U.S. EPA has issued a revised enforcement guidance that broadens liability protections for tenants at brownfields under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. § 9601 et seq. (CERCLA, commonly called Superfund). The guidance, titled “Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Fide Prospective Purchaser Provision,” was signed by Cynthia Giles, Assistant Administrator of EPA’s Office of Enforcement and Compliance Assurance, and Mathy Stanislaus, Assistant Administrator of EPA’s Office of Solid Waste and Emergency Response, on December 5, 2012. It supersedes EPA’s January 14, 2009 guidance titled “Enforcement Discretion Guidance Regarding the Applicability of the Bona Fide Prospective Purchaser Definition in CERCLA 101(40) to Tenants.”
The 2009 guidance addressed liability relief for tenants in only two situations: (1) a tenant whose lease gives sufficient “indicia of ownership” (e.g., term of lease, range of permitted uses by the tenant, reservation of rights by the owner, etc.) to be considered an “owner” and who meets the Bona Fide Prospective Purchaser (BFPP) criteria; and (2) a tenant of an owner who is a BFPP. The 2012 revised guidance extends liability protections to tenants of BFPP owners who lose the BFPP protection and to tenants of owners who do not qualify as BFPPs. The revised guidance should be of special interest to developers, lenders, insurers, and others involved in redevelopment projects that require a long-term lease or renewable energy installations on contaminated industrial sites and lands, landfills, mine sites, and any other brownfields.
In the revised guidance, EPA describes different ways a tenant can obtain and maintain BFPP status. These include: (1) a tenant deriving BFPP status from the landowner who satisfies the BFPP criteria; (2) a tenant meeting BFPP criteria in cases where the landowner once had but then lost its BFPP status; and (3) a tenant where the owner was never a BFPP. In the last case, the revised guidance places a greater burden on tenants to meet BFPP criteria.
A BFPP is defined in CERCLA as “a person (or a tenant of a person) that acquires ownership of a facility after [January 11, 2002]” and satisfies the following eight requirements:
- Establishes that all disposal of hazardous substances on the facility occurred before the purchaser’s acquisition of the facility;
- Undertakes all appropriate inquiry (AAI) before acquiring title to the property. AAI is typically met by conducting a Phase I site assessment using the relevant ASTM standard. AAI must be conducted or updated within one year before the date on which the party takes title to the property and certain aspects of the AAI must be updated if conducted more than six months before the date of acquisition;
- Provides all legally required notices with respect to the hazardous substances found on the facility;
- Exercises appropriate care by taking reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit human, environmental, or natural resource exposure to previously released hazardous substances;
- Provides full cooperation, assistance, and access to persons authorized to conduct a response action or natural resource restoration;
- Complies with all land-use restrictions and does not impede the effectiveness of any institutional controls at the facility;
- Complies with information requests and administrative subpoenas under CERCLA; and
- Establishes that the purchaser is not potentially liable for response costs, is not affiliated with a potentially responsible party (PRP) through a family, contractual, corporate, or financial relationship, and is not the result of a reorganization of a business entity that was potentially liable.
CERCLA §101(40), 40 U.S.C. §9601(40).
Tenants of a BFPP Owner: A tenant may drive BFPP status from an owner who satisfies the above-listed BFPP criteria, provided all disposal of hazardous substances at the facility occurred before acquisition and the tenant does not impede any response action or natural resource restoration. If the owner loses its status through no fault of the tenant, EPA may exercise its enforcement discretion not to pursue the tenant provided the tenant meets all of the BFPP criteria except the AAI requirement. Nonetheless, as EPA states, “a tenant may still wish to obtain information on the prior uses of the facility to have an informed basis on which to perform these actions (1-8 in the text above) should its owner lose BFPP status and the tenant wants to be treated as a BFPP….”
EPA also clarifies the “no affiliation” requirement (No. 8 in the above-listed BFPP criteria) in lease transactions. Under the revised guidance, the mere execution of a lease does not necessarily trigger Superfund liability as an owner or operator for tenants. In particular, EPA states it “intends to exercise its enforcement discretion…by not treating the existence of a lease between the tenant and the owner as a prohibited affiliation.”
Tenants of a Non-BFPP Owner: For tenants where the owner was never a BFPP, EPA states it intends to treat such tenants as BFPPs if (1) their lease agreement was executed after January 11, 2002; (2) they meet the other BFPP provisions outlined above, including conducting AAI prior to execution of the lease (No. 2 in the above-listed BFPP criteria); (3) they are not potentially liable for response costs at the facility or “affiliated” with any such person (other than through the lease with the owner) (No. 8 in the above-listed BFPP criteria as clarified in the guidance); and (4) they do not impede any response action or natural resource restoration.
The guidance also identifies lease transactions where the Agency will pursue enforcement. For example, EPA states it may decline to exercise its enforcement discretion where “the lease is designed to allow a landlord or tenant to avoid its CERCLA liability.” (Emphasis added). EPA says it may also decline to exercise its enforcement discretion where “the tenant is potentially liable for reasons other than its status as a tenant.” A tenant who arranged for disposal of hazardous substances at the facility, for example, should expect EPA to take enforcement action. Further, EPA states it may decline to exercise its enforcement discretion when “the owner is not in compliance with state or federal regulatory requirements or administrative or judicial cleanup orders or decrees relating to the leased property.”
To address liability concerns of tenants involved in renewable energy development on contaminated land and mine sites, EPA has issued three new model comfort/status letters. The three model comfort/status letters are: (1) Model No Previous Federal Interest Comfort/Status Letter – RE-Powering America’s Land Initiative; (2) Model Federal Superfund Interest and No Current Federal Superfund Interest Comfort/Status Letter – RE- Powering America’s Land Initiative; and (3) Model State Action Comfort/Status Letter – RE-Powering America’s Land Initiative.
In the guidance, EPA restricts the use of these model comfort/status letters to “limited instances,” but in a December 2012 Fact Sheet titled “RE-powering America’s Land Siting Renewable Energy on Potentially Contaminated Properties: Liability Considerations,” EPA states, “subject to enforcement discretion and resources,” it “may work with parties on a renewable energy project at a site of federal interest [e.g., sites on the Superfund National Priorities List, sites where EPA is undertaking or has completed CERCLA cleanup activities, and facilities subject to RCRA corrective action or post-closure care) to determine whether a property-specific document – for example, a comfort letter – is needed for a transaction to go forward….” (Emphasis added). Additionally, EPA says it may use comfort/status letters or a prospective purchaser agreement (which requires U.S. Department of Justice involvement) on a case-by-case basis to address the concerns of tenants not covered by the guidance in order “to further the public interest.”
While the impetus for the guidance is linked to EPA’s push to locate renewable energy development projects on potentially contaminated properties under its RE-Powering America’s Land Initiative and the three new model comfort/status letters are for tenants involved in renewable energy development on contaminated sites, the guidance applies across all industries. EPA says it intends to exercise its enforcement discretion on a site-specific basis.
The good news is that the BFPP defense will apply in more lease transactions and provide greater certainty to tenants. However, the 2012 revised guidance is just that – guidance. It does not protect tenants against liability to third parties, including the state. Tenants need to be aware that should they end up in Superfund litigation, potentially responsible parties in the litigation may argue the tenant is not entitled to BFPP protection in order to have an additional party to contribute to the response costs. Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 746 F. Supp.2d 692 (D.S.C. 2010), as amended, 2011 WL 2119234 (D.S.C. 2011), appeal pending (4th Cir.).
For EPA’s PowerPoint presentation titled “Tenant Liability Considerations for Siting Renewable Energy on Contaminated Lands,” click here. For other articles on the BFPP defense posted on the Jackson Kelly PLLC Energy & Environment Monitor, see “Standard Guide for Identifying and Complying with Continuing Obligations, ASTM E 2790-11 (Guide),” posted September 3, 2012; “Fourth Circuit Urged to Adopt New Relaxed Standard for BFPPs,” posted July 18, 2012; “EPA Issues Guidance on Non-Affiliation Requirement for CERCLA Landowner Defenses,” posted December 27, 2011; “USEPA Study Finds All Appropriate Inquiries Fail to Meet Federal Requirements,” posted June 8, 2011; “Federal Court Denies Cost Recovery, Finding Purchaser Acted With Willful Blindness,” posted June 1, 2011; and “Bona Fide Prospective Purchaser Requirements Interpreted by Federal District Court,” posted December 29, 2010.
This article was authored by Gale Lea Rubrecht, Jackson Kelly PLLC. For more information on the author, see here.