April 3, 2009

EPA Addresses Applicability of BFPP Protection to Tenants – Welcome News for Those Employing Ground Leases

Holland & Knight Alert
Amy L. Edwards

The Environmental Protection Agency (EPA) has issued Enforcement Discretion Guidance regarding the applicability of Bona Fide Protective Purchaser (BFPP) protection to real estate tenants, in particular those tenants with “sufficient indicia of ownership” of the subject property, such as a tenant under a long-term ground lease.

In 2002, Congress passed the Small Business Liability Relief and Brownfields Revitalization Act, Pub. L. No. 107-118, which amended the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq., to provide important liability protection for parties who qualify as bona fide prospective purchasers. Subsequently, uncertainty arose in the market concerning the applicability of the BFPP protections to parties that “acquire” property for use and/or development under long-term leases, such as ground leases.

Recognizing the important role that ground leases and other long-term commercial leases play in the development and use of commercial properties, the EPA has recently issued “enforcement discretion guidance” to clarify the circumstances in which tenants will effectively be accorded the same protection as BFPPs in connection with the tenant’s entering into a lease of contaminated property.

Under the EPA guidance, if a tenant has sufficient indicia of ownership to be considered an “owner” of contaminated property, the EPA will exercise its discretion not to enforce remediation liability against such a tenant if the tenant is able to satisfy the same threshold criteria and ongoing obligations as are applicable to a person acquiring actual ownership of the property.1 As a result, prospective ground tenants can now undertake the development of contaminated property with the confidence that if the developer satisfies the safe harbor criteria of a BFPP, it too may avoid the remediation liability otherwise visited upon an owner or operator of property. This should be welcome news to parties that either must employ, or prefer to employ, the ground lease in connection with any given real estate development.

1 In general, the requirements for BFPP treatment for a party acquiring ownership of contaminated property are as follows: (1) the transaction was entered into after January 11, 2002; and (2) the party acquiring the property (a) did not dispose of hazardous substances on the property, (b) conducted all appropriate inquiries into the previous ownership and uses of the property prior to its acquisition,
(c) provided all legally required notices, (d) takes all reasonable steps with respect to hazardous substance releases, (e) provides cooperation, assistance and access, 
(f) complies with land use restrictions and institutional controls, (g) complies with information requests and administrative subpoenas, and (h) does not impede any response action or natural resource restoration. See CERCLA §§ 101(40) and

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