Despite last minute veto threats from the White House, the bipartisan Consolidated Appropriations Act of 2018 was signed into law earlier this year. Buried deep in this massive omnibus spending bill is a major win for brownfields revitalization and redevelopment. According to the Environmental Protection Agency (“EPA”), the Brownfields Utilization, Investment, and Local Development Act of 2018 (the “BUILD Act”) provides both efficiency improvements to the administration of the existing program and additional incentives to sustainably redevelop and reuse the estimated 450,000 brownfield sites in the U.S.
Brownfields are often defined as real property where the presence or suspected presence of contamination complicates its redevelopment, reuse, or expansion. Many of these properties have been idle and underutilized for years due to the environmental stigma and fear of strict liability that has hindered their redevelopment for productive use.
In an attempt to alleviate the strict liability rigors of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), Congress amended CERCLA in 2002 through the passage of the Small Business Liability Relief and Brownfields Revitalization Act (the “Brownfields Act”). The Brownfields Act codified many of EPA’s prior practices, policies, and guidance, and encouraged the redevelopment and reuse of contaminated sites by offering certain liability safe harbors and defenses to “bona fide prospective purchasers” and adjacent land owners that may have faced liability under CERCLA. Many states offer similar programs. In many cases, these protections have helped overcome the attached environmental stigma and have led to brownfields reuse successes.
The BUILD Act Highlights
For the first time since the Brownfields Program began, major revisions have resulted in additional liability protections and incentives to productively reuse brownfields. Although not an exhaustive list, the BUILD Act:
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Reauthorizes and doubles funding for the Brownfields Program at a rate of $200 million for each fiscal year through 2023 and an additional $50 million for state response program funding for each of those fiscal years;
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Revises the definition or “owner or operator” under CERCLA to offer liability protection to local governments that acquire brownfields properties by seizure, tax foreclosure, abandonment, bankruptcy, or other means;
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Provides eligibility for local governments to receive EPA brownfields revitalization grants for sites that were acquired prior to 2002 even if an “All Appropriate Inquiry” (“AAI”) was not conducted (and as long as the local government did not cause or contribute to the contamination);
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Expands eligibility for all types of brownfields revitalization grants to non-profit 501(c)(3) entities;
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Allows up to five (5) percent of a brownfields grant to be used for administrative costs (use of funds for this purpose was previously not allowed);
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As discussed below, extends the definition of a “bona fide prospective purchaser” (“BFPP”) to a tenant and codifies that when leasing previously-contaminated property a tenant can claim the BFPP defense to liability and escape strict, joint, and several owner/operator liabilities under appropriate circumstances; and
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Incentivizes brownfields projects involving renewable energy, energy efficiency measures, or combined heat and power, as well as projects on waterfronts and in floodplains by prioritizing the grant applications.
The BUILD Act Codifies Tenant Liability Protection Under CERCLA
It has long been the general understanding, based on EPA guidance, that a tenant could meet the qualifications of a BFPP and enjoy the liability protections offered by this status. However, because it was only EPA guidance, whether to hold a tenant liable for site contamination was always in the EPA’s enforcement discretion. Now, it is clear that a tenant whose leasehold interest began after January 11, 2002 can demonstrate that it qualifies as a BFPP by either:
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Qualifying as a BFPP itself after conducting its own Phase I Environmental Site Assessment (“ESA”) and AAI in accordance with ASTM standards before lease commencement, and by maintaining compliance with additional requirements of the protected status after signing the lease;
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Establishing that the landlord is a BFPP; or
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Establishing that the landlord was a BFPP, but failed to maintain compliance with additional requirements of the protected status and the tenant itself has maintained compliance with those requirements.
The BUILD Act further added that the contractual relationship between a tenant and landlord is excluded from being considered “affiliated with” a potentially liable party.
In the past, it was always advisable to conduct a Phase I ESA before entering into a lease to fully understand the past and current site conditions, even though the liability protections gained were in EPA’s discretion. Now, conducting an ESA, fulfilling the AAI requirement, and complying with the process to establish BFPP status have become just as important for tenants as for property purchasers. The BUILD Act establishes that tenants no longer are forced to rely on the landlord to establish a defense against liability claims from EPA, a state regulatory agency, or a third-party. Thus, it is critical that tenants and others with leasehold interests understand how to gain and maintain this protective status.
The BUILD Act Incentivizes Brownfields Redevelopment of Waterfront Sites and Sites Generating Renewable Energy
Two of the hottest redevelopment areas today involve: (1) revitalization of waterfront sites; and (2) redevelopment of brownfields with clean and renewable energy. In addition to liability protection, the Brownfields Program’s core function is to offer direct funding in the form of remediation grants to stimulate cleanups. Interested parties may apply for a variety of grant funding ranging from site assessment to cleanup. The BUILD Act allows EPA to adjust its application ranking criteria and rank submissions for brownfields grants meeting the waterfront and energy criteria higher than other site applications. For sites involving waterfront sites, this includes grant applications that “address a site adjacent to a body of water or a federally designated flood plain.” Many former industrial sites were sited along waterways out of necessity and are ripe for reuse as mixed use commercial and residential areas. A successful example of this can be found in Baltimore, Maryland. Former warehousing and manufacturing sites along the Patapsco River contaminated with heavy metals, petroleum, and PAHs, were converted into commercial and residential use though Maryland’s voluntary cleanup program, grants from EPA, and private investment.
Many brownfields, including former industrial sites and municipal and hazardous waste landfills, are located in urban and industrial neighborhoods, placing them in close proximity to high energy demand and making them suitable for renewable energy development. Further, they are frequently located close to crucial infrastructure, such as electric transmission lines and substations, roads and water supplies. Often, such brownfields comprise large land areas, and may already be zoned and permitted to accommodate such redevelopment. Under the BUILD Act, EPA can now prioritize brownfields redevelopment that facilitates the generation of “renewable electricity from wind, solar, or geothermal energy” or any other “energy efficiency improvement project at a brownfield site, including a project for a combined heat and power system or a district energy system.”
For more information about the opportunities for redeveloping brownfields with clean and renewable energy, please check out these articles in CleanTechia and Lexology.
Conclusion
Cleanup of Superfund sites and brownfields sites has been a priority of the current administration and the current EPA. Through the BUILD Act, Congress has provided EPA and the market with additional tools in the form of additional liability protections and financial incentives that will boost redevelopment and reuse of contaminated sites through the Brownfields Program.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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