US BUILD Act Clarifies Tenant Standing for Bona Fide Prospective Purchaser Protections from Contaminated Property Liability
When President Trump signed the omnibus spending bill on March 23, 2018, he also enacted the Brownfields Utilization, Investment, and Local Development Act of 2018 (BUILD Act) (not to be confused with the Better Utilization of Investments Leading to Development Act of 2018—yet another BUILD Act of 2018). Among the several provisions within the BUILD Act were some changes to how exceptions to CERCLA liability may be met, including clarification on how tenants may establish the Bona Fide Prospective Purchaser (BFPP) liability protection.
As Section 107(a) of CERCLA establishes liability for current or past owners and operators, lessees of contaminated property are also at risk of being pulled into CERCLA’s grasp as either an owner (such as where the lessee participates in the disposal of hazardous wastes) or operator (where the lessee has authority to control operations or decisions involving the disposal of hazardous substances). Given the potential for joint and several strict liability under CERCLA, tenants have been concerned with the application of the BFPP protections as the distinction between the landlord’s and tenant’s rights and obligations have been less than clear.
Section 101(40) of CERCLA provides that a BFPP is “a person (or a tenant of a person) that acquires ownership of a facility after [January 11, 2002]” and that establishes:
- All disposal of hazardous substances at the facility occurred prior to acquisition;
- the person made all appropriate inquiry (AAI) into the previous ownership and uses of the facility (e.g. obtained a valid Phase I report);
- the person provides legally required notices with respect to the discovery or release of any hazardous substances;
- the person exercises appropriate care with respect to hazardous substances at the property (including taking reasonable steps to stop continuing releases and prevent future releases, and prevent exposures);
- the person provides full cooperation, assistance, and access to persons performing response actions;
- the person is in compliance with land use restrictions and institutional controls;
- the person complies with information requests and administrative subpoenas; and
- the person is not potentially liable or “affiliated” with any person that is potentially liable for response costs at the facility.
Where BFPP is established, Section 107(r)(1) provides that a person is not an “owner or operator of a facility so long as the person does not impede the performance of a response action or natural resource restoration.”
The BUILD Act provides that there are three paths for a tenant to establish BFPP protections: (1) rely upon the property owner’s status as BFPP; (2) demonstrate that the owner obtained BFPP status by performing AAI at the time it acquired the property, but then lost it due to failure to comply with subsequent requirements; or (3) obtain BFPP status itself by completing the AAI prior to acquiring the leasehold interest and by complying with all additional requirements. The BUILD Act also clarifies that tenancies and leases are considered the type of contractual relationships that are excluded from being considered “affiliated with” a potentially liable party.
Although US EPA’s prior 2012 guidance on the treatment of tenants as BFPPs provided that a tenant could derive BFPP status from a property owner, such derivative status was limited to “so long as the owner maintains its BFPP status.” Thus, where the owner loses BFPP status, US EPA took the view that the tenant would generally no longer possess derivative BFPP status, although US EPA indicated that it may selectively exercise enforcement discretion to treat the tenant as a BFPP where it lost its status through no fault of its own. Moreover, such discretion offered little protection against third party liability.
Consequently, the BUILD Act offers more confidence to tenants that seek to establish BFPP status and particularly where they derive BFPP protection from the AAI compliance of the property owner.