On December 1, 2021, the Virginia Department of Environmental Quality (“VDEQ”) announced via a notice on its Brownfields website that it stopped accepting applications for Bona Fide Prospective Purchase (“BFPP”) and other “Comfort Letters” for an indeterminate period of time. Such comfort letters had been an important tool available to prospective purchasers of industrial and other contaminated properties to help limit their liability for existing environmental contamination. Ironically, it is the popularity of the program that led to its suspension. VDEQ’s notice details how the number of applications has increased substantially over the last several years, but it no longer has the resources to process applications due to current staffing shortages.
By way of background, environmental liability for historical contamination is established by the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), better known as the “Superfund” law. CERCLA imposes strict liability on four categories of potentially responsible parties (“PRPs”), including past and current owners of property where hazardous substances were released regardless of whether hazardous substances were disposed or released on the property during their ownership. €‹The draconian nature of CERCLA liability discouraged the sale and redevelopment of contaminated properties, also called “Brownfields properties.” CERCLA liability incentivized new development over redevelopment, encouraged sprawl, and resulted in the abandonment of contaminated properties often in economically depressed communities that would have benefit most from return of these properties to productive use.
To address this problem, Congress amended CERLCA in 2002 to add liability protections for prospective or current landowners who meet certain criteria. Specifically, landowners who meet the criteria of a bona fide prospective purchaser (“BFPP”), innocent landowner, or contiguous property owner are protected from Superfund liability. These liability protections are self-implementing, meaning that a landowner will enjoy these protections so long as the landowner meets the threshold statutory and regulatory criteria, and comply with any continuing obligations to prevent further releases of hazardous substances into the environment. However, Congress provided no statutory mechanism to confirm whether a landowner or prospective purchaser meets the liability protection criteria prior to defense against claims in litigation or from a regulatory enforcement action. Since compliance with the criteria is very fact-specific, and regulators may disagree with the conclusions of a landowner in the future, landowners and prospective purchasers often remain uncertain whether they may face CERCLA liability in the future.
To address this residual uncertainty and encourage property redevelopment, many States and EPA have developed what are known as “Comfort Letters”. A Comfort Letter is issued by a regulator to a party that qualifies for an applicable CERCLA liability exemption (e.g. a “prospective purchaser” of real property). While these letters are not a legal release from liability, they provide clarity by confirming and documenting that a party meets the threshold criteria for a defense to liability. In addition, Comfort Letters may detail steps a party needs to take in the future to maintain their liability protection. Comfort Letters issued by VDEQ were particularly helpful in that they were more categorical and plainly written than EPA Comfort Letters, and addressed Virginia-specific brownfields legal requirements. In addition, VDEQ historically was able to process Comfort Letters relatively quickly, facilitating property purchase and lending transactions.
DEQ’s suspension of processing Comfort Letters, particularly BFPP letters, has the potential to complicate and delay real estate sale transactions involving industrial and contaminated properties. However, as noted above, the law did not require that a formal Comfort Letter be received for a purchaser or landowner to benefit from the statutory defenses to liability — the Comfort Letter merely facilitated and documented an agency’s agreement that the defense applied. Therefore, a landowner or purchaser may still qualify for a defense to liability, as a bona fide prospective purchaser for example, but will have to find alternative means of documenting that status. The assistance of counsel and consultants experienced with Comfort Letters and statutory defenses to liability can be invaluable in facilitating property transactions even in the absence of a comfort letter.
VDEQ’s Comfort Letter program offered welcomed clarity in an area of law defined by uncertainty, and we hope the program can resume once VDEQ’s staffing shortages are resolved. In the interim, it becomes even more important for prospective purchasers and other landowners with CERCLA liability questions to consult with environmental counsel early in any transaction.