By Jane C. Luxton, Partner, Pepper Hamilton LLP
In a December 2012 Guidance Memo, the Environmental Protection Agency (EPA) announced new enforcement principles intended to enhance protections for tenants on contaminated or previously contaminated "brownfield" properties. The new guidance, available at http://www.epa.gov/enforcement/cleanup/documents/policies/superfund/tenants-bfpp-2012-mem.pdf, clarifies that EPA will use enforcement discretion to extend to tenants protections that are currently available to bona fide prospective purchasers (BFPP) of contaminated sites. More specifically, the guidance reiterates EPA's position that a tenant may have derivative BFPP status if the existing owner is a BFPP, and under certain circumstances, extends BFPP liability protection to a tenant that leases contaminated property from an owner that does not qualify as a BFPP. EPA took this action in response to concerns about potential liability that have impeded development of renewable energy projects on brownfield properties under EPA's RE-Powering America's Land Initiative, but EPA recognized that the terms of the new policy are written broadly, offering benefits to other brownfield redevelopment efforts undertaken by lessees as well.
To obtain liability protection in cases in which the property owner is not a BFPP, the tenant must essentially meet the BFPP requirements itself. This includes ensuring that all hazardous substance disposal pre-dated the lease; conducting "all appropriate inquiry" (AAI) prior to execution of the lease; taking "reasonable steps" to avoid further hazardous substance releases; compliance with land use restrictions, institutional controls, and information requests; cooperation with federal and state authorities at the site; and other applicable requirements.
In situations in which the property owner has obtained BFPP status, the tenant can derive this status as long as it does not impede the cleanup remedy or natural resource restoration. A tenant with derivative BFPP status may want to evaluate whether the owner is maintaining that standing. In the event the owner loses its BFPP status through no fault of the tenant, the tenant may preserve its liability protection if it meets the BFPP requirements itself, as noted above. (EPA notes that AAI is not necessary, since it was conducted by the owner, but suggests the tenant should at least obtain information on the prior use of the property before leasing it, to be informed in case the owner loses BFPP status.)
In addition to the guidance document, EPA released three model comfort/status letters that interested parties can use in negotiating language with EPA's Regional Offices that memorializes the agency's lack of interest or intention of taking action with regard to the site. These comfort/status letters will be used in limited circumstances, when EPA determines on a case-by-case basis that it is necessary to provide a tenant with additional assurances.
EPA's new guidance significantly broadens the scope of protection for tenants interested in undertaking a variety of development projects on brownfield or contaminated properties.
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