Tenants who lease currently or formerly contaminated property can now benefit from protections from cleanup liability that were once available only to purchasers of such property. EPA announced its new policy in a December guidance document titled "Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Find Prospective Purchaser Provision."
The Small Business Liability Relief and Brownfields Revitalization Act of 2002 relieves purchasers of contaminated property of liability for cleanup costs under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA) if they qualify as a "bona fide prospective purchaser" (BFPP), as defined by the Act. To qualify as a BFPP, the purchaser must meet the requirements specified in the Act, which include conducting appropriate pre-purchase due diligence, taking reasonable post-purchase steps with respect to releases of hazardous substances, and having no disqualifying affiliation with any liable party. Until now, EPA did not recognize tenants of contaminated property as being eligible to qualify for the protections afforded to a BFPP under the 2002 Act. Under CERCLA, tenants can be held strictly liable as a current operator of a contaminated site. The failure of the 2002 Act to include liability protections for tenants of contaminated property undermined the purpose of the Act to encourage revitalization of contaminated properties.
THE NEW POLICY
EPA's guidance provides that a tenant may itself meet the criteria for a BFPP or may piggyback on the owner's BFPP status. Furthermore, if the owner at one time qualified for BFPP status but loses that status through no fault of the tenant, EPA says that it will likely still exercise its enforcement discretion to treat the tenant as a BFPP, provided the tenant independently meets the following criteria:
hazardous substances are not released during the term of the lease;
the tenant provides required notices;
the tenant takes reasonable steps with respect to releases;
the tenant cooperates with EPA's requests for site access;
the tenant complies with institutional controls;
the tenant complies with EPA's information requests;
the tenant is not affiliated with a liable person (other than through the lease with the owner); and
the tenant does not impede cleanup activities.
EPA's guidance does not have the force of law, so tenants will still be at the mercy of EPA's "enforcement discretion," but EPA's guidance should give some measure of comfort to tenants who have been resistant to lease contaminated property because of the gap in the 2002 Act.
EPA usually will not engage in a site-specific determination regarding an owner's or tenant's BFPP status until a potential enforcement scenario presents itself, so a company considering becoming a tenant at a potentially contaminated property will need to carefully assess how EPA's new policy would likely apply in its case.
If you have any questions about this alert, please contact any member of our Environmental and Energy or Real Estate Teams.