Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), persons may be held strictly liable for cleaning up hazardous substances at properties that they either currently own or operate or owned or operated at the time of disposal. Strict liability in the context of CERCLA means that a potentially responsible party may be liable for environmental contamination based solely on property ownership and without regard to fault or negligence.
However, the CERCLA Brownfields Amendments provides three landowner liability exemptions:
There is no protection under CERCLA for a current property owner when hazardous substances are released.
Innocent Landowner Protection
In 1986, the Superfund Amendments and Reauthorization Act (SARA) created an “innocent landowner” defense to CERCLA liability by adding Section 101(35)(B). This section states: “for those persons who could demonstrate, among other requirements, that they “did not know and had no reason to know” prior to purchasing a property that any hazardous substance that is the subject of a release or threatened release was disposed of on, in, or at the property. Such persons, to demonstrate that they had “no reason to know” must have undertaken, prior to, or on the date of acquisition of the property, “all appropriate inquiries” into the previous ownership and uses of the property consistent with good commercial or customary standards and practices.
Brownfields Amendment Liability Limitations
The Brownfields Amendment clarified liability provisions for innocent landowners and added protections from liability for bona fide purchasers and contiguous property owners who meet certain statutory requirements. The All Appropriate Inquiries Rule issued by the U.S. Environmental Protection Agency on November 1, 2005 established the specific regulatory requirements and standards for conducting All Appropriate Inquiries.
Generally, under the CERCLA Brownfields Amendments, the following conditions would minimize a purchaser’s exposure to liability for past environmental contamination. The advantage for lenders is that these landowner exemptions protect the borrower and collateral in commercial real estate loans.
For the Innocent Landowner Exemption:
- Did not cause or contribute to hazardous substances
- Property acquired by inheritance or bequest
- After completing All Appropriate Inquiries & ASTM E 1527-05 did not know and had no reason to know of “release or threatened release” at the time of acquisition
For the Bona Fide Purchaser Exemption:
- Acquires ownership after 1/1/05
- Hazardous substances released before purchase
- No potential liability or connection with Potentially Responsible Party other than through purchase agreement
- Rigorously completes All Appropriate Inquiries & ASTM E 1527-05
- Appropriate care in dealing with hazardous substances
- Cooperates with regulatory agency’s mandated remedial work, contractors, etc.
For the Contiguous Landowner Exemption:
- Adjacent Property Owner
- Did not cause, contribute, or consent to release or threatened release
- After completing All Appropriate Inquiries & ASTM E 1527-05 did not know and had no reason to know of “release or threatened release” at the time of purchase
- No potential liability or connection with neighboring Potentially Responsible Party
Harris & Lee Environmental Sciences, LLC strongly recommends purchasers seek legal advice before acquiring a property with known environmental damage. This information should not be construed as legal interpretation or legal advice. Our intent is to simply point out that these exemptions exist.
In the case of property acquired by a non-governmental entity or non-commercial entity for residential or other similar uses, the current standards (ASTM and AAI) may not be applicable. For those cases, the Brownfields Amendments to CERCLA establish that a “facility inspection and title search that reveal no basis for further investigation shall be considered to satisfy the requirements for all appropriate inquiries”.
- The definition of “facility inspection” is open to conjecture. It can mean more than just inspecting; it may include an investigation into nearby environmentally active sites.