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Article: EPA Extends “Bona Fide Purchaser” Protection to Tenants

By Claire Juliana of Aon Risk Solutions

Claire Juliana - Aon Environmental

Last month, the United States Environmental Protection Agency (“EPA”) issued revised enforcement guidance for the treatment of tenants under the Bona Fide Prospective Purchaser (“BFPP”) provision of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). (See: http://www.epa.gov/enforcement/cleanup/documents/policies/superfund/tenants-bfpp-2012.pdf). This guidance supersedes the EPA’s previous January 2009 guidance and is intended to address remaining uncertainty regarding the potential liability of tenants under CERCLA and the applicability of the BFPP provision given that the provision makes explicit reference to tenants in § 101 (40). Under previous guidance, the BFPP protection was only available if the tenant’s landlord itself qualified and maintained its status as a BFPP or if the tenant’s leasehold right was the equivalent of an owner. The new guidance provides the EPA with expanded enforcement discretion to a tenant of a contaminated site whose owner loses BFPP status or a tenant that itself meets the necessary BFPP criteria as applied to a tenant. This summary is intended to provide details of the new policy.

Under Section 107(a)(1) of CERCLA, “the owner and operator of a … facility….from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for …(A) all costs of removal or remedial action incurred by the United States Government….” So, absent liability protection, an owner or operator of a contaminated property is a potentially liable party under CERCLA. Section 107 (r)(1) is the provision of CERCLA that articulates the statutory liability protection for BFPPs as follows:

Notwithstanding subsection (a)(1) of this section, a bona fide prospective purchaser whose potential liability for a release or threatened release is based solely on the purchaser’s being considered to be an owner or operator of a facility shall not be liable as long as the bona fide prospective purchaser does not impede the performance of a response action or natural resource restoration.

In general, a BFPP is "a person (or a tenant of a person)" that acquires ownership of a facility after January 11, 2002, and satisfies the following criteria:

  • Conducts "all appropriate inquiries" into the previous ownership and uses of the property.
  • No disposal of hazardous substances at the facility on or after acquisition.
  • Provides all legally required notices.
  • Takes reasonable steps with respect to any hazardous substance releases.
  • Provides cooperation, assistance and access to those conducting response actions.
  • Complies with land use restrictions and institutional controls.
  • Complies with information requests and administrative subpoenas.
  • Is not potentially liable for response costs at the facility or has no affiliation with a responsible party (i.e., other than an affiliation created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services).

Under the new guidance and on a site specific basis the EPA has the enforcement discretion:

  1. To treat a tenant who derives BFPP status from its owner/landlord as a BFPP even if the owner/landlord has lost its BFPP status (through no fault of the tenant) as long as the tenant meets all of the BFPP provisions, except the all appropriate inquiries provision. That said, the EPA notes that a tenant may still wish to obtain information on prior uses of the facility in order to have an informed basis upon which to perform the other requirements of the BFPP provision. With respect to the “no affiliation” provision, although a lease “is [not] created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services” per §101(40)(H)(i)(II), the EPA has the discretion to treat a lease between the tenant and owner an as acceptable affiliation.
  2. To treat a tenant as a BFPP as long as the tenant satisfies all of the BFPP criteria including conducting all appropriate inquiries.

And, like a purchaser who wishes to assert the BFPP defense, the tenant protections will only apply to leases entered after January 11, 2002.

The new guidance addresses a gap in the CERCLA liability protections and allows tenants to follow the same steps as purchasers in order to establish the protection as a BFPP. Many tenants of commercial and industrial properties already routinely perform Phase I environmental assessments as part of their due diligence practices so to the extent that this satisfies the all appropriate inquiries requirement and the other criteria are met, the tenant has some measure of comfort that the EPA is not likely to hold the tenant liable for pre lease contamination. The guidance itself, however, cautions that the EPA has enforcement discretion so where a lease is, for example, designed to allow the landlord or tenant to avoid CERCLA liability, the EPA would likely decline to exercise its enforcement discretion. As always, tenants should consult with experienced advisors in ascertaining what steps should be undertaken to help protect against CERCLA liability.