On December 5, 2012, the EPA issued new guidance on its treatment of tenants under the bona fide prospective purchaser (“BFPP”) provisions of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). The BFPP provisions protect against CERCLA liability in certain situations. CERCLA provides that the BFPP provisions apply to a person or tenant of a person that “acquires ownership” of a facility and meets certain other requirements. In the past, a tenant would be considered a BFPP only as long as the owner remained a BFPP. EPA now has the discretion to extend the BFPP protection to tenants where the owner is not a BFPP or loses its BFPP status.

CERCLA section 107(a)(1) provides that “the owner or operator of a vessel or facility . . . from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for . . . (A) all costs of removal or remedial action incurred by the United States Government . . . and (B) any other necessary costs of response incurred by any other person consistent with the national contingency plan . . .” Thus, all owners and operators of a contaminated property are potentially strictly liable for response costs. However, CERCLA section 107(r) provides a defense from liability if an owner or operator is a “bona fide prospective purchaser” or “BFPP.” That section provides that a BFPP whose potential liability is based “solely” on the purchaser being a current owner or operator of a facility shall not be liable as long as certain conditions are met.

CERCLA § 101(40) defines a BFPP as a person or a tenant of a person that acquires ownership of a facility after January 11, 2002 and can show that: (a) all disposal of hazardous substances occurred prior to acquisition; (b) the person made “all appropriate inquiries” into the previous ownership and uses of the facility in accordance with customary standards and practices; (c) the person provided all legally required notices with respect to discovery or release of hazardous substances; (d) the person exercised appropriate care with respect to hazardous substances by stopping any continuing release, preventing future release and preventing exposure to humans and the environment; (e) the person provided full cooperation, assistance and access to the facility; (f) the person complied with any requests for information or subpoenas; and (g) the person is not “affiliated” with a person that is potentially liable for response costs. The requirement in (b) that the tenant conduct an “all appropriate inquiry,” means generally that a Phase I environmental site assessment is conducted in accordance with accepted standards. A Phase I is a non-invasive investigation of the site and a search of available records, databases and documents in order to ascertain whether there are any environmental conditions, such as the potential for contaminated soil or groundwater based on past uses or neighboring uses.

Thus, CERCLA provides that a tenant may derive BFPP status from an owner who is a BFPP and will remain a BFPP as long as the owner remains a BFPP. EPA’s new guidance addresses the question of what happens to a tenant if the property owner is not a BFPP or loses its status as a BFPP.

Where the owner is not a BFPP, EPA intends to exercise its discretion on a site-by-site basis if the tenant meets all of the requirements set forth in CERCLA § 101(40). As applied to the tenant, those requirements are: (a) all disposal of hazardous substances at the facility occurred prior to execution of the lease; (b) the tenant conducted an “all appropriate inquiry” prior to execution of the lease; (c) the tenant provides legally required notices; (d) the tenant takes reasonable steps with respect to hazardous substance releases; (e) the tenant provides cooperation, assistance and access; (f) the tenant complies with land use restrictions and institutional controls; (g) the tenant complies with information requests and subpoenas; (h) the tenant is not potentially liable for response costs or “affiliated” with a potentially liable person; and (i) the tenant does not impede any response action. With respect to (h), EPA does not view the existence of a lease between the tenant and owner as a prohibited affiliation per se.

If the owner has BFPP status but loses it through no fault of the tenant, EPA has the discretion to treat the tenant as a BFPP as long as the tenant complies with the requirements set forth above, except for the “all appropriate inquiry” provision. With respect to the CERCLA 101(40) requirement that the owner “acquires ownership” of the facility after January 11, 2002, EPA will treat tenants as BFPPs if their lease agreement was executed after January 11, 2002 as long as all of the other requirements are met.

The EPA may decline to exercise its discretion to treat a tenant as a BFPP in certain circumstances. For example, a tenant will not be able to assert BFPP status if the lease were entered into in order to allow an entity to avoid CERCLA liability, or if the tenant is potentially liable for a reason other than its status as an operator, such as if it arranged for the disposal of hazardous substances at the facility.

Therefore, before entering into leases, if tenants want to avail themselves of the BFPP defense, they need to be mindful of these requirements. They should inquire into the status of the landlord and, if necessary, conduct an appropriate investigation with the help of a qualified environmental consultant and legal counsel. Tenants who already have entered into leases should make similar inquiries and ensure that they are complying with the requirements, such as ensuring that they are handling any hazardous substances on the property in the most appropriate manner and remediating any releases or spills in a timely manner.