EPA Interim Guidance Regarding Scope of Landowner Liability Protections Raises New Concerns About Liability at Brownfields Sites

The Brownfields Amendments of 2001, P.L. 107-118, established three landowner liability protections: the bona fide prospective purchaser defense under CERCLA Section  107(r), the contiguous landowner defense under CERCLA Section 107(q), and the "innocent landowner" defense under CERCLA Sections 107(b)(3) and 101(35).  In order to qualify for any of these defenses, the landowner must establish that it:

• conducted "all appropriate inquiry"
• is in compliance with land-use restrictions and is not impeding the effectiveness or integrity of institutional controls
• is taking "reasonable steps" to prevent continuing releases or threatened future releases
• is providing cooperation, assistance and access
• is complying with information requests and administrative subpoenas, and
• is providing legally required notices

Recently released EPA guidance raises the question whether these landowner liability protections, as interpreted by EPA, will encourage, or in fact discourage, redevelopment of contaminated brownfield sites. Routine acts, such as applying for a change in zoning, failing to search the agency's records for any evidence of a land-use restriction in a remedy selection document, or failing to repair some deteriorated pavement, could now be viewed as violating one of the "common elements" of the landowner liability defenses, thereby nullifying any liability protections allegedly offered by the Brownfields Amendments of 2001.  Without confidence that they can, in fact, qualify for one of these defenses, developers are not going to willingly embrace these sites.

Common Elements Guidance Document

The "common elements" interim guidance, issued on March 6, 2003, focuses on the "common elements" to the landowner liability defenses discussed above.  A landowner hoping to qualify for one of these defenses will bear the burden of establishing the defense.  A person seeking to qualify for the bona fide prospective purchaser defense, for example, must show that it purchased the property after January 11, 2002,  and that it satisfies the other criteria set forth in CERCLA Section 101(40).  Only a bona fide prospective purchaser may purchase with knowledge of any contamination.  A contiguous landowner and an "innocent" landowner who have knowledge of the contamination prior to purchase will not qualify for the defense, but they may still be able to qualify for the bona fide prospective purchaser defense.

Threshold Requirements

Two of the "common elements" are threshold requirements:

All Appropriate Inquiry. To qualify for any of these defenses, a landowner must perform "all appropriate inquiry" into the previous ownership and uses of the property prior to acquiring the property.  For property acquired prior to May 31, 1997, the statute identifies various factors that should be taken into account, including the value of the property if clean, commonly known information and the ability to detect the contamination.  For property purchased after May 31, 1997, the statute directs the landowner to adhere to the ASTM Standard Practice for Phase I Environmental Site Assessments, E 1527-97,¹ until EPA promulgates regulations as required by the statute. EPA has recently announced that it is establishing a Negotiated Rulemaking Committee, or "reg neg," to develop standards and practices for conducting "all appropriate inquiry." (68 Fed. Reg. 10675-10680). The statute defines the elements that must be considered by EPA:

• use of an environmental professional
• interviews with past and present owners, operators and occupants
• review of historical sources of information
• searches for recorded liens
• review of federal, state and local records regarding waste disposal practices, spills, underground storage tanks, and the like
• visual inspections of the facility and adjoining properties
• utilization of any specialized knowledge
• evaluation of the relationship between the purchase price and the value of the property
• utilization of commonly known or reasonably ascertainable information about the property
• consideration of the degree of obviousness of the contamination

Among the issues to be resolved by the Negotiated Rulemaking Committee are the following:

• ways to minimize disruption to the real estate market
• shelf life of an assessment
• balancing the need for a high level of certainty without imposing time consuming and expensive regulatory requirements
• defining the extent to which sampling may be required

No Affiliation. A landowner who is potentially responsible for response costs, or who is affiliated with another party who may be responsible for response costs, will not qualify for any of these defenses.

Continuing Obligations    

Five other "common elements" are continuing obligations:

Land-Use Restrictions and Institutional Controls. To qualify for any of the CERCLA defenses, a landowner must be able to establish that it is in compliance with any land-use restrictions established or relied on in connection with a response action, and it has not impeded the effectiveness or integrity of any institutional controls employed in connection with a response action.  EPA views these requirements as being related, but distinct requirements.  EPA clarifies in the interim guidance that a landowner must comply with any land-use restrictions relied on in connection with a response action, even if the institutional controls were not in place when the person purchased the property, and even where the restrictions were not properly implemented through an enforceable institutional control. EPA considers a land-use restriction to be "relied upon" if it is identified as a component of the remedy. EPA's position will force landowners to include in their environmental due diligence reviews a thorough search of all documents that may reflect any land use restrictions relied on in connection with the response action, including the remedy decision document; permits, orders and consent decrees; state statutes and risk assessments.

EPA has also taken the position that a landowner does not have to physically disturb a land-use restriction in order to be considered to have "impeded the integrity or effectiveness" of the institutional control. EPA provided the following examples of actions that would be viewed as impeding the integrity or effectiveness of institutional controls: (i) removal of a notice of an institutional control from the land records; (ii) failure to provide notice to a subsequent purchaser; (iii) applying for a zoning change or variance when the existing zoning was intended to be an institutional control or (iv) refusal to agree to an easement or covenant or to record a deed notice.

Reasonable Steps. Another "common element" is the requirement to stop continuing releases, prevent threatened future releases and prevent or limit human and natural resource exposure to releases.  EPA has interpreted this requirement as being similar to the "due care" obligation under the "innocent landowner" defense.  EPA has taken the position that a landowner may not ignore potential dangers, although it might not have to do as much as a responsible party would be required to do. In a series of questions and answers that accompanied the guidance, EPA provided the following examples of reasonable steps:

• providing notice of contamination to governmental authorities, even if not legally required
• imposing site restrictions, such as fences or signs
• segregating and identifying drums of waste
• repairing a breach in a containment system, or at least providing notice of the breach to a governmental authority and the responsible party if a third party is responsible for the containment system
• making repairs in asphalt paving if the pavement is used to prevent human exposures
• conducting some basic site investigation if there is a suspected release
• conducting an active investigation of a known hazard, even where the government has been notified of the hazard

In appropriate circumstances, where there is significant federal involvement, EPA has stated that it would be willing to prepare site specific "comfort letters" to confirm whether "reasonable steps" have been taken on that site.  EPA does not intend, however, to get involved in "typical real estate transactions."

Cooperation, Assistance and Access. The Brownfields Amendments also require a landowner to provide full cooperation, assistance and access.  This obligation includes providing access and cooperation so that a responsible party may install, operate and maintain any response action or natural resources restoration.

Compliance with Information Requests and Administrative Subpoenas. EPA expects all parties to cooperate fully by responding to administrative subpoenas and CERCLA Section 104(e) information requests.

Providing Legally Required Notices. EPA identified CERCLA Section 103, RCRA Section 9002, and EPCRA Section 304 as examples of federal notices that may be legally required.  The burden is on the landowner claiming the defense to determine what notices are legally required.  EPA is encouraging the regions to require self-certification from landowners indicating whether they have provided all legally required notices.  EPA emphasized that this is an ongoing obligation if a landowner intends to maintain its landowner liability exemption under the Brownfields Amendments.

Related Initiatives

While EPA has been developing regulations and guidance to implement the Brownfields Amendments, the National Conference of Commissioners on Uniform State Laws (NCCUSL) has been making substantial progress in drafting a model uniform environmental covenant act.  Such an act is needed to enhance all parties' ability to implement and enforce institutional controls at contaminated sites. The Brownfields Amendments require states to maintain a database of brownfields sites that rely on institutional controls, and also require parties who wish to qualify for one of the three defenses to CERCLA liability to establish that they are "in compliance with land-use restrictions" and have not impeded "the integrity and effectiveness of institutional controls."  In the absence of a uniform model law, this burden may be extremely difficult to meet, given the current state of legal authority in many jurisdictions to implement, track and enforce institutional controls.  The NCCUSL drafting committee hopes to have a final version of the model law ready for presentation to the full Conference for final approval this summer.

Ms. Edwards is a member of the ASTM Task Group that is working on the revisions to the ASTM Phase I ESA Standard (E 1527) and an advisor to the NCCUSL committee that is drafting the Uniform Environmental Covenant Act.  She also is the editor/author of a book entitled Institutional Controls:  Their Implementation and Enforcement at Brownfields Sites, that will be published this summer by the Environmental Section of the American Bar Association.