “no further action” letter provides a promise that no additional environmental response action will be required at a property.

How a “no further action” letter can be misunderstood can be observed in the following scenario. An owner of a gasoline retail store decides to sell the property to a drug store chain. The store owner removes the underground storage tanks, and in the process, petroleum contamination is discovered. Some soil removal work is completed, and a “no further action” letter is issued by the Division of Underground Storage Tanks following a review of sampling results. As is the typical case, some contamination remains at the property. The drug store acquires the former gasoline retail store property and the neighboring parcel (from a separate owner) for the development of a drug store. As the drug store chain starts site work, they are advised that the remaining contamination at the property will complicate the site work (a substantial amount of soil “cutting” work was required to level the construction site). Both parties to the contract were surprised by the effort that was going to be required to deal with the remaining petroleum contamination at the site, and a dispute developed as to the extent to which the drug store chain would be entitled to an adjustment of the purchase price established in the contract.

In this scenario, the parties simply did not fully understand the effect of the “no further action” letter. They assumed that the “no further letter” would lead to little complication of the site work associated with the construction of the drug store. The parties may have been warned about the effort that would be needed by language found in the “no further action” letter. That language, found near the end of the “no further action” letter, provided that “if soils are excavated and removed from the UST site for use at another location, then the Division of Solid Waste Management must be contacted regarding the proper disposal and/or use of those soils.”

If the use of property was going to remain the same (gasoline retail store), then there would have likely been little impact on the site work. However, in this situation, the property was going to be used for a different commercial purpose. A separate property (not associated with the former underground storage tank site) was being incorporated into the development, and the existence of contaminated soils on the former underground storage tank site limited, without the Department’s approval, the use of the contaminated soils on the other property. In addition, any contaminated soils not required for the site work associated with the drug store had to be treated as waste and transported for disposal at a permitted disposal facility.

What is the lesson? Despite their accepted use, “no further action” letters do present some level of risk and uncertainty. As long as everyone involved in a particular transaction or remediation effort appreciates that risk and uncertainty, then “no further actions” letters will continue to have a part in many responses to environmental conditions at a site.