Tenant Liability Under CERCLA: Is It time To Move Beyond Enforcement Discretion Guidance?
Arguably the most significant moderation of CERCLA’s harsh “owner” liability scheme occurred in 2002 through the enactment of the “Brownfields Amendments.” Included in those amendments was the creation of new liability protection for “Bona Fide Prospective Purchasers” (“BFPP”) who acquire ownership of a facility after January 11, 2002.
A relatively straightforward roadmap for prospective purchasers to achieve BFPP status is set out in the Brownfields Amendments and the subsequently-promulgated All Appropriate Inquiry rule. The extent to which tenants might obtain protection from possible “owner” liability has, however, always been far less certain.
The potential applicability of this liability defense to tenants is currently limited to a short parenthetical in CERCLA §101(40). Specifically, a “tenant of a person” that achieves BFPP status shares the liability protections of the property purchaser. Although this “derivative” BFPP status established by the Brownfields Amendments helped clarify the reach of the liability defense with respect to tenants, a number of questions remained unanswered. For example, what happens if the property owner loses its BFPP status through non-compliance with the statutory requirements? Also, does the language of the amendment as it relates to tenants preclude a tenant from independently achieving BFPP status?
Earlier this year, EPA’s Office of Enforcement and Compliance Assurance issued an Enforcement Discretion Guidance (“Guidance”) that addresses the applicability of the BFPP definition to tenants. That Guidance clarifies how EPA intends to exercise its enforcement discretion with respect to tenants “on a site-by-site” basis. In essence, the Guidance provides:
- Tenants with “derivative” BFPP status will lose that status if the property owner ceases to be a BFPP for non-compliance with one or more of the statutory requirements. Nevertheless, EPA may exercise its enforcement discretion and not pursue the tenant under an owner liability theory if the tenant satisfies certain conditions, including not having disposed of hazardous substances on the property and fully cooperating with EPA in its response actions.
- Tenants whose lease documents establish sufficient “indicia of ownership” and who satisfy all requirements of CERCLA §101(40)(A)-(H) and 107(r) may be deemed to have independently achieved BFPP status and thus possibly avoid an enforcement action under CERCLA’s owner liability provisions. Indicia of ownership include the term of the lease, the range of permitted property uses by the tenant, reserved rights on the property by the owner, etc.
EPA’s Guidance is a welcome clarification of how the agency intends to enforce CERCLA’s owner liability provisions in these situations. However, the Guidance goes beyond the derivative status language in the Brownfields Amendments in its discussion of potential limitations on tenant “owner” liability. The problem is that a guidance is just that. It offers none of the statutory certainty that prospective purchasers now enjoy under CERCLA.
Because of the importance of tenant-operated properties to the economy in general and to the development of Brownfields property in particular, I would submit that tenants should be afforded the same clarity and certainty with respect to potential liability under CERCLA as those who acquire title to the property. As the Brownfield Amendments are largely self-implementing, that clarity and certainty is likely to be achieved only through further amendments to the liability provisions of CERCLA.
Environmental Site Assessment Flexibility or Further Complexity? EPA Adopts Forestland and Rural Property Phase I Standard Practice
On December 23, 2008, EPA issued a direct final rule amending the “All Appropriate Inquiries Rule” [Standards for Conducting All Appropriate Inquiry]by adopting ASTM International’s “Standard Practice for Environmental Site Assessment Process for Forestland or Rural Property” (ASTM E2247-08) [EPA Amendment to AAI Rule]. ASTM E2247-08 was published after EPA promulgated the All Appropriate Inquires (AAI) rule and is specifically tailored to conducting Phase I environmental site assessments of large tracts of rural and forestland property. EPA’s action incorporates the ASTM E2247-08 forestland and rural property assessment practices as a federal standard for establishing the AAI component of the bona fide prospective purchaser, contiguous property owner and innocent landowner defenses to CERCLA owner/operator liability.
The AAI Rule as originally promulgated referenced and recognized as compliant ASTM E1527-05, which provides practices for conducting AAI of commercial real estate. ASTM E2247-08 is a variant of the original standard that focuses on the environmental assessment of greater than 120 acres of forestland or rural property or property with a developed use of only managed forestland and/or agriculture. Users of the forestland and rural property Phase I practices are intended to include the forest industry, conservation organizations, natural resource industries and rural real estate professionals and lenders.
Although the Forestland or Rural Property Standard is over 40 pages in length, EPA admits that the differences between this standard and the standards incorporated in the original AAI Rule are few and relatively insignificant.
Generally, the forestland and rural property practices offer the “Environmental Professional” more options to satisfy the site reconnaissance component of the Phase I assessment to, in part, alleviate the burden of visually inspecting these large properties. Also, the 120 acres (or more) that qualify the property for this standard need not be contiguous, provided all parcels are part of the same transaction and have substantially the same land use. Minor differences in the “past and present owner/occupant” interview requirements also exist that take into account the nature and use of these properties.
Both the original Rule and ASTM E2247-08 require the Phase I “User” to search for environmental liens and collect other information reasonably ascertainable to the User. Although the original Rule does not mandate disclosure of this information to the Environmental Professional, ASTM E2247-08 requires that such information be disclosed.
ASTM E2247-08 also includes a more extensive list of potentially applicable historical records and offers guidance on “beyond scope” assessments particularly relevant to forestland and rural property such as endangered species and non-point source assessment considerations.
Conceptually, a modified Phase I assessment practice for large tracts of forestland and rural property makes sense. However, EPA’s recent amendment to the AAI Rule provides that a purchaser of forestland or rural property within the scope of ASTM E2247-08 need not use the practices in that standard. Rather, such purchasers may continue to follow the provisions of the original Rule and ASTM E1527-05.
That being the case, and given that the new forestland and rural property standard is in many respects more stringent than the original Rule, it is debatable whether this amendment of the Rule actually provides focus, efficiency and useful flexibility to the assessment of these types of properties or simply adds another layer of confusion and complexity for property purchasers and Environmental Professionals to evaluate.
