The Bona Fide Prospective Purchaser (BFPP) defense has been around for more than a decade, but evidenced by a number of recent court cases the limits of how it can and should be applied is contested. Very simply put, the BFPP defense protects purchasers who have knowledge of existing contamination against liability as an owner or operator if “appropriate care” is taken to deal with the contamination. As such, the BFPP could acquire a Brownfield site without incurring liability as long as an All Appropriate Inquiry is completed. EPA explains that they “encourage the cleanup and revitalization of contaminated properties” by implementing landowner liability protections such as the BFPP defense. Seems straight forward – so where does the debate about the applicability of this defense come from?
How the Bona Fide Prospective Purchaser Defense Came to Be
In response to the disaster at Love Canal and the belief that hidden contamination existed in other misused sites all over the United States, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as the Superfund Act in 1980. This established a fund for the government to clean up contaminated sites. CERCLA recovers its costs by assigning liability to the entities that disposed of the hazardous material at the time of discovery, regardless of when the disposal took place. People who owned the property at the time of discovery are also possibly liable as Potentially Responsible Parties. For a buyer’s risk management a procedure evolved in real estate transactions for doing environmental due diligence. The professional environmental consultant was born.
So why would someone buy a property that they knew was contaminated? Perhaps it was a perfect match for their needs and the price had been reduced because they knew it was contaminated? The EPA has helped resolve the liability question in its 2002 Brownfield and Land Revitalization Program, which offers grants to support revitalization efforts of Brownfield sites. Contaminated sites could now be cleaned up through a team of federal, state and local agencies along with current owners who would benefit with both increased value of the land and the ability to develop it for future value.
To encourage private parties to take advantage of the financial incentive included in the Brownfield program the EPA established the Bona Fide Prospective Purchaser conditions as well as for Contiguous Property Owner and Innocent Landowner for exemptions from potentially responsible parties on CERCLA Liability.
A BFPP is defined as someone who knowingly acquired contaminated land after January 11, 2002 and meets a number of provisions, including:
• Conducted “All Appropriate Inquiry” into the previous ownership and uses of the property.
• Provided all legally required notices regarding the release, and was not already liable or affiliated with a responsible party
• The disposal of hazardous substances on the site occurred before acquisition
• Exercised appropriate care with respect to the hazardous substances found. In 2003, the EPA issued a letter to Regional Directors which outlines in more detail the controls that should be applied to stop continuing release, prevent threatened future release, and prevent exposure, including institutional controls such as land use restrictions, deed notices and other measures. Recommended engineering controls such as soil capping and subsurface venting systems are discussed in more detail in this EPA guide.
The full list of provisions to qualify for BFPP liability protection can be found on the EPA Bona Fide Prospective Purchasers page.
Interpreting the BFPP defense
Since the introduction of the Bona Fide Prospective Purchaser rule, a number of court cases have addressed the post-acquisition obligations of buyers by challenging the definition of taking “appropriate care” or performing “All Appropriate Inquiry”.
A number of years ago a friend of mine worked on a defining lawsuit which confirmed the status of the BFPP defense in California. Here’s a summary of the trial:
The plaintiff in the case was a company that bought a property in November 2006 and discovered that the site was contaminated during pre-acquisition due diligence. A September 2007 assessment discovered two areas of contamination with Trichloroethylene (TCE), a human carcinogen – the first in a “nest” of nine underground storage tanks and maintenance shed and the building manufacturing area. The plaintiff more than $1.5M in response costs and sought to qualify for the Bona Fide Prospective Purchaser defense and obtain reimbursement under CERCLA.
The defendant was the company that sold the property, which had used the site to manufacture valves for aircraft and missiles (a subsequent subtenant had been a furniture manufacturer).
The court, after some testimony by expert witnesses on both sides, accepted the fact that the tanks leaked and that the defendant used TCE at the property during the time of its occupancy. Consequently, the Defendant was designated a Potentially Responsible Party.
The plaintiff had emptied the USTs in 2007 after sampling earlier that year. The results indicated that they contained TCE. The defendant claimed that the plaintiff did not deserve the classification of a BFPP because it didn’t remove the USTs until 2009 and remaining TCE in the tanks could have continued to leak. The plaintiff responded that at the time of removal, the only substance in the tanks was water.
The Court noted that during this time the plaintiff had entered into an agreement with the California Department of Toxic Substance Control (CDTSC), the state agency who enforces CERCLA issues. The plaintiff coordinated their work with the agency and as such, was behaving in an appropriate manner with regard to the site conditions. Therefore, the court concluded that the plaintiff deserved the BFPP designation.
In other court cases however, plaintiffs seeking protection under the BFPP defense have been less successful in proving their obligation to take “appropriate care” after closing. For a recent example, see here.
Qualifying for BFPP defense
Buying and developing Brownfield sites offers great opportunity, can but can also carry great risk. To take advantage of the BFFP defense, a purchaser must make – and be able to conclusively prove to a court – the efforts to take reasonable steps to prevent any threatened future release at the site. Failure to meet any of the criteria to qualify of the BFPP defense through a minor mistake or oversight puts a buyer at risk of becoming liable for the cleanup costs.
An All Appropriate Inquiry conducted in accordance with ASTM E1527-13 will allow a potentially responsible party to thoroughly assess risk associated with the site. And, as the above case showed, engaging guidance from an agency such as the CDTSC can help. Initiating remediation/mitigation efforts under State Voluntary Cleanup Program (VCP) oversight may just be the critical factor the buyer needs to prove his or her efforts and qualify for BFPP liability protection.