The United States Environmental Protection Agency (“USEPA”) recently issued an important guidance document applying the Bona Fide Prospective Purchaser exemption to tenants who operate at contaminated sites on a case-by-case basis, thereby protecting tenants from potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). CERCLA holds owners and operators liable for costs of cleaning-up the release, or threatened release, of hazardous substances. 42 U.S.C.A. § 9607(a). Consequently, after CERCLA was passed, a property owner or operator could be held liable for contamination, even if the contamination occurred before the owner purchased the property or the operator began operations at the site. Thus, it became difficult to sell contaminated property for redevelopment because of the fear of liability. To encourage the redevelopment of these sites, Congress passed the Small Business Relief and Brownfield Revitalization Act (“The Brownfield Amendments”) in 2002. Pub. L. 107-118. The Brownfield Amendments contain several exemptions from liability intended to allay the fears of potential buyers. One of these exemptions is the “Bona Fide Prospective Purchaser” (“BFPP”) exemption which allows qualified buyers, and the tenant(s) of a qualified buyer, protection from CERCLA liability. 42 U.S.C.A. §§ 9601(40); 9607(r)(1).

Because a tenant could be liable under CERCLA based on its operations at a contaminated site, the inclusion of the tenant into the BFPP exemption was an important protection for tenants who operate at contaminated properties. Since the enactment of the BFPP exemption, however, there has been some uncertainty about how the exemption applies to tenants. In December 2012, USEPA issued a “Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Fide Prospective Purchaser Provision” (“Tenant Guidance”) to help clarify how the exemption applies to tenants.

In general, a BFPP is protected from CERCLA liability by complying with the following requirements:

  • Ensuring that all disposal of hazardous substances occurred prior to acquiring the property;
  • Conducting an all appropriate inquiry (“AAI”) into the previous ownership and uses of the facility before acquiring the property;
  • Providing legally required notices;
  • Taking reasonable steps with respect to the release of hazardous substances;
  • Providing cooperation, assistance, and access to the site as necessary;
  • Complying with land use restrictions and institutional controls;
  • Complying with information requests and administrative subpoenas; and
  • Not impeding any response action or natural resource restoration.

42 U.S.C.A. §§ 9601(40); 9607(r)(1). In addition, the buyer must not be potentially liable for response costs at the facility or ”affiliated” with any such person. 42 U.S.C.A. § 9601(40)(H). Finally, ownership of the property must have been acquired after January 11, 2002. 42 U.S.C.A. § 9601(40).

A tenant can qualify as a BFPP either vicariously through the property owner or by the tenant’s own ability to meet the BFPP requirements. If the property owner qualifies as a BFPP, the tenant is also exempt from CERCLA liability as long as (1) the property owner remains a BFPP, (2) “all disposal of hazardous substances” on the land occurred before the tenant leased the property, and (3) “the tenant does not impede the performance of a response action or natural resource restoration.” Tenant Guidance, p. 3.

If the property owner was a BFPP but lost BFPP protection by failing to comply with the continuing obligations of the statute, the tenant may still qualify for BFPP protection by meeting all of the BFPP provisions except the AAI requirement. Tenant Guidance, p. 3. In this case, the tenant would not have to conduct the AAI because the property owner would have conducted it at the time it became a BFPP. Id. The fact that the property owner no longer qualifies as a BFPP does not invalidate the original AAI. Id. Furthermore, the tenant would not lose its BFPP protection through its relationship to the property owner because the Tenant Guidance provides that USEPA does not intend to treat “the existence of a lease between the tenant and the owner as a prohibited affiliation” for purposes of the BFPP exemption. Tenant Guidance, p. 4.

If the property owner never qualified as a BFPP, the tenant may still seek BFPP protection by complying with these same provisions. Tenant Guidance, p. 4. However, in this case, the tenant would also have to complete the AAI before signing the lease. Id. The AAI requires the tenant to make “all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices.” 42 U.S.C.A. § 9601(40)(B); 40 C.F.R. Part 312. The Code of Federal Regulations provides an in-depth discussion of the inquiries that must be undertaken in order to constitute an AAI for purposes of the BFPP exemption. 40 C.F.R. Part 312.

The Tenant Guidance seeks to explain USEPA’s use of enforcement discretion as it relates to tenants and the BFPP exemption; however, the agency may “decline to exercise its enforcement discretion” on a case-by-case basis. Tenant Guidance, p. 5. As a result, a party seeking to sign a lease for contaminated property should carefully consider the potential liabilities and the steps that should be taken to ensure BFPP protection.

Please contact an environmental attorney from Schiff Hardin should you have any questions about the BFPP exemption as it is applied to tenants, or any other issue related to CERCLA liability.