Is the EPA Making You Want to Buy Contaminated Property?

The fear of becoming entangled in the potentially unending quagmire that can be a Superfund cleanup has kept many folks from purchasing a remediated Superfund site. However, the U.S. Environmental Protection Agency (EPA) under Administrator Scott Pruitt wants to provide new incentives for private investors and developers to purchase these contaminated properties. Let’s take a look at how it plans to encourage you pick up the title to a Superfund site.

Yesterday we explored how recommendations from EPA’s Superfund Task Force aim to alleviate some of the liability potentially responsible parties (PRPs) face when cleaning up a site under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

Some of these recommendations are also aimed at prospective purchasers and redevelopers of such sites.

Using the BFPP Defense

Part of the encouragement to redevelop Superfund sites has always been the CERCLA provision that allows for what is called a bona fide prospective purchaser defense (BFPP).

A BFPP (as defined in 42 UCS 9601(40)) is not liable for hazardous substances that the purchaser knew were on the property when it was purchased after January 11, 2002. In order to take advantage of this opportunity to purchase and redevelop a Superfund site without fear of liability, you must have (among other conditions) acquired the property after all the hazardous substance disposal had occurred and not be affiliated in any way with a PRP. In other words, you can’t be a family member (i.e., have a “direct or indirect familial relationship”) or have any financial, corporate, or contractual relationship with a PRP.

It’s important to note here that neither “affiliation” nor “direct or indirect familial relationship” is defined in CERCLA. The EPA addresses this issue in a March 2003 memo, wherein the Agency recognizes that the term “affiliation” could be taken to an extreme. The memo states that in exercising its enforcement discretion, the EPA intends to be guided by “Congress’ intent of preventing transactions structured to avoid liability.” You can lose your BFPP status and become entangled in liability issues if you do not comply with the land use restrictions established in connection with the response actions for the property or if you impede the effectiveness or integrity of any institutional controls employed in connection with the response actions. And, you will certainly incur liability if you cause any additional hazardous substance releases on the property after you purchased it.

How Task Force Recommendations Could Help You

The Superfund Task Force has recommended a number of actions to bolster the BFPP defense and encourage the purchase or cleanup of properties by BFPPs. The Task Force recommends the use of funds from special accounts as financial incentives for PRPs. It also recommends providing special account funds to BFPPs that agree to perform cleanup work. In fact, the Task Force recommends extending all the financial incentives available to PRPs to BFPPs.

In order to further encourage cleanup and reuse where purchaser liability concerns may still pose a barrier, the Task Force recommends the use of site-specific tools to address these liability concerns. Some of these recommended actions include:

• Developing a model request for prior written approval of site-specific letters and agreements; and
• Expanding the use of prospective purchaser (PP) agreements (PPAs) for BFPPs and PPs to specifically limit their liability. These agreements would also be used for potential BFPPs to outline the actions necessary to maintain their BFPP status.

You Must Protect Your BFPP Status

As has always been the case, in order to protect your status as a BFPP, you must be careful to:

• Make all appropriate inquiries before you purchase the property;
• Provide all legally required notices pertaining to hazardous substances discovered or released on the property;
• Take “reasonable steps” (another term not defined in CERCLA but addressed in the March 2003 memo) to stop continuing releases; prevent or limit future releases; and prevent or limit human, environmental, or natural resource exposure to any previous release;
• Cooperate with and assist those conducting response actions; and
• Comply with any information requested under CERCLA.

And since BFPPs at some sites might be interested in performing cleanup work beyond what would be expected of them to maintain their BFPP liability protection (e.g., conducting cleanup work beyond the statutory requirement to take “reasonable steps” to prevent or limit exposure and stop continuing or threatened releases at the site), the EPA previously issued a model agreement for BFPPs who are interested in performing Superfund removal work. The EPA also had developed a model agreement to resolve an existing or potential “windfall lien” with interested BFPPs. Note: Under CERCLA, a “windfall lien” is EPA’s lien on a property due to the increase in the fair market value of that property attributable to EPA’s cleanup efforts.

To help BFPPs with these tasks, the Task Force has recommended that the EPA, in concert with the Department of Justice, develop a new policy memorandum that provides for the greater use of PPAs and windfall lien resolution agreements in addition to BFPP agreements. The policy should identify what situations, in addition to performing work, would justify entering into negotiations for written agreements.

Once you’ve been convinced to purchase and clean up a contaminated property, what do you do with the polluted material if you’re concerned about litigation? In one state, you had better keep it. Check tomorrow’s Advisor.