The protection from environmental liability afforded by the Phase 1 Environmental Site Assessment (“ESA”) is well-known to purchasers of land who conduct ESAs before becoming the “owner.” These ESA derived protections now have expanded to cover tenants that were previously at risk.
First, some background. Although the public tends to think of the Superfund statute in connection with the worst hazardous waste sites (remember Love Canal?), it can apply to almost any property where hazardous waste requires remediation. Without causing the contamination, a new owner, a local government, a tenant or a charitable organization could each find themselves ensnared in the law’s strict liability framework by virtue of acquiring property or leasing property with preexisting pollution.
As most are aware, the Superfund law, authorizes the Environmental Protection Agency to clean up hazardous waste sites. However, that same law is also commonly used to require private parties (property owners, landlords, tenants) to pay for and perform cleanups themselves or to reimburse the government for remediation performed by EPA. This is because Superfund imposes what is known in the law as strict liability – liability based on status rather than fault- and so can make present and former owners or operators of property responsible for all remediation costs, even if they did not cause the problem.
Because of the obvious potential to impede land transactions, Congress passed the “Small Business Liability Relief and Brownfields Revitalization Act” in 2002. This brownfields program provides liability protection and sometimes funding to reuse contaminated sites.
The Brownfields Act created landowner protection from liability for Bona Fide Prospective Purchasers (“BFPP”). To qualify as a BFPP, one must establish: (1) they are not potentially liable for the contamination at the property; (2) they acquired the property after Jan. 11, 2002; (3) that all disposal of hazardous substances occurred before they acquired the property; critically (4) they made all appropriate inquiries into previous ownership and uses of the property prior to acquiring the property; and, (5) they are not affiliated with a party responsible for contamination.
Environmental due diligence has since become a vital element of almost any transaction involving real property. An ESA, incorporating “all appropriate inquires” by a qualified environmental professional, is performed to determine whether there are any conditions indicating past or current releases of petroleum or hazardous materials or chemicals at the property. A proper ESA is conducted according to precise ASTM standards, and will include, for example:
A review of historical records of the property;
A review of government environmental records of the property;
Interviews with current and past property occupants; and
A physical site inspection.
At the conclusion of the ESA, and depending on its findings, one may qualify for liability protection as a BFPP.
New protections for lessees and local governments
In March 2018, Congress passed the massive Consolidated Appropriations Act of 2018, (known as the “Omnibus Act” and not to be confused with the Omnibus Act of 2019) to fund the government. Deep in the 2018 Omnibus Act is the Brownfields Utilization, Investment, and Local Development Act of 2018 (the “BUILD Act”), amending sections of the Superfund law affecting environmental due diligence, municipal liability, and brownfields redevelopment in important ways.
Until the Build Act, lessees were precluded from qualifying as a BFPP unless the landlord had BFPP status. Now, so long as a lessee performs all appropriate inquiries, it can obtain BFPP protection even if its landlord does not have BFPP status. This adds an important layer of protection from potentially enormous liability not previously available to those who lease property. This is a significant change of which too few are aware.
The BUILD Act also makes meaningful changes to the brownfields program. For example in some circumstances, the Build Act relieves state and local governments from liability if they own a contaminated site, but did not cause the contamination. Specifically, the BUILD Act exempts local and state governments from being deemed “owners or operators” of property seized through the exercise of police powers.
The BUILD Act made important changes to BFPP eligibility and to the brownfields program are consequential to those who understand and properly use those changes. The devil will be in the details as the BUILD Act continues to be implemented, however there is no doubt that these changes will have a significant beneficial effect on a variety of transactions in the future.