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Congress Moves to Encourage Redevelopment of Brownfields in New Superfund Amendments



May 2, 2002

On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act, Pub. L. 107-118, the first major reform of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as the Superfund law, since 1986. In addition to creating two new exemptions from CERCLA’s onerous liability scheme for certain generators of very small volumes of waste and certain generators of municipal solid waste (summarized in the DATE issue of E-InSites), the new legislation seeks to address the problem of brownfields – hundreds of thousands of old industrial sites nationwide that could be redeveloped but that are abandoned or lie fallow because contamination associated with their former uses pose substantial financial risks that keep potential buyers and developers away. (The legislation resulted from a combination of two separate bills – H.R. 1831, the Small Business Liability Protection Act, which became Title I of the enacted bill, and S. 350, the Brownfields Revitalization and Environmental Restoration Act, which became Title II of the enacted bill. The final bill bore the number H.R. 2869. It was finally passed by the House in the wee hours of the morning on December 21, 2001.) This article summarizes the brownfields provisions of the new legislation, found in Title II (hereinafter the “Brownfields Amendments”).

The legislation employs a number of different strategies to address the brownfields problem: funding for assessments and cleanups; clarification and relaxation of liability rules for owners, prospective purchasers, and owners of neighboring properties; a presumptive ban on EPA enforcement actions where a site is being addressed under State programs that meet certain requirements; and deferral of the decision to place a site on CERCLA’s National Priorities List where it is being addressed under such an approved State program. (New Jersey, of course, has its own detailed programs for remediation of contaminated sites, including those established under the Spill Compensation and Control Act (commonly known as the Spill Act), N.J.S.A. 58:10-23.11a et seq., and the Industrial Site Recovery Act (ISRA), N.J.S.A. 13:1K-6 et seq.). These strategies are designed to work together to remove obstacles to, and provide incentives for, the redevelopment of brownfields.

Funding for assessment and remediation of brownfields sites: Subtitle A of the Brownfields Amendments provides for “brownfields revitalization funding,” described in a new subsection 104(k), which is available for the assessment and cleanup of “brownfields sites,” broadly defined in new subsection 101(39) to include any “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant,” with exclusions for sites that are already being addressed under CERCLA or certain other federal programs. (Note: All citations to new sections and subsections refer to CERCLA in its “uncodified” form. CERCLA is codified at 42 U.S.C. Sec. 9601 et seq. Section 101 corresponds to 42 U.S.C. Sec. 9601, and so on.) Significantly, even though CERCLA generally does not cover sites contaminated with petroleum (it covers contamination by “hazardous substances,” the statutory definition of which specifically excludes petroleum, see CERCLA Sec. 101(14)), certain “low-risk” petroleum-contaminated sites may be eligible for brownfields funding if there is no viable responsible party and the site will instead be addressed by a party that is not liable for the contamination. Funding is available for site characterization and assessment and for remediation of brownfields sites, and can go to both governmental and quasi-governmental entities and nonprofit organizations. The legislation authorizes $200 million annually over the next five years, with one-quarter of the money earmarked for petroleum-contaminated sites.

Clarification of requirements for “innocent landowners”: Subtitle B of the Brownfields Amendments clarifies liability rules for three classes of landowners: “innocent landowners” who purchased contaminated sites in the past without any knowledge of the contamination; “bona fide prospective purchasers” who acquire contaminated sites after the legislation’s effective date; and owners of properties that are contiguous to contaminated sites. In all three cases, the party seeking the benefit of the exception to liability bears the burden of proving that it meets all of the statutory requirements.

Since 1986, CERCLA has contained a liability exemption (subsection 107(b)(3)) for certain owners of contaminated sites (who are generally liable under subsection 107(a)(1), even if all of the contaminants were deposited before the site was acquired). These so-called “innocent landowners” could escape liability if they bought the property after all disposal had ceased and they neither knew nor had reason to know of the contamination at the time of purchase. Proving the absence of any “reason to know” in turn required a showing that the owner undertook “all appropriate inquiry” into the site’s history.

Via an amendment to subsection 101(35), the Brownfields Amendments clarify the vague “all appropriate inquiry” requirement, which bedeviled many landowners, with a new provision that directs EPA to promulgate within two years regulations that specify the precise steps that a buyer must have taken to qualify as an innocent landowner. In the meantime, transactions that took place on or after May 31, 1997 are governed by the ASTM’s standards for Phase I site assessments, and transactions that took place before that date are governed by a set of factors similar to those in the pre-amendment legislation. In addition, in order to maintain their status as innocent landowners, owners must cooperate with any response action, and owners of nonresidential properties must show that they took reasonable steps to stop and prevent any releases from the site. Finally, nongovernmental and noncommercial entities that purchased a site for residential or other similar use can satisfy the new “all appropriate inquiry” requirement by showing that they conducted a facility inspection and title search that did not reveal any potential problems.

Liability relief for prospective purchasers: New subsection 107(r) exempts from liability under subsection 107(a)(1) “bona fide prospective purchasers,” as long as they do not impede cleanup efforts. New subsection 101(40) defines a “bona fide prospective purchaser” as a person (or the tenant of a person) who acquired the site after December 21, 2001 (and after all disposal had ceased), made the same sort of “appropriate inquiries” and took the same sorts of steps to stop and prevent releases as those required for innocent landowners, and meets certain other requirements regarding legally required notices of the contamination, cooperation with remediation efforts, and compliance with any institutional controls. In addition, a bona fide prospective purchaser cannot be a party (or affiliated with a party) that is otherwise liable for the contamination. Unlike an innocent landowner, however, a bona fide prospective purchaser need not show that it was unaware of the contamination at the time of acquisition. Thus, this new defense encourages redevelopers to purchase properties that are known to be contaminated.

To prevent bona fide prospective purchasers from unfairly benefiting from government cleanup efforts that increase the value of their property, new subsection 107(r) provides for a “windfall lien” that the federal government can impose on the site if it is unable to recover all of its response costs. The lien, which arises when the government first incurs response costs, is limited to the increase in the fair market value of the property attributable to the cleanup, and may be satisfied by sale of the property.

Liability protection for owners of contiguous properties: Properties located near contaminated facilities often become contaminated by way of migration of hazardous substances from the contaminated facility. Thus, a single brownfields site can hamper redevelopment of an entire neighborhood. New subsection 107(q) addresses this “ripple effect” by providing liability protection for the owner of property that “is contiguous to or otherwise similarly situated with respect to” a contaminated facility that it does not own, so long as that owner did not cause (and is not in any way related to any entity that caused) the contamination, and meets other requirements that generally those for innocent landowners. A party that fails to qualify under this subsection because it knew of had reason to know that its property was or could be contaminated by a release from the other property can still qualify as a bona fide prospective purchaser.

Creating “closure” for sites addressed under State programs: Many States, including New Jersey, have programs that provide for the remediation of contaminated sites. Even if a site has been cleaned up under such a State program, in the past EPA could theoretically bring a judicial or administrative enforcement action under CERCLA to compel a cleanup of recover response costs. Subtitle C of the Brownfields Amendments addresses this and several other issues concerning State response programs.

New section 128 of CERCLA bars EPA enforcement actions at brownfields sites (plus, pursuant to new subsection 101(41), certain other sites that do not fall within the definition of brownfields sites) that has been or is being addressed under a State response program. There are exceptions to this enforcement bar for high-risk sites and sites where the State requests assistance and EPA determine that additional work is needed. EPA must give the State 48 hours notice before beginning an enforcement action at an otherwise eligible site. The enforcement bar also applies only to States that maintain a public record of sites that in the past year have been and in the coming year will be cleaned up under the State response program.

New section 128 also authorizes $50 million annually over the next five years for grants to States whose response programs meet certain requirements or who have a memorandum of agreement with EPA. The funds may be used to enhance the response program, to capitalize a revolving loan fund for brownfields remediation (see above), or to purchase insurance or develop a risk-sharing mechanism to provide financing for cleanups under the response program.

NOTE: New Jersey has had its own brownfields redevelopment program since January 6, 1998, when Governor Whitman signed the Brownfield and Contaminated Site Remediation Act. The New Jersey brownfields legislation amended a number of state statutes to encourage the redevelopment of brownfields. It presaged the Brownfields Amendments to CERCLA by providing for protection from the tough liability provisions of state cleanup laws, financial incentives for brownfields remediation, and a variety of reforms of existing cleanup requirements. For a summary of New Jersey’s brownfields program, see “New Jersey’s Brownfields Redevelopment Program,” a booklet available from Gibbons, Del Deo’s Environmental Law Department.