EPA Clarifies "Innocent Tenant" Liability Under CERCLA

by Orrick, Herrington & Sutcliffe LLP

Recent EPA guidance imposes new environmental due diligence and compliance requirements on prospective commercial and industrial tenants.  The guidance purports to clarify an exemption from liability, but actually confirms that that "innocent tenants" face new enforcement and compliance risks.  Accordingly, commercial and industrial tenants should reconsider environmental due diligence and risk management programs for any new lease.[1]

EPA has long treated tenants as "owners" or "operators" under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA").  CERCLA imposes joint and several liability, without fault, on current owners and operators for the investigation and cleanup of pre-existing environmental contamination.  Where tenants have continued industrial operations on a site or have independently contributed to contamination, tenants have been considered to be owners or operators for purposes of CERCLA's strict liability scheme.

In contrast, "innocent" tenants, such as commercial office building occupants or solar energy facilities, for example, do not normally cause or contribute to contamination.  Historically, these innocent tenants have only rarely been considered liable for prior contamination, and then only under unusual circumstances.  As a result, customary practice assumes that innocent tenants will not be exposed to significant environmental risk at formerly occupied sites and that no significant environmental due diligence is necessary.

EPA's new guidance reinforces EPA's position that tenants are not exempt from liability, and may be considered CERCLA owners or operators under appropriate circumstances.  At the same time, EPA prescribes a form of safe harbor for such tenants, by expanding to tenants defenses available to landowners who are "bona fide prospective purchasers."  If tenants conduct the same levels of due diligence required of prospective purchasers, and comply with EPA's requirements applicable to contaminated sites, then EPA will generally not take action against such tenants to recover cleanup costs.

The requirements for securing such protections are neither complicated nor difficult to satisfy.  The most important requirement is for tenants to conduct "Phase I" environmental site assessments.  In addition, tenants must make all "required reports" of environmental conditions, and must abide by relevant governmental rules and orders, as well as provide access to EPA and other parties for site cleanup.  Accordingly, the new policy effectively imposes new environmental due diligence requirements upon tenants.

Compliance with EPA's new policy is not a guaranteed defense to liability.  EPA reserves the right to take enforcement action against tenants that are affiliated with owners or operators, and against tenants that fail to comply with each and every requirement of the new policy.  In addition, EPA's new guidance does not mitigate or avoid the risk of claims arising under state law or common law with respect to contaminated sites.  The guidance does, however, provide a meaningful benchmark of likely federal policy in connection with future tenancies.

For more information, please contact Robert F. Lawrence, at (415) 773-5720 or (202) 339-8430, and at rlawrence@orrick.com, or Emily Lamond, at (202) 339-8570, elamond@orrick.com.

[1]   Revised Enforcement Guidance Regarding Treatment of Tenants Under CERCLA Bona Fide Prospective Purchaser Provision, Memorandum from U.S. EPA Assistant Administrators for the Office of Enforcement and Compliance Assurance and Office of Solid Waste and Emergency Response to Regional Administrators, dated December 5, 2012.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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