The Bona Fide Prospective Purchaser Defense in Ohio
The time has come for Ohio to join the list of states that have incorporated the federal Bona Fide Prospective Purchaser (BFPP) defense to CERCLA liability. 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 strict 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.” Therefore, in 2001, Congress passed the Small Business Liability Relief and Brownfields Revitalization Act (the “Brownfields Amendments”). The Brownfields Amendments amended CERCLA to exclude persons who qualify as a BFPP from liability under CERCLA. To be eligible for BFPP status, a purchaser must not only acquire ownership of the property after January 11, 2002, but must also satisfy specific criteria outlined in CERCLA, including three threshold requirements and five continuing obligations.
The three threshold requirements include the following:
- The disposal of contamination must have occurred prior to acquisition.
- You must conduct “all appropriate inquiries” into the past and present condition of the property prior to title transfer.
- You must not be affiliated with any potentially responsible party.
Regarding the second threshold requirement, “all appropriate inquiries” typically includes a Phase I Environmental Site Assessment, in which an environmental professional/consultant evaluates a property’s past and present environmental conditions and assesses the likelihood of existing contamination. In order to meet the all appropriate inquiries rule, the Phase I ESA must comply with the ASTM E1527-13 standard and must be completed within 180 days prior to the closing date.
The five continuing obligations include the following:
- You must provide all legally required notices with respect to the discovery or release of any hazardous substances on the property;
- You must exercise appropriate care with respect to hazardous substances found at the property;
- You must provide full cooperation, support, assistance, and access to persons authorized to conduct response actions at the property;
- You must be in compliance with land use restrictions and you must not impede the effectiveness or integrity of any institutional controls; and
- You must comply with any request for information or administrative subpoena.
As of September 15, 2020, the State of Ohio has incorporated the federal definition of a BFPP into state law through the enactment of House Bill 168. Since 1994, the only way for a purchaser in Ohio to receive a release from state-level liability at a contaminated property was to enter into the Voluntary Action Program (VAP), investigate potential contamination, and remediate, if necessary, to obtain a Covenant Not to Sue (CNS). Obtaining a CNS through the VAP is inherently expensive and time consuming and may only be appropriate where there are high levels of contamination or an imminent threat to human health or the environment. Although the VAP is still a viable option for volunteers to receive state-level liability protection, the new law provides a less costly and timelier option, which may be more appropriate for less contaminated properties.
Aside from time and cost, other advantages associated with Ohio’s BFPP law are that it applies retroactively to any person who purchased a contaminated property after January 11, 2002 (and met their previously mentioned BFPP requirements), and it is self-implementing, not requiring government approval. Because there is no requirement to get sign-off from the Ohio Environmental Protection Agency (OEPA), it is critical the BFPP works with qualified legal counsel and a competent consultant to ensure environmental liabilities are properly evaluated, addressed, and documented so as not to run the risk of losing the BFPP defense in the future. Proper evaluation of environmental risk by an experienced and knowledgeable team is also critical because House Bill 168 does not provide protections against private citizen or common law claims (i.e., third party claims). These types of claims could lead to exorbitant costs for investigation and remediation efforts should, for instance, a contaminant plume later be found to have migrated off-site and adversely exposed nearby human and/or ecological receptors.
House Bill 168 also brings one important modification to the VAP. Previously, a CNS was automatically voided if there was violation of an institutional control or activity use limitation (AUL) applied to the property for exposure prevention or mitigation. Now, the OEPA director may issue an order voiding the CNS, or in other words, the director has discretion and may give the volunteer leniency to reestablish compliance with the institutional control or AUL.
In conclusion, through enactment of House Bill 168, the State of Ohio has provided a new incentive in the form of state-level liability protection for purchasers of contaminated properties. HB 168 fills a significant gap in environmental liability protection from state action for prospective purchasers of a contaminated or potentially contaminated property. If you are engaging in a commercial or industrial property transaction, the federal and now (thanks to HB 168) state-level BFPP defense can offer your business significant environmental liability protection so long as the All Appropriate Inquiries rule is met (e.g., by performing a Phase I ESA) and the BFPP complies with all continuing obligations. Therefore, it is critical to consult with a qualified team that can provide you with a full evaluation of risks that typically accompany the purchase and redevelopment or reuse of a contaminated property.
To learn more about the Bona Fide Prospective Purchaser Defense, click here to register for the webinar on December 2, 2020.