To promote brownfield development, in 2002, the Congress provided the Bona Fide Prospective Purchaser defense under the Comprehensive Environmental Response, Compensation, and Liability Act (Superfund), Section 101(40)(A)-(H). In a nutshell, that provision provides that a person (or a tenant of a person) that acquires contaminated property qualifies for a defense from Superfund liability provided the contamination occurred prior to the acquisition, and the person conducted “all appropriate inquiry” prior to the purchase, and maintains the defense by accepting certain post-purchase obligations such as cooperating with the U.S. Environmental Protection Agency (EPA), abiding by land use restrictions, and taking “reasonable steps” with respect to the known contamination.
Recent EPA Guidance, Revised Enforcement Guidance Regarding the Treatment of Tenants Under the CERCLA Bona Fide Prospective Purchaser Provision, dated December 5, 2012, describes the EPAs enforcement policy towards tenants occupying contaminated property. According to EPA, a tenant who itself undertakes all appropriate inquiry prior to leasing the property and meets the required obligations for maintaining the defense is entitled to Bona Fide Prospective Purchaser protection. In addition, if its landlord conducted all appropriate inquiry prior to the lease, but fails to meet the required obligations for maintaining the defense, EPA will decline enforcement against the tenant (who itself did not conduct all appropriate inquiry) where the tenant steps in to perform the appropriate obligations for maintaining the defense. In short, the tenant can rely on its landlord’s all appropriate inquiry and receive derivative Bona Fide Prospective Purchaser protection so long as the landlord meets the obligations for maintaining the defense, or the tenant does so itself.
In summary, the Guidance applies in two circumstances: (1) where the tenant has derivative bona fide prospective purchaser status through the owner and the owner loses its status through no fault of the tenant; and (2) where the tenant leased property after January 11, 2002 and itself meets all of the bona fide prospective purchaser provisions, including the requirement to conduct all appropriate inquiry prior to execution of the lease.
The Guidance is further indication that leases involving contaminated property should expressly address the respective obligations of each party as to pre- and post-occupancy obligations respecting contamination on the property. The important take away is that regardless of whether a tenant itself conducts all appropriate inquiry before executing the lease, for a Bona Fide Prospective Purchaser defense, either the tenant or the landlord must undertake the required activity to maintain the defense.