GT Alert

New Brownfields Guidance on Bona Fide Prospective Purchasers and Agreements With the EPA

July 2002
By Robert J. Vincze and Christopher J. Neumann, Greenberg Traurig, Denver Office

View or download the PDF version of this Alert here.

At the end of June 2002, the United States Environmental Protection Agency ("EPA") issued new guidance (the "BFPP Guidance") clarifying the scope and application of the prospective purchaser provisions1 of the Brownfields amendments to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601 et seq., as amended.2 In enacting the Small Business Relief and Brownfield Revitalization Act ("Brownfields Amendments"),3 Congress was intent on removing barriers to the acquisition and redevelopment of contaminated property. The Amendments are designed to eliminate direct EPA involvement in most acquisitions of Brownfields properties thereby creating savings of time and transaction costs for prospective purchasers. Prospective purchasers with knowledge of property contamination no longer need to negotiate prospective purchaser agreements ("PPAs") containing covenants not to sue in order to avoid liability under CERCLA. In lieu of an agreement, a purchaser must meet "bona fide prospective purchaser" criteria.

Establishing Bona Fide Status

A "bona fide prospective purchaser" ("BFPP") is defined under new subsection 101(40)4 as a person, or tenant of a person, who acquires ownership of a facility after the date of enactment of the Brownfields Amendments, January 11, 2002, and establishes each of the following by a preponderance of the evidence:

1. All disposal of hazardous substances at the facility occurred before the person acquired the facility.
2. The person made all appropriate inquiry into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices.
3. The person provides all legally required notices with respect to the discovery or release of any hazardous substances at the facility.
4. The person exercises appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to—
   1. stop any continuing release;
   2. prevent any threatened future release; and
   3. prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance.
5. The person provides full cooperation and access to persons authorized to conduct response actions or natural resource restoration.
6. The person is in compliance with any land use restrictions and does not impede the effectiveness or integrity of any institutional control.
7. The person complies with any request for information or administrative subpoena under CERCLA.
8. The person is not potentially liable, or affiliated with any other person who is potentially liable, for response costs at a facility through any direct or indirect familial relationship or any contractual, corporate or financial relationship, or the result of a reorganization of a business entity that was potentially liable.5

The Brownfields Amendments provide significant protections for BFPPs. Section 107(r) provides that those who qualify for BFPP status are no longer liable under CERCLA merely by virtue of their status as an "owner" or "operator" of a facility.6 Rather, BFPPs are shielded from liability as long as they do not "impede the performance of a response action or natural resource restoration."7 With this protection the Agency anticipates that, in most cases, PPAs will no longer be necessary.

Availability of PPAs

Although the Brownfields Amendments contemplate that, in most situations, it will no longer be necessary for EPA to negotiate a PPA in connection with a private real estate transaction, PPAs will not be discontinued as a Brownfields development tool. Rather, EPA acknowledges in the BFPP Guidance that, at least in the following instances, the public interest may be served by entering into a PPA or a Comfort Letter:8

1. Where a purchaser needs to resolve the amount of the windfall lien prior to purchasing the property to, for example, secure financing.9
2. Where there is a significant need for a PPA to accomplish a project’s goals such as in the case of significant cleanups occurring with development and where there are no viable potentially responsible parties and no potential developer is willing to undertake the entire cleanup without a PPA. The EPA’s intent is to spur development of properties that may otherwise sit idle for years.10
3. Where the facility is currently involved in CERCLA litigation and there is a real possibility that a party who buys the facility would be sued by a third party.11
4. Where a significant public interest would be served by the transaction and it would not otherwise occur without a PPA.12

Criteria for Entering into PPAs

The EPA will draw upon each of the historical supplements to the Agency’s PPA guidance in determining whether it will consider entering into a PPA in any given circumstance. The EPA’s central policy on the issuance of PPAs, entitled "Guidance on Agreements with Prospective Purchasers of Contaminated Property," was issued on May 24, 1995.13 This guidance was refined slightly in 2001,14 but continues to describe the Agency’s criteria for entering into PPAs. EPA has made clear that the BFPP Guidance does not replace, but rather supplements, its earlier guidance setting forth the circumstances under which the Agency will contemplate entering agreements resolving the liability of bona fide prospective purchasers.15

One may distill several principles from EPA’s collective PPA Guidance. The EPA will use the following criteria to evaluate whether a PPA is appropriate:

1. An EPA action at the facility has been taken, is ongoing, or is anticipated to be undertaken by the Agency.16

In determining whether or not to offer a prospective purchaser agreement, the EPA will consider whether other available avenues exist to alleviate the threat of Superfund liability at the site and the need for EPA involvement.17 "In most cases EPA will decline to consider an agreement at a site that is currently undergoing cleanup through a state program, since future EPA activity at such a site is extremely unlikely."18

2. The Agency should receive a substantial benefit either in the form of a direct benefit for cleanup, or as an indirect public benefit in combination with a reduced direct benefit to EPA.19

"Direct benefits" refers to all of the ways a PPA will further CERCLA’s mandate of protecting human health and the environment including cleanup work and cost recovery payments.20 Examples of "indirect benefits" include the creation or retention of jobs, increasing the tax base, or the building of a park, library, or community center.21 The EPA evaluates indirect benefits only as part of the threshold analysis regarding expending resources to negotiate a PPA.22 According to the 2001 PPA Guidance, "indirect benefits" are not taken into account when analyzing the amount of consideration EPA requires for a PPA because such benefits may not accrue to the Agency.23

3. The continued operation of the facility or new site development, with the exercise of due care, will not aggravate or contribute to the existing contamination or interfere with EPA’s response action.24

4. The continued operation or new development of the property will not pose health risks to the community and those persons likely to be present at the site.25

5. The prospective purchaser is financially viable.26

Preponderance of Evidence versus PPA

A developer establishes BFPP status by showing it meets each of the BFPP criteria by a preponderance of the evidence. Meeting a burden of proof, if called on in the future, is not the same as a present day agreement. As a practical matter, a developer may want additional assurances on certain projects where speed is not a primary concern. In such instances, the developer may approach the EPA for a determination of whether its project is in the "public interest" under the BFPP Guidance and warrants a PPA or comfort letter.

Footnotes

1 1 Memorandum from Barry Breen, Director, OSRE, to Superfund Senior Policy Managers & Regional Counsels (June 2002) ("Bona Fide Prospective Purchasers and the New Amendments to CERCLA").

2 2 This guidance also is applicable to persons seeking to prospectively operate or lease contaminated property.

3 3Pub. L. No. 107-118, 115 Stat. 2356 (Jan. 11, 2002).

4 42 U.S.C. § 9601(40) (2002).

5 Id.

6 42 U.S.C. § 9607(r) (2002).

7 Id.

8 Memorandum from Steven A. Herman, Assistant Administrator, OECA, to Regional Counsels et al. (Nov. 8, 1996) ("Policy on the Issuance of EPA Comfort/Status Letters").

9 BFPP Guidance, at 3.

10 Id.

11 Id.

12 Id.

13 Memorandum from Steven A. Herman, Assistant Administrator, OECA, to Regional Administrators et al. (May 24, 1995) ("Guidance on Agreements with Prospective Purchasers of Contaminated Property.") [hereinafter the "1995 PPA Guidance"]. The 1995 PPA Guidance superceded the Agency’s initial PPA guidance that was issued in 1989. See EPA, OSWER Directive No. 9835.9 (Aug. 18, 1989) ("Guidance on Landowner Liability Under Section 107(a) of CERCLA, De Minimis Settlements Under Section 122(g)(1)(B) of CERCLA, and Settlements With Prospective Purchasers of Contaminated Property").

14 Memorandum from Barry Breen, Director, OSRE, and Bruce Gelber, Chief, DOJ, ENRD, EES, to Superfund Senior Policy Managers et al. (Jan. 10, 2001) ("Support of Regional Efforts to Negotiate Prospective Purchaser Agreements (PPAs) at Superfund Sites and Clarification of PPA Guidance.") [hereinafter the "2001 PPA Guidance"].

15 BFPP Guidance, at 1 & n.1.

16 1995 PPA Guidance, at 3-4.

17 Id. at 4.

18 Id.

19 Id. at 4-5.

20 2001 PPA Guidance, at 4.

21 Id.

22 Id. at 5.

23 Id. at 5 n.8.

24 1995 PPA Guidance, at 5-6.

25 Id. at 6.

26 Id.

© 2002 Greenberg Traurig

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