August Mack Newsletter | July, 2019

"The Best Offense Is a Good Defense" - A Review of the Bona Fide Prospective Purchaser Defense
by Brandon Lewis

In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund.  This law provided broad Federal authority to respond directly to releases or threatened releases of hazardous substances that may be considered harmful to human health or the environment.  Under CERCLA, the owner or operator of a contaminated property could be held responsible for the property's cleanup, based solely on being an owner or operator, regardless of whether or not they contaminated the property.

The broad liability scheme created by CERCLA created a significant barrier to the redevelopment of brownfield sites.  Brownfield sites are defined as, “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.”  As a result of these barriers caused by CERCLA, Congress passed the 2001 Small Business Liability Relief and Brownfields Revitalization Act (the “Brownfields Amendments”).  The Brownfields Amendments amended CERCLA to exclude persons who qualify as a bona-fide prospective purchaser (BFPP) from liability under CERCLA.  To be eligible for BFPP status, a purchaser must acquire ownership of the property after January 11, 2002, and satisfy specific criteria outlined in CERCLA.  These criteria include “threshold requirements” and “continuing obligations”. Threshold requirements include the following:

  1. Disposal of hazardous substances at the Site must have occurred prior to acquisition;
  2. Prospective Purchaser must conduct “all appropriate inquiries” into the previous ownership and uses of the Site, and
  3. Prospective Purchaser cannot be potentially liable or affiliated with any person that is potentially liable for contamination at the site.

“All appropriate inquiry” is accomplished through completion of a Phase I Environmental Site Assessment (ESA) of the property. During the Phase I process, the property’s past and present environmental conditions are evaluated and the potential of existing contamination is determined.  The Phase I ESA must comply with the ASTM standards (ASTM E1527-13) to qualify as all appropriate inquiries.  The Phase I ESA must also be completed within 180 days prior to the closing date.

The second criteria that must be satisfied under CERCLA are continuing obligations.  Applicable continuing obligations to qualify and maintain the BFPP include the following:

  1. Maintain compliance with land use restrictions and do not impede the effectiveness or integrity of institutional controls;
  2. Take “reasonable steps” with respect to hazardous substances affecting a landowner’s property;
  3. Provide, cooperation, assistance and access to persons authorized to conduct response actions at the property;
  4. Comply with information requests and administrative subpoenas; and
  5. Provide all legally required notices.

Should a landowner meet (and maintain) these threshold criteria and continuing obligations, then they qualify for the BFPP defense under federal law.  So how exactly is the BFPP defense facilitated? Some states have established their own programs and processes to fulfill and acknowledge the BFPP defense during a property transaction or redevelopment. Specifically, both Indiana and Michigan have programs established that can provide concurrence with BFPP defense.  In Indiana, this is accomplished through the Indiana Department of Environmental Management (IDEM) comfort letters or site status letters. Comfort letters outline the steps needed to be taken to exercise appropriate care of the Site. Site Status letters are issued to a party that did not cause, contribute to, or knowingly exacerbate the contamination and can demonstrate that current levels of contaminants of concern at the Site meet current cleanup criteria. The Site Status Letter indicates IDEM concludes that current site conditions do not present a threat to human health or the environment and that IDEM does not plan to take or require a response action at the Site.

The BFPP defense can be facilitated in Michigan by following the Baseline Environmental Assessment (BEA) process overseen by the Michigan Department of Environmental, Great Lakes, and Energy (EGLE).  The BEA is a formal written document that details Phase I ESA with All Appropriate Inquiry and Phase II subsurface investigation results for a Site that confirm contamination exists above unrestricted residential criteria. Completion of a BEA allows for someone to buy, lease, or foreclose on the contaminated property and be protected from liability for cleanup of existing contamination on the property. Additionally, Michigan also has established requirements for actions owners and operators of property that is contaminated must take to ensure that the contamination does not cause unacceptable exposures, and the contamination is not exacerbated or worsened. These actions are known as Due Care and are covered in a Due Care Plan for the Site.  Due Care generally includes provisions for preventing fire and explosion conditions, prevent unacceptable exposures to the existing contamination, preventing actions that cause contamination migration from the property, etc.  Utilization of a BEA and Due Care Plan in Michigan are very helpful in establishing and in maintaining the BFPP defense for a landowner.

Other states may or may not have specific state-level guidance or laws formalized around establishing BFPP, so always be aware of what your state requires. Ohio currently has no formally established program for establishing the BFPP, but Ohio House Bill 737 introduced in the Ohio Statehouse in late 2018 may change that.  House Bill 737 would bring Ohio law more in line with federal law and could provide a simpler, more cost-effective path to the cleanup of contaminated Sites and brownfields.     

Thanks to the Brownfield Amendments, finding contamination on a Site doesn’t mean your deal is dead. If you are engaging in a commercial or industrial property transaction or redevelopment, your business can avoid environmental liability by ensuring you meet the BFPP defense.  Be sure to conduct all appropriate inquiry prior to the closing date, and depending on what your state requires, be sure to utilize any programs available to your full benefit.

Brandon C. Lewis is a Senior Project Manager for Closure Services in August Mack’s Ohio office. He has 12 years of environmental consulting experience. His professional experience and technical expertise lies in RCRA Corrective Action (federal and state level), underground storage tank (UST) closures, subsurface investigations, groundwater monitoring, vapor intrusion, data evaluation, remedial evaluation/construction, and remedial systems operations.  Brandon is also experienced in phase I assessments, asbestos surveys, and asbestos abatement oversight.  Brandon provides technical project oversight and staff development of the Ohio office’s Closure department.

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