Brownfields and Beyond: What the 2002 Amendments Mean for Today’s Real Estate Investors

The Environmental Protection Agency’s (EPA) Brownfields Program provides opportunities for real estate investors to revitalize properties that have been disused due to environmental contamination. At the same time, however, the liability provisions of the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) can pose substantial risks for those who invest in contaminated properties. Amendments to CERCLA that were enacted in 2002, which remain relatively unknown and underutilized, provide key protections, and today’s real estate investors have immense opportunities to leverage these protections with the help of an experienced California environmental attorney.

How the 2002 CERCLA Amendments Protect Today’s Real Estate Investors

The 2002 CERCLA amendments focused specifically on providing protections for real estate investors who put money into brownfields and other contaminated properties. Under CERCLA, the default rule is that property owners are liable for cleanup and remediation costs related to environmental contamination on their property, whether they are responsible for the contamination or not. This default rule presents substantial risks, and while government incentives and liability-shifting provisions in acquisition contracts may provide investors with the level of financial reassurance they need to move forward, the fact is that this environmental liability risk remains an omnipresent concern.

Under CERCLA, all “potentially responsible parties,” or “PRPs,” can be held liable for all contamination-related costs. This includes costs such as:

• Cleanup costs related to environmental contamination on the subject property;
• The costs of damage to natural resources;
• The costs of health assessments, and,
• Direct cleanup costs where the contamination at issue “may present an imminent and substantial endangerment.”

The term “potentially responsible party” is defined broadly in Section 107(a) of CERCLA (42 U.S.C. Section 9607(a)) and 40 C.F.R. Section 304.12(m). While it includes parties involved in the disposal or release of hazardous substances, it also includes current property owners, regardless of their level of involvement in the contamination, if any. As a result, real estate investors can face substantial liability under CERCLA even when they bear no responsibility for an acquired property’s contamination.

This is where the 2002 CERCLA amendments come into play.

The 2002 CERCLA amendments establish environmental liability protections for several categories of purchasers. To secure these protections, real estate investors must approach the acquisition process with one or more of these protections in mind and ensure that they thoroughly document their efforts to satisfy all applicable requirements. This is one of many areas in which an experienced California environmental attorney can assist, and at Bick Law LLP, we regularly help clients secure the liability protections now available.

One of the main categories of purchasers that is eligible for protection from environmental liability under the 2002 CERCLA amendments—and the category that is most relevant to today’s real estate investors—is the bona fide prospective purchaser (BFPP). If an investor qualifies as a BFPP (and can demonstrate to EPA that it qualifies as a BFPP), it can acquire a contaminated property with knowledge that the property is contaminated and not face environmental liability under CERCLA.

Investing in Brownfields and Other Contaminated Properties as a Bona Fide Prospective Purchaser (BFPP)

As EPA explains, “[t]he bona fide prospective purchaser (BFPP) provision in the 2002 amendments to [CERCLA] dramatically changed the Superfund liability landscape for landowners, as a party can now achieve and maintain status as a BFPP, so long as that party meets specific statutory criteria.” BFPPs are exempt from environmental liability under CERCLA.

As EPA also explains, the BFPP exemption differs from the contiguous property owner (CPO) exemption that was also created by the 2002 CERCLA amendments. While “persons who know, or have reason to know, prior to purchase, that [a] property is or could be contaminated, cannot qualify for the CPO liability protection,” knowledge of contamination is not a bar to securing environmental liability protection as a BFPP.

This is a critical distinction—and it is a critical feature of the BFPP exemption for today’s real estate investors. However, the BFPP exemption does not provide a “free pass” for purchasing contaminated properties. To secure BFPP status, investors must meet various requirements, including the “threshold criteria and ongoing obligations” established by the 2002 amendments and EPA’s subsequent guidance. Examples of these criteria and obligations include:

• Performing all appropriate inquiries (AAI) before acquiring the contaminated property;
• Exercising “appropriate care” with respect to hazardous substances located on the property; and,
• Taking “reasonable steps” to stop ongoing releases of hazardous substances and to prevent future “threatened” releases.

These are just a small sampling of the many steps that real estate investors need to take in order to establish (and maintain) BFPP status when investing in brownfields and other contaminated properties. While establishing (and maintaining) BFPP status necessarily entails certain costs, these costs can be well worth it if investing in a desirable property would otherwise present risks for EPA enforcement action and environmental liability under CERCLA.

Establishing, Maintaining, and Documenting BFPP Status

When it comes to managing environmental liability risk, complying with the 2002 CERCLA amendments and documenting compliance are equally important. Real estate investors who are relying on their status as a BFPP must be prepared to affirmatively demonstrate their compliance with the “threshold criteria and ongoing obligations” to EPA when necessary.

By engaging experienced environmental counsel early in the acquisition process, real estate investors can take and document all of the steps that are necessary to secure BFPP status. This includes (but is by no means limited to) performing AAI prior to closing and implementing protocols to comply with the “appropriate care” and “reasonable steps” requirements discussed above. If you are interested in learning more, we invite you to contact us for a confidential consultation.

Learn More from a California Environmental Attorney at Bick Law LLP

If you would like to learn more about the environmental liability protections that are available to today’s real estate investors under the 2002 CERCLA amendments, we encourage you to get in touch. To schedule a confidential consultation with an experienced California environmental attorney at Bick Law LLP, give us a call at 949-432-3500 today.