A Quick Primer on Federal CERCLA Ground Tenant Liability, and the BFPP “Safe Harbor” exception, at Renewable Energy Brownfields ProjectsPosted: April 3, 2011 | Author: kdaehnke | Filed under: Uncategorized | Leave a comment »
(This is the blog post I had hoped to publish on March 31. I apologize to those of you who have been waiting for this segment. For those of you attending Brownfields 2011, I hope you will still take the time to read this entry prior to our “Jumpstarting Renewable Energy Projects Using the Bona Fide Ground Tenant Lease Model” roundtable session, set for 3:15 p.m. this Tuesday, April 5. Also, as always, anyone reading this blog post should take the time to read my first three blog entries, as they set the stage for these ongoing discussions.)
In order to understand the need to alleviate the uncertainties of cleanup liability risk associated with siting renewable energy projects on closed landfills and other contaminated sites, it is important to first understand how that liability risk arises in a typical renewable energy project scenario. This entry is devoted to a cursory overview of that subject, under the federal CERCLA statute, and to a discussion of whether the self-implementing provisions of the Bona Fide Prospective Purchaser (“BFPP”) protections of the 2002 CERCLA Amendments provide enough, in the way of safe harbor protections, to allay the liability fears of renewable energy investors and lenders.
As noted in prior blog entries, most renewable energy projects are done, for a variety of reasons, under a long-term (20 years or more) lease, typically using what is known as a “ground lease”.
Once again, from the 10,000 foot level here’s how it works.
CERCLA Cleanup Liability for Ground Tenants
An otherwise “innocent” ground tenant can incur CERCLA liability in one of two primary ways. First, if that tenant holds sufficient property control (e.g., long lease term, pays all taxes, has essentially unfettered access to surface and soils), known as “indicia of ownership,” that tenant can be deemed a de facto owner under CERCLA, and is subject to the same liabilities for cleanup as would be incurred by someone who actually purchased fee title to the property. Second, if the tenant actually disturbs the soil at the site (from site grading, sinking of footings, etc.), the tenant could be liable as an existing “operator” or “transporter”.
How the “BFPP” Safe Harbor Applies to Ground Tenants
The Bona Fide Prospective Purchaser, or BFPP, provisions of the 2002 CERCLA Amendments provide an important limitation to liability for new property owners that meet certain specified conditions. This liability limitation can also extend to tenants, in certain circumstances.
One such circumstance is when a tenant qualifies, as discussed above, as a de facto owner. Under those circumstances, according to EPA Guidance, if that de facto owner (tenant) otherwise meets the conditions to qualify as a BFPP, the tenant may take advantage of the BFPP protections of CERCLA as if it were a true owner of the property.
Another circumstance where BFPP protections can apply is where (even though the tenant doesn’t qualify as a de facto owner) the tenant is leasing from a property owner that itself qualifies as a BFPP. Under those circumstances the BFPP protections of the property owner can be bootstrapped for the benefit of the tenant.
The tenancy interest that does not enjoy the BFPP protections of CERCLA is a tenant who leases from a potentially responsible party (PRP), has some site control but not enough to be a de facto owner, and who somehow “turns dirt” to a degree where that tenant could be liable as either an operator or transporter. This circumstance is likely to be the rule, rather than the exception, at many renewable energy Brownfield projects. In those situatiions, the tenant is basically just out of luck from a BFPP safe harbor standpoint, at least according to existing EPA Guidance.
Is BFPP Status Enough to Encourage Mass Sitings of Renewable Energy Brownfields Projects?
So, what about those long-term tenants that are able to qualify as a BFPP (either as a de facto owner or as a tenant of a new owner that qualifies as a BFPP)? How much protection do the BFPP safe harbor provisions of the 2002 Amendments really provide these renewable energy tenants, and is that enough certainty to help jumpstart hundreds of renewable energy Brownfields projects across the country?
The answer appears to be that, while it is true that the BFPP protections of the 2002 Amendments greatly reduce the cleanup responsibilities faced by those who can qualify for BFPP status, even in the best of circumstances the remaining cleanup liabilities will often be cost-prohibitive to many renewable energy project proponents. This is mainly because of the “appropriate care” and “reasonable steps” cleanup obligations placed on these new BFPP property owners.
To reach this conclusion, all we have to do is take a quick look at the 2002 Amendments themselves and at EPA’s May 31, 2002 Memorandum on Bona Fide Prospective Purchasers and the New Amendments to CERCLA. Those provisions very clearly set forth that a BFPP must excercise appropriate care with respect to hazardous substances found at a site by taking reasonable steps to: (1) stop any continuing releases; (2) prevent any threatened future release; and (3) prevent or limit human, environmental or nature resource exposure to any previously released hazardous substance.
While the cost of complying with the above appropriate care and reasonable steps requirements may well be minimal at certain sites, at many other sites these same requirements are likely to require a BFPP project proponent to incur significant remediation and mitigation expenditures. This is especially true at sites where vapor plumes are migrating off site, or where hot spots of contaminants still exist at the site and are continuing to migrate to groundwater or offsite.
In addition to this likelihood of significant cleanup cost requirements incumbent in the statutory BFPP status established by the 2002 Amendments, the concern is exacerbated by the “self-implementing” nature of the BFPP statutory protections. This self-implementing approach to BFPP protection means that at many sites the renewable energy developer will essentially be forced to guess at the acceptable level of cleanup necessary to accommodate the appropriate care and reasonable steps requirements. This terribly inexact approach is exacerbated by the fact that the discovery of new, previously unidentified constituents, or a change in cleanup standards, could later bring the renewable energy project proponent back into the liability chain.
The above concerns are heightened at a site where little is presently known about contamination, and where the BFPP’s likely responsibilities at the site are, therefore, completely unknown. Without a definitive confirmation by regulators of the cleanup responsibilities to be relegated to a renewable energy developer at such sites, it is highly unlikely (without some other liability mitigation incentive – like a strong indemnity from the seller, or property owner) that these projects will receive financing.
It is the existence of these uncertainties that has prompted our Ground Lease Liability Relief “White Paper” and our present efforts to establish state-by-state “Working Groups” to address and resolve these liability concerns. We are looking for qualified stakeholder to participate in these state Working Groups and look forward to hearing from those with a strong interest in this effort.
I also look forward to meeting many of you who have been reading our blog posts, on Tuesday, at our 3:15 Brownfields 2011 roundtable discussion. It is my sincere hope that I have provided you with a good foundation on the gound lease concept as it applies to renewable energy Brownfields projects, so that you can hit the ground running during our roundtable discussions. And, for everyone who reads this blog, including those who aren’t attending Brownfields 2011, please stay tuned AFTER the conference. This is only the beginning of our outreach efforts!
Please Note: EPA’s RE-Power America’s Land group has just completed its “Siting Renewable Energy on Contaminated Properties: Addressing Liability Concerns” Fact Sheet. This Renewable Energy Liability Fact Sheet document, which has just been released in final form, is very well written and incredibly informative. The Liability Fact Sheet will serve as an invaluable resource for those renewable energy project proponents who are trying to navigate the often-unsettling CERCLA liability front.
I am also pleased to report that this final version of the Renewable Energy Liability Fact Sheet includes reference to many of the liability concerns we have been addressing with EPA throughout our ground lease “White Paper” discussions with EPA officials.
(Please note that this is not a public blog site, so I do not publish many of the comments I receive. If you make a comment and want to keep it private, just let me know and I will be sure to respect your wishes.)