There are very few court decisions that guide potential purchasers of contaminated property as they attempt to limit their liability for clean-up costs by obtaining Bona Fide Prospective Purchaser (BFPP) status.  However, a recent decision out of Maryland should give purchasers comfort that the money spent establishing BFPP status is often well worth it; demonstrating courts will honor the BFPP protections guarding purchasers against clean-up responsibility.   See SPS Ltd. v. Sparrows Point, LLC, No JFM-14-589 (D. Md. Sept. 6, 2017).    

The Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA) was designed to promote the cleanup of hazardous waste sites and ensure the clean-up costs are borne by those responsible for the contamination. To that end, CERCLA imposed strict liability on owners and operators of contaminated sites to pay for their clean-up. That liability, however, was a significant disincentive to potential purchasers of contaminated property and thus hindered redevelopment.  As a result, Congress amended CERCLA to allow purchasers of contaminated property to avoid clean-up liability if they were BFPPs.  See CERCLA § 107(r)(1)       

Under CERCLA  § 101(40), to qualify as a BFPP, a purchaser must have acquired the property after January 11, 2002, and establish the following eight criteria: 
    1) Contamination (i.e. “disposal of hazardous substances”) occurred before the purchaser acquired the property; 
    2) The purchaser made All Appropriate Inquiries into the previous ownership and uses of the property, such that the inquiry would reveal the likely presence of hazardous substances on the property;  
    3) The purchaser provided all legally required notices concerning the discovery or release of hazardous substances on the property; 
    4) The purchaser exercised appropriate care concerning hazardous substances found on the property by taking reasonable steps to prevent exposure to previous releases, stopping continuing releases, and preventing threaten future releases; 
    5) The purchaser fully cooperated with those persons authorized to conduct a clean-up;      
    6) The purchaser complied with land use restrictions and has not impeded the effectiveness of institutional controls imposed on the property in connection with its cleanup; 
    7) The purchaser complied with any request for information issued by the government; and
    8) The purchaser is not affiliated with any other person that is potentially liable for clean-up of the property. 

In Sparrows Point, the court held that the purchaser established those eight BFPP criteria by showing:
    a) All contamination was caused by a prior owner before the purchase – notwithstanding contamination migrated off-site through groundwater after the purchase; 
    b) After buying the property, the purchaser entered into an Administrative Consent Order and a Settlement Agreement with State and EPA that addressed the contamination and the purchaser complied with those agreements; 
    c) The purchaser’s limited contacts with the site were through a sister subsidiary's ownership of above-grade assets purchased from the prior property owner and hiring an environmental consultant.  The court found those contacts were not sufficient to find the purchaser was affiliated with another party potentially liable for clean-up;
    d) The purchaser had an Environmental Site Assessment prepared (ESA) and that an ESA is a recognized way of establishing the All Appropriate Inquiry criteria of CERCLA  § 101(40). 

The Sparrows Point decision shows that establishing the BFPP status is not easy, but it can be done. Those considering the purchase of any property should consult environmental counsel to assist in conducting the appropriate environmental due diligence that will help establish BFPP status and limit their liability for future clean-up costs.  At the Kimmell Law Firm, we have a wealth of experience assisting parties with that environmental due diligence, including making the All Appropriate Inquiries critical to becoming a BFPP. Please contact us to discuss how we can assist you in your next property transaction.