Beveridge & Diamond
 

EPA Issues Revised Enforcement Guidance Regarding Use of the Bona Fide Prospective Purchaser Defense by Tenants and Model Comfort Letters for Lessees with Renewable Energy Developments

Beveridge & Diamond, P.C., December 26, 2012

In December 2012, the United States Environmental Protection Agency (“EPA”) issued revised enforcement guidance regarding the ability of tenants who lease contaminated or formerly contaminated properties to utilize the Bona Fide Prospective Purchaser (“BFPP”) defense against liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).  Although the guidance applies across all industries, the impetus for issuing the document stemmed from renewable energy initiatives such as EPA’s RE-Powering America’s Land Initiative, which promotes siting renewable energy on potentially contaminated land and mine sites.  EPA intends to exercise its enforcement discretion, on a site-specific basis, to treat certain tenants as BFPPs even when owners do not qualify for or maintain a BFPP status.  The revised guidance outlines steps that lessees must take to be eligible for such consideration.

Liability under CERCLA, including for owners and operators of a contaminated property, is “strict,” meaning there is no requirement that a claimant show negligence or other improper actions by the responsible party, and “joint and several,” meaning any responsible party might be held solely liable for the full cleanup costs even if there are several responsible parties. 

While not all leases trigger CERCLA liability, tenants could become responsible for pre-existing on-site contamination either by: (i) controlling the property to such an extent that they are considered “de facto” owners; or (ii) exercising a level of control over operations related to pollution so as to be considered an “operator” for CERCLA purposes.  Because of this potential liability, some tenants may seek to qualify for the BFPP defense.

The BFPP protection from CERCLA liability is a self-implementing liability protection for parties who own or acquire contaminated property but did not cause or contribute to the contamination and who meet specified pre- and post-acquisition requirements.  The CERCLA definition of a BFPP limits the defense to people, or tenants of people, that acquire ownership of a facility after January 11, 2002.    

As outlined in EPA’s guidance, tenants can “derive” BFPP status from owners who qualify as BFPPs.  This derivative BFPP status continues as long as the property owner maintains compliance with the BFPP criteria and the tenant does not impede the performance of a response action or natural resource restoration.  Although a tenant may lose its BFPP status if the owner ceases to qualify as a BFPP, EPA may, under its revised enforcement discretion policy, treat the tenant as a BFPP provided that all of the following conditions are satisfied:

  • All disposal of hazardous waste substances at the facility occurred prior to the execution of the lease;
  • The tenant provides legally required notices;
  • The tenant takes reasonable steps with respect to hazardous substance releases;
  • The tenant provides cooperation, assistance, and access;
  • The tenant complies with land use restrictions and institutional controls;
  • The tenant complies with information requests and administrative subpoenas;
  • The tenant is not potentially liable for response costs at the facility or “affiliated” with any such person (other than through the lease with the owner); and
  • The tenant does not impede any response action or natural resource restoration. 

Importantly, a tenant who has held derivative BFPP status does not need to have performed “All Appropriate Inquiry” (“AAI”), i.e., the level of due diligence necessary to make use of statutory defenses to CERCLA liability.  At a minimum, AAI includes the performance of a Phase I Environmental Site Assessment, which may extend the period of time needed between identifying a suitable property and executing a lease. 

Tenants that meet the criteria listed above may be treated by EPA as BFPPs, regardless of whether the owner ever qualified as a BFPP, provided that they also: (i) conduct AAI prior to executing a lease; and (ii) execute the lease after January 11, 2002.  This potential protection creates an incentive for prospective tenants to conduct AAI prior to executing a lease if they know that an owner is not a BFPP or are unsure whether an owner qualifies as a BFPP. Conducting AAI at the time of a lease may be more time and cost effective than investigating the status of a current owner.

EPA has reserved the right to forego exercising its enforcement discretion for tenants seeking to use the BFPP defense if, for instance:

  • A lease is designed to allow a landlord or tenant to avoid its CERCLA liability;
  • A tenant is potentially liable for reasons other than its status as a tenant (e.g., it arranged for disposal of hazardous substances at the facility); or
  • An owner is not in compliance with state or federal regulatory requirements or administrative or judicial cleanup orders or decrees relating to the leased property.

EPA generally will not participate in site-specific determinations of BFPP status or application of its enforcement discretion guidance.  In limited circumstances, however, EPA may issue a comfort/status letter to a tenant.  EPA issued three model comfort/status letters for lessees involved in renewable energy developments on contaminated properties.  Although the letters are designed for a specific type of project, it is possible, given the broader applicability of the guidance, that EPA could revise the letters for use with tenants engaged in other activities.

A copy of EPA’s guidance, titled “Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Fide Prospective Purchaser Provision,” is available at http://www.epa.gov/enforcement/
cleanup/documents/policies/superfund/tenants-bfpp-2012.pdf
.  Please contact Pamela Marks, pmarks@bdlaw.com, or Aladdine Joroff, ajoroff@bdlaw.com for further information.   

For a printable PDF of this article, please click here.

Overview

News

Presentations

Media Contact





Attorney Contacts
Attorney Contacts