Contaminated Property? Relief and Reason May Be Within Sight

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INTRODUCTION

For real estate developers, industrial and commercial property owners, real estate brokers and commercial property lenders, the recent enactment of the Small Business Liability Relief and Brownfields Revitalization Act (SABRA)1 may turn out to be one of the most important legislative developments in the last twenty years, especially for properties with associated environmental issues. SABRA was signed by the President on January 11, 2002. When the President signed the Act, he commented that "With this bill, we are returning common sense to our cleanup program. We will protect innocent small business owners and employees from unfair lawsuits, and focus our efforts instead on actually cleaning up contaminated sites."

The purpose of SABRA is to provide certain relief to small businesses from liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)2, commonly known as Superfund. This relief is aimed at promoting the cleanup and reuse of brownfields, providing financial assistance for brownfields revitalization and enhancing State response programs. Significantly, SABRA provides certain protections to the prospective purchasers of contaminated property, codifies and clarifies the historically recognized "innocent landowner defense," provides protections for properties that have been contaminated by hazardous substances migrating from contiguous properties. SABRA also exempts certain small businesses from CERCLA liability and exempts certain generators of municipal waste from CERCLA liability.

This article will address the provisions of SABRA in two parts. This Part I addresses the various protections afforded by SABRA, including the bona fide prospective purchaser defense, the innocent purchaser defense and the contiguous property owner defense. Part II of this article will address various exemptions afforded by SABRA (including the de micromis small business exemption and the generators of municipal waste exemption), a party's ability to pay as a factor in attributing responsibility, and federal, state and tribal programs designed to carry out the purpose of SABRA.

A. Bona Fide Prospective Purchasers3 - Under SABRA, a purchaser of property, even environmentally contaminated property, acquiring a facility after December 20, 2001 and meeting the following conditions, may invoke the bona fide prospective purchaser defense to CERCLA liability: (1) all disposal at the site occurs prior to acquisition; (2) for commercial property, the person makes all commercially appropriate inquiries in accordance with the revised due diligence standard in §101(35), and for residential property, the person inspects the premises and searches the title to reveal that there is no basis for further inspection; (3) provides all legally required notices regarding the discovery of the hazardous substances; (4) exercises appropriate care by taking reasonable steps to stop any continuing release, to prevent future releases, and to prevent or limit human or environmental exposure to previous releases; (5) provides full cooperation to persons conducting response actions; (6) complies with any existing or clean-up derived institutional controls on the use of the land, such as types of development; (7) complies with requests for information from the U.S. Environmental Protection Agency ("EPA"); and (8) is not a potentially responsible party, or affiliated with another potentially responsible party through direct or indirect familial relationship, or through any contractual, corporate or financial relationship. The bona fide prospective purchaser can expect to have an EPA windfall lien placed on its property, which means that the EPA may impose a lien on the contaminated property for the amount equal to the appreciation in the property value as a result of the EPA response action. This lien, however, does not need to be satisfied until the property is sold.

B. Innocent Landowner Defense4 - Under CERCLA, a purchaser of property could invoke the innocent land owner defense to CERCLA liability by showing that the contamination took place before his purchase, and that he had no reason to know of the contamination even after conducting reasonable environmental due diligence. Under SABRA, the defense is preserved but the purchaser must also (1) give full cooperation, assistance and access to the person doing the cleanup response; (2) comply with all land use restrictions; (3) not impede the effectiveness or integrity of institutional controls; and (4) take reasonable steps to stop any continuing release, prevent any threatened release and prevent or limit human, environmental or natural resources exposure to the contamination. Accordingly, although the defense is preserved, the SABRA amendments may actually make it more difficult to avail oneself of the innocent landowner defense.

C. Contiguous Property Owners5 - Under CERCLA, a contiguous property owner whose land has been contaminated by adjacent contaminated lands (generally by migration via groundwater) is generally liable for the contamination on his property. Under SABRA, however, there is a new defense for such contiguous property owners. SABRA allows a contiguous property owner to be relieved from liability by meeting the following conditions: (1) he did not cause or contribute to release; (2) is not affiliated with or successor to the person who is liable for release; (3) takes reasonable steps to stop any continuing release, to prevent future releases and to limit exposure to release; (4) provides full cooperation and access to response action providers; (5) does not impede any ongoing response action; (6) complies with requests for information; (6) provides all required notices of release; and (7) did not know about the release in the contiguous property at the time of purchase. Any purchaser who does not fit into the criteria of the contiguous property owner defense may still qualify for the bona fide prospective purchaser defense. However, if the purchaser qualifies for the contiguous property owner defense, he cannot pass the defense on to a buyer of his property once the contamination is known.

CONCLUSION

The Small Business Liability Relief and Brownfields Revitalization Act constitutes a significant amendment to CERCLA and provides substantial benefits to owners of contaminated property, including the bona fide prospective purchaser defense, the innocent land owner defense and the contiguous property owner defense. As will be addressed in Part II of this article, the amendment also provides a number of important exemptions, and the settlement process now permits EPA to consider the potentially responsible party's ability to pay. Part II will also address Congressional funding associated with the new amendments, which provides significant new resources to states, local municipalities and tribes for remediating contaminated properties. Hence, the new CERCLA amendments provide significant relief to owners of contaminated property and introduce an element of relief and reason into an environmental remediation scheme that historically imposed overly burdensome and unpredictable requirements.

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1PL 107-118, 2002 HR 2869.
2U.S.C. §9601 et seq.
3U.S.C. §9601(40).
4U.S.C. §9601(35).
5U.S.C. §9607(q).

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Martin K. Banks
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