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Tenants Gain Broader Liability Protection Under CERCLA

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Buried in 800-plus pages of the 2018 Consolidated Appropriations Act is a change broadening the bona fide prospective purchaser (BFPP) defense for tenants under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Originally passed in 1980, CERCLA gave federal government the ability to respond to releases of hazardous substances, and to pursue polluters or potential polluters for the cleanup of contaminated sites.

New amendments make clear that a tenant at an industrial or manufacturing site can claim the BFPP defense to escape what would be strict, joint, and several owner/operator liability when leasing a previously contaminated property. The defense previously was available to a tenant only in limited circumstances, although the U.S. Environmental Protection Agency (EPA) issued a policy exercising enforcement discretion where a tenant completed a pre-lease Phase I then followed the BFPP criteria after lease commencement.

The revised definition under CERCLA allows a tenant three paths to the BFPP defense, provided the tenant acquires a leasehold after Jan. 11, 2002. Such leases aren't designed to avoid liability by any person, or any of the following:

  1. Landlord as a BFPP — If the landlord completes All Appropriate Inquiry (AAI) and maintains compliance with additional requirements as a BFPP, the tenant may assert the defense.

  2. Landlord was a BFPP — If the landlord completes AAI and qualifies as a BFPP, but fails to maintain compliance with additional requirements, tenants may assert the defense if they maintained all requirements.
  3. Tenant as a BFPP — If the tenant completes AAI prior to acquiring the leasehold and maintains compliance, the tenant may assert the defense.

Tenants may now assert BFPP after a pre-lease Phase I and meeting AAI standards. While many non-residential tenants perform Phase I assessments before leasing, it is often just for diligence purposes. With this change, a Phase I takes on the same importance for tenant as purchaser, including strict compliance with ASTM Phase I standards. Phase II ESAs can provide even more protection, as landlords could be asked to demonstrate AAI by tenants.

Ultimately, these new changes allowing tenants to assert the BFPP defense provide important new liability protection under CERCLA and make tenants less dependent on landlords to be BFPPs. It also gives a tenant, who previously benefited only from “enforcement discretion” by the EPA, a clear-cut defense to liability. The change allowing tenants to assert the BFPP defense upon completing Phase I assessments and additional requirements of the BFPP defense is also an incredibly important liability protection under CERCLA and makes tenants less dependent on their landlords to be BFPPs.

Post Date: 7/5/2018



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