Since the sunset of the very successful Clean Ohio Brownfield Revitalization Program, brownfield redevelopment has slowed in Ohio. At a time when the economy is finally doing well, and real estate development is in full recovery mode, brownfields are still being passed over for less costly redevelopment options.
This past week, Representative Arndt introduced House Bill 737 (Click on link hb737_00_IN) which would incorporate the CERCLA Bona Fide Purchaser Defense into Ohio Law. The Greater Ohio Policy Center (GOPC) has been working with Rep. Arndt on the legislation. As discussed below, if passed, the legislation would fill a gap in Ohio law that discourages brownfield redevelopment. The current legislation also includes an option to obtain a “concurrence letter” from Ohio EPA that would help provide comfort to businesses, developers and lenders as to whether the proper due diligence steps were performed to establish the environmental liability defense.
The cost to cleanup historical contamination at brownfield properties has long discouraged reuse and redevelopment. As discussed in prior posts, brownfield properties are often bypassed to develop on greenfield space moving jobs out of urban cores and promoting urban sprawl.
In 2002, Congress created the “Bona Fide Purchaser Defense” (BFPD) as an amendment to CERCLA to encourage brownfield redevelopment. Under the BFPD, a buyer of property can establish a defense to environmental liability under CERCLA if the buyer performs environmental due diligence prior to purchase in accordance with U.S. EPA standards.
U.S. EPA adopted the “All Appropriate Inquiries” rule which establishes the mandatory level of environmental due diligence a buyer must perform to qualify for the liability defense. If the due diligence (i.e. Phase I and Phase II assessments) identifies an ongoing release or risk to human health or the environment, the buyer must take “reasonable steps” to address those issues.
A key aspect of the BFPD is that “reasonable steps” does not mean full cleanup of the property. Rather, the goal is to make the property safe for reuse and to prevent any ongoing threats to the environment. In this manner, the BFPD offers a much more cost effective means to putting brownfields back into productive use than traditional full blown cleanup programs such as the Ohio EPA Voluntary Action Program (VAP).
Gap in Ohio Law
While the BFPD exists to protect a buyer from liability under CERLCA, a federal law, it does not extend protection from liability under state laws. Currently, even if a buyer performs “All Appropriate Inquiries” on a property in Ohio, the buyer will receive no legal liability protection under Ohio law.
H.B. 737 would fill this gap. It would extend protection from liability under Ohio law for pre-existing “hazardous substances” contamination on property to buyers who take all the necessary steps to qualify for BFPD. By strengthening protections under the BFPD, buyers will have a greater incentive to reutilize brownfields in Ohio.
In extending the BFPD to liability under Ohio law, Ohio would be playing catch up with many other states, such as Indiana and Michigan, which already have incorporated the BFPD or BFPD like legal protection into state law.
Under federal law, the BFPD is self-implementing, meaning a buyer completing “All Appropriate Inquiries” does not submit anything to U.S. EPA to verify they complied with the rule. Rather, the buyer relies on advice from their environmental consultant and attorney that they have taken the proper steps to qualify for the BFPD. The first time a buyer will learn whether they did fulfill the necessary steps to qualify for the BFPD is when it is challenged in court. Ashley II is an example where a buyer didn’t fare well in asserting the BFPD.
While there are positives with a self-implementing program (i.e. no regulatory sign-off), many clients I work with are more conservative with regard to taking on risk. Some may like the option to have Ohio EPA review their Phase I and Phase II (if needed) to confirm they have done enough to qualify for the BFPD. Other clients would be comfortable without such a comfort letter.
H.B. 737 provides an optional track to receive a concurrence letter from Ohio. Buyers still have the option of following the traditional self-implementing approach.
Indiana already has such an option available, referred to as a “comfort letter,” and it is widely used by buyers. Providing such an option under Ohio law would provide more tools for brownfield redevelopment.