U.S. EPA Issues New Guidance on Bona Fide Prospective Purchaser Defense for Tenants

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The United States Environmental Protection Agency ("EPA") released revised guidance on the applicability of the bona fide prospective purchaser ("BFPP") defense to tenants under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq. EPA's guidance outlines when it will use enforcement discretion, on a site-specific basis, to treat tenants who lease contaminated or formerly contaminated property as BFPPs, when the property owner no longer maintains BFPP status under CERCLA. This new guidance confirms that parties seeking to lease property should undertake measures to satisfy the CERCLA BFPP defense, including compliance with All Appropriate Inquires ("AAI") (40 C.F.R. 312).

An owner or operator of contaminated property is a potentially liable party under CERCLA, without liability protection. 42 U.S.C. 9607(a)(1). CERCLA provides liability protection to owners or operators that qualify as BFPPs. 42 U.S.C. 9607(r)(1) and 9601(40)(A)-(H). Under CERCLA's BFPP definition, a tenant who leases from an owner who satisfies the BFPP criteria may qualify as a BFPP. Thus, a tenant remains a BFPP for as long as the owner maintains compliance with the criteria, and a tenant does not have an independent duty to implement BFPP responsibilities, including AAI.

However, when the owner does not qualify as a BFPP, the new guidance states the EPA will exercise enforcement discretion, on a case-by-case basis, to treat a tenant as a BFPP and not impose CERCLA liability, when the tenant itself meets all the BFPP provisions. Generally, as applied to a tenant, the BFPP provisions are as follows:

The tenant executed the lease of the property after January 11, 2002 and establishes that:

  • all disposal of hazardous substances at the property occurred prior to execution of the lease;
  • the tenant conducted AAI prior to 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 property 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.

Be aware that the EPA's new guidance provides explicit examples as to when EPA will decline to exercise its enforcement discretion. One example is when the tenant is a potentially liable party under CERCLA for reasons other than being a tenant, such as the tenant arranged for disposal of hazardous substances at the property. Another example is when the owner is not in compliance with state or federal regulatory requirements relating to the leased property.

Prior to executing a lease agreement, parties often do not have the time or resources to thoroughly investigate whether the landlord qualifies as a BFPP under CERCLA. Because CERCLA imposes strict and joint and several liability on operators of contaminated property, it may be prudent for a tenant to take the necessary steps to avail itself of the BFPP defense under CERCLA should the EPA come knocking for response costs. As noted above, such steps include conducting AAI before the lease is executed. AAI involves, among other things, the performance of a Phase I Environmental Site Assessment. The EPA's revised guidance is available at http://www.epa.gov/enforcement/cleanup/documents/policies/superfund/tenants-bfpp-2012.pdf.

For more information about this development, please contact Cristina Stummer at cstummer@saul.com or 609-452-5023.