Unlocking the “windfall” of brownfields through the third-party applicant scheme

Brownfields have much to offer. At a time when land is becoming scarce and environmental policy is tightening, they are indeed an ideal playing field for logistics real estate players seeking land. But while the objective of rehabilitating abandoned areas seems self-evident, implementing it can prove complex. The third-party applicant scheme is therefore intended to streamline this market. Indeed, “it is part of the drive to free up land and encourage the redevelopment of brownfields and industrial sites, and was intended to ‘unlock’ a considerable land resource, explains Juliette Bril, attorney at the Court of Appeal and partner at Fairway. This new player in the management of contaminated soil was incorporated into Article L. 512-21 of the Environmental Code by the ALUR Act of March 24, 2014.”

Before this legal provision, the last operator of a facility classified for environmental protection (ICPE) remained required, when ceasing operations, to restore the site according to a use determined by the provisions of the Environmental Code. The financial burden of this restoration is subject to a 30-year limitation period from the date on which the cessation of the ICPE’s operations was reported to the authorities (Council of State, July 8, 2005, No. 247976). “Where hazards to public safety, health and sanitation have been concealed, the State may, at any time—even beyond the 30-year limitation period—require restoration measures, notes Eric Hervy, notary and partner at Cheuvreux. Because this limitation period cannot be waived through the traditional mechanisms for excluding or sharing liability in private-law contracts, some operators fear that they may incur liability. They therefore sometimes prefer to ‘mothball’ the site rather than enhance its value.”

The third-party applicant scheme is therefore intended to resolve this situation. For the seller, it removes the obligation to rehabilitate the land according to its future use. When the facility is permanently shut down, an interested third party may ask the State representative to replace the operator, with the operator’s consent, in order to carry out rehabilitation work based on the use that the third party intends for the land concerned. For the buyer, it saves time, as the procedure makes it possible to directly begin rehabilitating the site where the ICPE operated for the use sought by the third party, without first having to restore it according to the use defined under the Environmental Code, which is binding on the last operator. “Moreover, it retains control over the restoration work and can therefore ensure that it will be compatible with its project, explains Juliette Bril. It also gives it an additional argument to negotiate a lower transaction price...” But beware: this procedure is only possible if the cessation of operations has not yet taken place, warn Eric Hervy and Juliette Bril, and the third-party applicant must have sufficient technical capabilities and financial guarantees covering the completion of the work. “Furthermore, until now, if the third-party applicant defaulted and it was impossible to call on those guarantees, the last operator had to carry out the rehabilitation for the use defined under the conditions set out in the Environmental Code.” The 2023 Green Industry Act has removed this potential obstacle through several amendments to the Environmental Code.

Ten years after its introduction, the third-party applicant scheme has not achieved the success one might have expected, undoubtedly because of this lack of certainty for operators. The amendment of Article L. 512-21 of the Environmental Code under the Green Industry Act should make it easier and safer to use. “If the third-party applicant defaults and the financial guarantees cannot be called upon, the last operator will now be responsible only for securing the site, rather than for rehabilitating it, Eric Hervy says approvingly. This change is worth noting, as it should help convince reluctant operators by removing the risk of having to carry out often costly restoration work.” Among the other substantial changes to the code, interested third parties may now ask the State representative in the department to replace the operator as soon as the cessation of operations is notified, rather than from the completion of site-safety measures, as was previously the case. They may also apply to replace the operator with regard to all or part of the site-safety measures, rather than only with regard to rehabilitation.

Marc Kaszynski, president of Lifti (Laboratoire d’Initiatives Foncières et Territoriales Innovantes) and former director of the Nord-Pas-de-Calais public land agency (EPF), hopes the third-party applicant scheme will now become better known. He witnessed its beginnings and knows how much it could enable greater land-market fluidity. “One redevelopment case in particular, opened in the 2000s, triggered the creation of this third-party applicant procedure,” he recalls. During the 1980s, following several decentralization laws, France’s regions were entrusted with regional planning responsibilities, notably through the redevelopment of industrial brownfields. Already made difficult by the scale of the work involved, brownfield redevelopment in France has sometimes encountered projects more challenging than others. This was the case, for example, with the PCUK brownfield in Watreloos Leers, in northern France. Following the administrative cessation of the activities causing the pollution by the operator and its court-ordered liquidation in 1976, the site was taken over by Rhône-Poulenc Chimie in 1983 to undertake its closure at the State’s request in 1983. With industrial redevelopment in mind, the site was subdivided in the early 1990s. “When Pierre Mauroy, then president of the Lille Métropole Urban Community, decided in 2003 to take over the site after redevelopment, in synergy with the project to restore the Roubaix Canal to navigability for recreational boating, the land ownership tangle was such that an exceptional solution had to be found, Marc Kaszynski explains. The Nord-Pas-de-Calais EPF was therefore appointed by prefectural order to carry out the work as a temporary landholder.” Although it was not the operator, the EPF was therefore able to take responsibility for rehabilitating the site. It thus became the first third-party applicant in history and helped shape the provisions of the 2014 ALUR Act.