As we conclude this blog series, we’ll focus on updates to CERCLA laws that went into effect in early 2018.
CERCLA laws help determine parties responsible for contamination based on four factors discussed in our blog post on CERCLA. When it comes to liability, the focus can often be on the property owner. However, tenants can be held responsible for contamination as well, particularly if they fall into any of the categories listed below. If so, they could be considered a potentially responsible party (PRP). The four categories that can put affiliates of a property at risk are:
- Current property owner
- Property owner or operator at the time of disposal of hazardous materials
- Party responsible for site selection and transportation of hazardous materials to a property
- Party responsible for arranging transportation of hazardous materials at a property[i]
Tenants can fall under the ‘operator’ umbrella if they have authority over the property, meaning they could be liable for contamination. Authority, in this case, refers to the ability to control substances coming to a property, people handling substances on a property, or other activities related to potential contamination of a property. Tenants can even be considered owners of a property if they are contributing to contamination.
Property owners can protect themselves by performing due diligence to prove there were no red flags suggesting contamination. Performing proper due diligence gives owners grounds to claim either the “innocent landowner” or the “bona fide prospective purchaser” defense. Tenants, on the other hand, only gained the same legal protection in March of this year.[ii]
The BUILD Act
Prior to 2002, tenants were unable to protect themselves legally the way owners could. However, with the 2002 Small Business Liability Relief and Brownfields Act, the EPA began to touch on tenant liability and whether tenants can become bona fide prospective purchasers. The EPA did not address any specifics, leaving a lot on the line for tenants. President Trump’s signing of the Consolidated Appropriations Act of 2018, however, amended this vague language. One of the many facets of this bill is the Brownfields Utilization, Investment, and Local Development Act (BUILD Act).
The BUILD Act, designed to encourage redevelopment of deserted contaminated properties, provides protection for lessees and includes a handful of other revisions to CERCLA. Due to CERCLA laws, many contaminated properties sit unoccupied and become nuisances to many communities. Developers tend to avoid these environmentally hazardous properties in an effort to avoid any liability under CERCLA. The BUILD Act provides wider liability protection with the hopes of encouraging developers to purchase these older, perhaps contaminated properties for redevelopment to rejuvenate neighborhoods.
L: Brownfield in the Bronx, NY[iii]
R: Hunslet Mills[iv]
The BUILD Act also affects lease language, as it adds leases and tenancies to the list of contractual relationships that do not fall under CERCLA’s affiliation liability. This ensures tenants can use the bona fide prospective purchaser defense without being disqualified due to signing a lease.
New Protections, New Opportunities, and the Same Responsibilities
While the BUILD Act provides legal protection for tenants, they still must perform all appropriate inquiries (AAI) on their own under the same rules and regulations required of a property owner or landlord to become bona fide. Part of this due diligence process likely involves brownfield development under the advisement of a third party consulting firm, and may also include Phase I or Phase II Environmental Site Assessments in addition to regulatory agency submittals.
Tenants may also defend themselves by demonstrating that the owner or landlord falls under the bona fide prospective purchaser defense. This may still be upheld even if the owner loses their defense, as long as it was not the fault of the tenant. The BUILD Act also pushes the redevelopment of brownfield sites by providing additional liability protection to prospective purchasers. The preferred outcome of this will be the rehabilitation of these sites increasing property values in neighboring areas and thus improving communities.
If you are contemplating the purchase of a known brownfield, visit our website to find out more about the ways EBI can assist you in the process.
[i] CERCLA section 107(a)(1-4)