Updated CERCLA Guidance for Landowner Liability Protections

One of the main concerns with environmental due diligence in a real estate transaction is limiting CERCLA liability.  In July 2019, EPA revised its CERCLA guidance on landowner defenses.  The new guidance (available here) is helpful in that it elaborates on how the agency views the elements of the defenses and, particularly for those not fully versed in the statute, includes a chart summarizing which elements apply to each defense. 

 The CERCLA landowner liability protections.

 In 2002, Congress amended CERCLA to provide important liability limitations for landowners that qualify as:

1.       Bona fide prospective purchasers.  BFPPs may purchase property with knowledge of contamination after performing all appropriate inquiries and still qualify for the landowner liability protection, provided they meet the other statutory criteria, including not impeding the performance of a response action or natural resource restoration. BFPPs that continue to meet these criteria are not liable as owners/operators for CERCLA response costs, but the property may be subject to a windfall lien if the EPA’s response action has increased the fair market value of the property.

2.       Contiguous property owners. Prospective CPOs must perform all appropriate inquiries prior to acquiring property, but unlike prospective BFPPs, these parties are not protected from liability if they know, or have reason to know, prior to purchase, that the property is or could be contaminated. CPOs must also prove, by a preponderance of the evidence, that they did not cause, contribute, or consent to the release or threatened release of hazardous substances at the contiguous property.

3.       Innocent landowners.  To establish the ILO affirmative defense, parties must have acquired property without knowledge of hazardous substance releases and must have conducted all appropriate inquiries prior to purchase. The facility must also have been acquired after all disposal or placement of the hazardous substances on, in, or at the facility. Further, the failure to disclose the existence of hazardous substance releases to subsequent property purchasers may result in a loss of the ILO affirmative defense.

What the new guidance covers

A party claiming one of the above landowner liability protections has the burden of proof.  While courts ultimately determine whether landowners in specific cases have met the conditions of the landowner liability protections, landowners rely on agency guidance to help inform them about whether certain situations will or will not qualify.  In this new guidance, EPA seeks to clarify:

·       All Appropriate Inquiry, including the use of ASTM standards in due diligence and relevant timelines of such diligence with respect to closing;

·       The meaning of “Affiliation.”  For the BFPP and CPO liability protections, a party must not be potentially liable or affiliated with any other person who is potentially liable for response costs.  EPA confirms the agency’s position that (based on a site-specific basis) relationships that are not likely to have been created to avoid CERCLA liability are not prohibited affiliations;

·       What is required to demonstrating that no disposal of hazardous substances occurred at the facility after acquisition by the landowner;

·       Requirements for complying with land use restrictions and not impeding the effectiveness or integrity of institutional controls;

·       What constitutes “taking reasonable steps” with respect to hazardous substance releases; and

·       What it means to fully cooperate with persons who are authorized to conduct response actions or natural resource restoration and to comply with information requests.

Individuals and companies involved in commercial real estate transactions with the potential for on-site or off-site contamination should review this guidance to avoid potential pitfalls and maximize the opportunity for qualifying for CERCLA defenses.