United States: Should Tenants Worry About Environmental Liabilities For Their Leased Property?

EPA Issues "All Appropriate Inquiry" and "Bona Fide Prospective Purchaser" Guidance for Tenants

By 2013, most property owners have heard of the advantages of performing environmental due diligence and conducting "All Appropriate Inquiry" by obtaining an Environmental Site Assessment before purchase.  Doing so is key to obtaining federal "Superfund" landowner defenses and avoiding federal, state, or private party cleanup costs for contaminated property.  

But why should a Tenant perform environmental due diligence and conduct "All Appropriate Inquiry" before the Tenant signs a lease?  After all, it is "just a lease" and the owner of the property will be responsible for existing environmental contamination, right?

Under federal and state Superfund laws, Tenants may be considered "owners" or "operators" and, therefore, be subject to the same strict and joint-and-several liability for existing contamination as the actual fee owner, even historic contamination that the Tenant may not have known about.  While Landlords (also known as Lessors) often indemnify Tenants for environmental contamination, those indemnifications, or the resources of the Lessors, can often be inadequate to cover expensive cleanup costs.  And many property owners either acquired the property before modern environmental laws were in effect, or did not conduct adequate "All Appropriate Inquiry" to obtain Superfund landowner defenses.

EPA has just issued guidance clarifying that Tenants who conduct environmental due diligence and "All Appropriate Inquiry" before they sign a lease, may knowingly lease contaminated property, and still obtain the benefits of the Superfund landowner defense for "Bona Fide Prospective Purchasers" (BFPPs).  This is the case even if the owner of the property was not a BFPP, or if the owner of the property obtained but lost BFPP status, for example, by not taking "due care" to prevent a release.  Of course, the Tenant must also be aware of and discharge the (usually limited) responsibilities known as "continuing obligations" for contamination under the law, which include providing access to governmental authorities for cleanup and taking reasonable steps to minimize exposures and releases.

The pitfalls for Tenants under these circumstances will be similar to those that befall Lessors, such as failure to conduct "All Appropriate Inquiry" meeting federal standards (e.g., an Environmental Site Assessment that really complies with regulatory requirements) and failure to meet "continuing obligations."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.