On December 5, 2012, US EPA issued a “Revised Enforcement Guidance Regarding the Treatment of Tenants under the CERCLA Bona Fide Prospective Purchaser Provision.” US EPA undertook this effort to encourage reuse of contaminated properties for renewable energy development. However, the updated guidance is broad enough to apply to other tenant situations and may justify consideration of "all appropriate inquiries" in more lease situations.
The problem that US EPA is trying to address with this guidance is that a key Superfund ‘landowner liability protection’ (think limited and conditioned defense to liability) – for bona fide prospective purchasers (42 USC §§ 9601(40), 9607(q)(1)(C) and 9607(r)(1)), which provides a defense even where an acquirer knows of the existence of contamination at the time of acquisition – is not available to those who lease contaminated property unless the tenant’s landlord meets the requirements of the defense. In other words, according to the language of CERCLA itself, a tenant’s bona fide prospective purchaser defense must be derived from the defense of an eligible landowner.
This can be an obstacle to attracting renewable energy projects to contaminated properties. Most renewable energy project developers do not want to buy contaminated land. They do, however, need sufficient rights in the property developed to justify and secure the significant financial investment that will be needed, for example, to put a solar farm on a closed and capped landfill. A lease with a term tailored to the project’s horizon may provide the right balance and allow the developer to ensure that it is not stuck owning unwanted land and potential liability when the project has run its course.
Under the revised policy issued last week, US EPA indicates that it will use its enforcement discretion not to pursue a tenant that meets the criteria of the bona fide prospective purchaser defense (including for example, conducting a pre-lease Phase I) even though the tenant is not a itself a “purchaser,” and even where the tenant’s landlord is not eligible for the defense, for example, because he or she owned the property when disposal occurred there.
This may help get more solar farms on more closed landfills (or other renewable energy projects at contaminated sites), which is a very good idea for a number of reasons, including the long term security and operation and management of the property. First, though, the basic economics of the project must be strong enough to overcome the inherent complications and associated additional time and costs, as well as lingering risks, involved in building on land where significant contamination remains. With strong fundamental project economics, the additional costs and lingering risks can be managed. US EPA’s sincere, though much conditioned, message in this revised guidance that it will be reluctant to pursue such developers will help. For more on US EPA’s encouragement of the development of renewable energy projects on contaminated sites see Re-Powering America’s Land.
Of course, any potential liability under Pennsylvania’s or other state’s law would also need to be sorted through as well. In that regard, it is worth noting that Act 2 releases of liability can extend to a person “who develops or otherwise occupies the identified site.” See 35 P.S. §6026.501(a)(2).