Purchasing contaminated property in Ohio became a little less risky this week. Purchasers can now obtain protection under both federal and state law from costly remediation orders imposed by the U.S. Environmental Protection Agency (EPA) or the Ohio Environmental Protection Agency (Ohio EPA). The intent of the new law is to further encourage the development of contaminated and potentially contaminated properties in Ohio.
Effective September 15, 2020, Ohio House Bill 168 provides additional protections from environmental liability for purchasers of real estate in Ohio. The new law incorporates into state law the existing protection available under federal law from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), often also referred to as “Superfund.” Originally enacted in 1980, the 2002 amendments to CERCLA created new landowner liability protections including protection for “bona fide prospective purchasers” (BFPPs). These defenses are critical as CERCLA imposes strict, joint, and several liability on property owners and operators for releases of hazardous substances. This means liability for remediation costs can be substantial, even for parties who did not cause the contamination.
To qualify for the defense from CERCLA liability as a BFPP requires certain pre-acquisition due diligence into the environmental conditions at the property to be purchased as well as post-closing actions to maintain the defense, including:
- Conducting “all appropriate inquiries” into the previous ownership and uses of the property (e.g., a Phase I Environmental Site Assessment according to ASTM Standard E1527-13);
- Disposal of hazardous substances at the property that occurred before acquisition;
- Providing all legally required notices regarding any releases;
- Cooperating with those conducting response actions at the property;
- Complying with any institutional land use or engineering controls; and
- Taking appropriate steps and care with regard to any hazardous substances at the property.
Prior to September 15, 2020, a similar defense to state-level liability for BFPPs was not available. Generally, purchasers had to work through the Ohio Voluntary Action Program (VAP) to obtain a Covenant Not to Sue (CNS) from the state of Ohio. The Ohio VAP requires a certified professional to issue a No Further Action (NFA) Letter and for the state to issue a CNS based upon the NFA Letter — a potentially long and expensive process. Many parties avoid the additional time and cost of obtaining a CNS through the Ohio VAP by agreeing to comply with the VAP remediation standards without intending to submit to the state for a CNS. The new statutory BFPP defense will offer the advantage of being “self-implementing,” requiring no affirmative government approval to take effect.
House Bill 168 amends Ohio Revised Code Sections 3746.02 and 3746.05 and creates Section 3746.122. Section 3746.122 provides an affirmative defense for BFPPs against claims by the state of Ohio regarding existing contamination. It does not protect property owners from claims by private citizens.
To qualify for this affirmative defense, the purchaser must meet the CERCLA definition of a BFPP (described above), the cause of action against the person must be due to the person’s status as an owner or operator of the facility, and the person must not impede the state’s actions in responding to a release or threatened release of hazardous substances at the property.
In addition to the new affirmative defense under state law, the new law also makes a couple of important modifications to the Ohio VAP. First, Ohio Revised Code 3746.02 is amended to change eligibility for the Ohio VAP when the owner/operator receives notice that the state intends to issue an enforcement order. As amended, a person must show it entered the Ohio VAP and is proceeding expeditiously to address a release or threatened release of a hazardous substance or petroleum from the property and that the person meets the definition of a BFPP under Ohio Revised Code 3745.122.
Second, it eliminates a provision in the Ohio VAP that automatically voids a CNS issued under the Ohio VAP for violations of engineering controls or activity and use limitations applicable to the property. Instead, the new law allows the director of Ohio EPA to issue an order voiding a CNS for such violations. This change gives the director discretion whether to take action to revoke a CNS and makes the director’s decision in this regard a final appealable order creating the needed due process for any such determinations.
Under both federal law and the new state law, purchasers of contaminated property must consider that even with the defenses for BFPPs, they may have post-closing obligations regarding releases or threatened releases of hazardous substances at or from the property. Purchasers failing to comply with any such obligations run the risk of losing their defenses under federal and state law. Purchasers should also evaluate the risk of claims by private parties for such releases or threatened releases.