Published in NH Bar News (9/14/2018)
Last March, Congress passed the massive Consolidated Appropriations Act, (known as the Omnibus Act) (https://www.congress.gov/bill/115th-congress/house-bill/1625/text) to fund the government and avoid a shutdown. Included in the Omnibus Act is the Brownfields Utilization, Investment, and Local Development Act of 2018 (the BUILD Act), amending sections of the federal Superfund law. BUILD will affect the conduct of environmental due diligence, municipal liability, and brownfields redevelopment in important ways.
Due Diligence under CERCLA and Brownfields
As most are aware, 42 U.S.C § 9601, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, ( known asCERCLA or Superfun”) authorizes the Environmental Protection Agency (EP”) to clean up contaminated hazardous waste sites. It can also be used to require private parties to perform cleanups themselves or to reimburse the government for remediation performed by EPA and its contractors. CERCLA imposes strict liability, i.e. liability based on status rather than fault, and so can make present and former owners or operators of property responsible for remediation costs. Although the public tends to think of the statute in connection with the worst hazardous waste sites (such as Love Canal), it can apply to almost any property where hazardous waste requires remediation. So, without causing the contamination, a local government, a tenant or a charitable organization could each find themselves ensnared in CERCLA’s strict liability framework by virtue of leasing or acquiring property with preexisting pollution.
Because of the obvious potential to impede land transactions, Congress passed the “Small Business Liability Relief and Brownfields Revitalization Act" in 2002. (https://www.epa.gov/brownfields/summary-small-business-liability-relief-and-brownfields-revitalization-act). The brownfields program provides liability protection and funding to reuse contaminated sites so that development is not directed to previously undeveloped land, so-called “greenfields.” These amendments created new landowner protection from CERCLA 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 January 11, 2002; (3) that all disposal of hazardous substances occurred before they acquired the property; (4) they made all appropriate inquiries (the reporting requirements for all appropriate inquiries are provided in 40 CFR §312.21) into previous ownership and uses of the property prior to acquiring the property; and, (5) they are not affiliated with a party responsible for any contamination.
Environmental due diligence in accordance with established commercial and legal standards has since become a critical element of almost every transaction involving real property. An Environmental Site Assessment (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 ASTM standards (American Society for Testing and Materials, ASTM E1527-13 - Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process), 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, the landowner may qualify for liability protection from CERCLA as a BFPP.
BUILD Act Protection for Lessees
Importantly, the BUILD Act includes an enlargement of the scope of the BFPP protections available to lessees of properties. Until the Build Act, lessees were precluded from qualifying as a BFPP unless the landlord had BFPP status. Now, under the BUILD Act, 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.
BUILD Act Reauthorization and Changes to Brownfields
In addition to reauthorizing the program through 2022, the BUILD Act also makes meaningful changes to the brownfields program generally. 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 also provides new incentives for clean energy development at brownfields sites.
Under the BUILD Act, the cap on brownfields grants is raised from $200,000 to $500,000, with some possibility for more money. A new grant program is created that allows EPA to authorize as much as $1,000,000 to inventory, characterize, assess, plan, or remediate contamination at one or more brownfield sites in an area. The BUILD Act expands types of entities eligible for brownfield redevelopment funding to, for example, charitable organizations. Additionally, publicly owned brownfield sites, even if not owned by a BFPP and acquired before January 11, 2002, may receive grant money if the public owner did not contribute to the contamination. And, when evaluating brownfields applications, weight can now be given to sites adjacent to a body of water or flood plain, or that may include installation of renewable energy facilities.
The Omnibus Act has far-reaching consequences, and the BUILD Act’s important changes to BFPP eligibility and to the brownfields program will be consequential to those who understand those changes. The devil will be in the details as the BUILD Act is implemented; however, there is no doubt that these changes will have a significant beneficial effect on a variety of transactions in the future.
Michael J. Quinn is managing director of McLane Middleton’s Portsmouth office.