United States: U.S. EPA’s New "Contiguous Property Owner" Guidance

The liability exemptions afforded current and prospective owners of contaminated property under the Brownfields Revitalization Act erase some of the stigma attached to parties contemplating a step into the ownership chain of contaminated property. Reaping the benefits of these new liability protections are not, however, without obligations. The Act articulates a number of requirements for parties seeking to enjoy the protections offered. As many of these requirements are common to each of the three categories of protected parties, U.S. EPA issued guidance in March of 2003, its Interim Guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Property Owner, at Innocent Landowners Limitations on CERCLA Liability (dubbed its "Common Elements" guidance), to provide guidance to parties seeking to satisfy the liability defenses. In short, to garner the protections offered under the Act, parties must meet certain common elements, including, most significantly:

• The party or any of its affiliates may not have caused the contamination;

• The party must have conducted "all appropriate inquiry" prior to acquiring ownership of the site, and, for Contiguous Property Owners, at the time of purchase of the property had no knowledge of environmental impacts;

• Once acquiring the site, the party must take "reasonable steps" to stop ongoing releases and prevent future releases; and

• The party must cooperate with U.S. EPA or others who are performing cleanup activities, including agreeing to abide by any current or future land use controls.

The focus of much of the Common Elements guidance is on the "reasonable steps" provision – attempting to provide guidance for parties regarding the scope of their potential remediation obligations, as non-liable parties, should contamination be present at a site. The guidance states generally that traditional CERCLA remedial actions will not be required. Some steps, however, to abate imminent risks or to prevent off-site migration of impacts might become necessary.

U.S. EPA’s new guidance for Contiguous Property Owners, provided in the Agency’s Interim Enforcement Discretion Guidance Regarding Contiguous Property Owners memorandum dated January 13, 2004, addresses a number of questions which have been raised by off-site property owners about the scope of the Contiguous Property Owner protections under the Act. The important questions answered by this new Agency guidance are examined in this memo.

The intent of the Contiguous Property Owner exemption, as explained in the Act’s legislative history, is to protect landowners "that are essentially victims of pollution incidents caused by their neighbor’s actions." S. Rep. No. 107-2, at 10 (2001). To fulfill this intent, the language of new section 107(q) provides an exclusion from the definition of "owner" or "operator" under CERCLA not only for a person who owns property that is "contiguous" to a site where a release has occurred, but also a person who owns property that is "similarly situation to" the contiguous property owner.

The Contiguous Property Owner guidance makes clear that the liability protections offered for "contiguous" property owners under the Act extend beyond adjacent property owners. With reference to the "similarly situated" language in the Act, U.S. EPA reasons in the guidance that the intent of Congress "was to protect persons who own property that is or may be contaminated as a result of migration from another property that they do no own or operate, even if the property is not located immediately next door." A fair reading of the statute and U.S. EPA guidance suggests that the Contiguous Property Owner exemption would apply to any property impacted by a release through migration from an off-site source. As stated in the guidance, the exemptions will likely apply to the extent a landowner’s property has been impacted by a release from a contaminated property at a distance in the same or similar way that it would have been impacted by a release from a contaminated property adjoining the landowner’s property. The guidance notes that this is true even if the source facility "is some distance away.

The liability exemptions created under the Brownfields Revitalization Act extend only to parties who have not caused or contributed to a release at a site. The guidance clarifies that where releases migrate onto an adjacent property and become co-mingled with releases from that property, the Contiguous Property Owner likely is not entitled to the defense. U.S. EPA offers, however, that in such circumstances the Agency will use its enforcement discretion and not pursue the Contiguous Property Owner for costs associated with the releases migrating from the off-site property.

While the Brownfields Revitalization Act provides express exemptions from owner/operator liability for Contiguous Property Owners under CERCLA, off-site property owners already enjoy certain protections from U.S. EPA enforcement under existing CERCLA policies. Specifically, owners of property contaminated by migration of releases from other sites have found certain protections under U.S. EPA’s "Policy Towards Owners of Residential Property at Superfund Sites" and the Agency’s "Final Policy Towards Owners of Property Containing Contaminated Aquifers." The Contiguous Property Owners’ guidance confirms that these policies will remain in effect as they, in some cases, provide greater and, in others, lesser protections than the Brownfields Revitalization Act’s provisions, but do not conflict.

In one important instance, the bounds of the Contiguous Property Owner exemption are actually informed by direct reference to U.S. EPA’s existing Contaminated Aquifer Policy. In defining what "reasonable steps" might be required of a contiguous property owner to address migrating releases, the Brownfields Revitalization Act assures Contiguous Property Owners that they will not be required to conduct groundwater investigations or install groundwater remediation systems, except where such actions might be required under the Contaminated Aquifers Policy. As set forth in the Contaminated Aquifers Policy, only "exceptional circumstances" will require action by Contiguous Property Owners to remediate migrating impacts. Such exceptional circumstances would appear to be limited to circumstances where groundwater wells are present at the contiguous property and are impacting the flow or migration of the off-site contaminant plume.

At its heart, the intent of the Contiguous Property Owner exemption under CERCLA is to remove the barriers to the acquisition and redevelopment of property in heavily industrialized locales. To further address the issue, Section 107(q)(3) of the Brownfields Revitalization Act provides that U.S. EPA may provide "assurances" to Contiguous Property Owners and otherwise grant these parties protection against third party contribution actions under appropriate circumstances.

The Contiguous Property Owner guidance states as an initial proposition that assurance letters or contribution protections (embodied in settlements with the Agency) should be utilized sparingly as these documents are arguably unnecessary in light of the breadth of the Act’s liability exemptions. The guidance also indicates that decisions to provide any of these assurances is delegated to the Agency region having jurisdiction over a site.

Notwithstanding this decision, the guidance articulates the circumstances under which U.S. EPA may consider issuance of such additional assurances or protections. Assurance letters require a written request to the Agency by the Contiguous Property Owner and U.S. EPA involvement at the offending site. Contribution protection through a binding settlement with the Agency will only be provided if, additionally, the Contiguous Property Owner can establish that it has been sued for CERCLA cost recovery or contribution by a third party or that a real and substantial threat of such a suit exists.

The bounds of the liability exemptions created by the Brownfields Revitalization Act remain essentially unexplored and untested. U.S. EPA has moved to address any uncertainty through the issuance of Agency guidance. The Contiguous Property Owner guidance represents U.S. EPA’s latest offer of assistance. In short, the guidance explains that the exemption applies to more than simply true "contiguous" property owners. The U.S. EPA policy also offers both guidance on remediation obligations that contiguous property owners may ultimately be required to pursue as well as opportunities for written assurances from U.S. EPA of the availability and extent of these CERCLA liability exemptions.

As counsel to parties engaged in all aspects of the Brownfields redevelopment process – from municipal governments and industrial site owners to banks and real estate developers – the Brownfields Revitalization Act offers opportunities to acquire property without necessarily being saddled with the liability. The exemptions offered, however, are conditional and come with obligations. It is critical, then, before property is acquired, that these conditions and obligations are carefully understood and fully satisfied and, in appropriate circumstances, that reasonable assurances are provided by U.S. EPA of entitlement to these protections.

Copyright 2004 Gardner Carton & Douglas

This article is not intended as legal advice, which may often turn on specific facts. Readers should seek specific legal advice before acting with regard to the subjects mentioned here.