When the United States Environmental Protection Agency (“EPA”) updates important guidance materials it hasn’t touched in more than 15 years, people start to take notice!
This past summer, the EPA released its long-overdue Enforcement Discretion Guidance Regarding Statutory Criteria for Those Who May Qualify as CERCLA Bona Fide Prospective Purchasers, Contiguous Property Owners, or Innocent Landowners (“2019 Guidance”). This 2019 Guidance replaces the EPA’s ancient (i.e., 2003) Interim Guide on this subject. (That’s a long time for something that’s “interim”!)
In this blog post, we provide our five quick “takeaways” from our review of the 2019 Guidance. But before we do, so a bit of background on exemptions and defenses to liability under the federal Superfund law (a/k/a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)).
Superfund Liability 101
As we have described in prior blog posts, CERCLA was originally intended to clean up highly contaminated dump sites, like Love Canal that gave rise to it. The statute has a “strict liability” mandate, meaning that no showing of culpability or even negligence had to be established by the government or a third party who sued for contamination, and was calls for “joint and several liability” meaning that one party could be stuck holding the bag for the cost of the entire cleanup even if it only contributed a small amount of contamination. One of the categories of “potentially responsible parties” under CERCLA includes current owners of contaminated properties – even if that owner did not contribute to the contamination whatsoever!
As it happens with most laws, there were unintended consequences. Specifically, courts were reading the intent of CERCLA so broadly that it was impacting just about every transaction involving any amount of contamination on just about any property, not just old dumpsites. Purchasers became rightly so concerned about acquiring CERCLA liability if they did a Phase I Environmental Site Assessment (ESA) and found out there was contamination, for then they could no longer claim “innocent landowner” status. Why? Well, they were no longer “innocent” about contamination conditions! So they started to turn away otherwise good investment opportunities upon getting the results of their due diligence. As noted, CERCLA was not originally meant to deal with your everyday contaminated parcel that is the subject of most commercial property transactions. To address this problem and encourage the sale and purchase of day-to-day contaminated properties, Congress passed what are known as the “Brownfields Amendments” to CERCLA in 2002.
For transactions that close after January 11, 2002, the Brownfield Amendments have provided important liability limitations for owners that qualify as (1) bona fide prospective purchasers (BFPPs), so they could find out about existing contamination with their Phase I ESA but not acquire liability; (2) contiguous property owners (CPOs); or (3) innocent landowners (ILOs) (collectively, the “Landowner Provisions”). Each of these liability protections is an important tool for prospective purchasers of contaminated property. We environmental lawyers help clients go through the environmental due diligence process for several reasons, one of which is to see if they can qualify for one of these defenses or exemptions to Superfund liability.
Now, without further ado, our five quick “takeaways” from our review of the 2019 Guidance.
1. This is an internal guidance. EPA makes clear that the 2019 Guidance is “intended to provide EPA personnel with general guidance” on the Landowner Provisions and to “assist them in exercising their enforcement discretion.” This means that this 2019 Guidance does not have the effect of law or regulation, and a court is not bound by it. Indeed, EPA notes towards the end of the document that the 2019 Guidance “is not a rule and it does not alter liabilities or limit or expand obligations [under law].” Buyers and sellers of contaminated property, as well as their counsel, should be aware of the 2019 Guidance, but should understand that it is not gospel!
2. Pre-Closing Phase I ESAs are still a thing. EPA reminds the public that in order to qualify for any of the three Landowner Provisions, a person must perform “all appropriate inquiries” (AAI) into the previous ownership and uses of the property before acquiring that property. To be sure, EPA makes clear that purchasers of contaminated property will not qualify for one of the Landowner Provisions, i.e., they will inherit CERCLA liability, if they perform AAI after acquiring the property! (AAI is just a fancy term, from the statute, for the Phase I ESA).
3. Old Phase I ESAs are still bad. We are constantly reminding clients who like to think that they can rely on an old Phase I ESA that was performed by the seller that they can’t. EPA reminds us that the AAI Rule still requires that prospective purchasers perform the Phase I ESA within one year prior to the date of acquisition of a property – this has not changed! Additionally, certain aspects of the AAI investigation must be completed or updated within 6 months of and prior to closing. Don’t get tripped up by this requirement!
4. EPA willing to give breaks and exercise enforcement discretion. There are references sprinkled throughout the 2019 Guidance making it clear that EPA is willing to work with purchasers of contaminated property so as to not discourage property transactions. For example, with respect to the BFPP and ILO protections, EPA notes that its personnel “in exercising their enforcement discretion on a site-specific basis, should consider not treating certain post-acquisition disposals as automatically disqualifying a party from a BFPP or ILO landowner liability protection that would otherwise apply.” This is promising for those who are in the business of buying contaminated lots.
5. Every scenario is different, so make sure you speak with an attorney. EPA reminds the public that landowner liability protection obligations are “highly fact specific” and individual requirements “may change based on site conditions. As such, “EPA encourages parties to consult with their own counsel and environmental professionals prior to and during property ownership.” Last thing you need is to needlessly acquire Superfund cleanup liability over something that could have been addressed over a simple phone call or meeting.
Click here to review the EPA’s 2019 Landowner Provisions Guidance.
Contact the attorneys of Periconi, LLC at 212-213-5500 if you are considering environmental due diligence prior to the purchaser or sale of real estate and have questions about cleanup liability, or for more information regarding environmental due diligence process generally.