Will “Forever Chemicals” Cause Forever Problems in the CRE Industry?

This summer, the Environmental Protection Agency (EPA) finalized a rule designating per- and polyfluoroalkyl substances (PFAS) as two hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The EPA claims this final action will address perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) contamination by enabling investigation and cleanup of the chemicals and ensuring that leaks, spills, and other releases are reported. This new regulation will significantly impact the commercial real estate industry, triggering additional reporting requirements and potentially exposing property owners to strict liability for PFAS contamination.

PFAS refers to a large group of human-made chemicals, which have been manufactured in the United States since the 1930s. From shampoo to cleaning products to pesticides, PFAS are used in various consumer and commercial products due to their water- and oil-repelling properties. PFAS have been found to persist in the environment as they do not easily break down, resulting in their nickname – "forever chemicals."

Under CERCLA, current and former property owners with PFAS contamination may face strict liability for the costs associated with the cleanup of PFOA and PFOS. Strict liability holds a party responsible regardless of fault or intent. Consequently, this scheme will likely amplify the cost and time of transactional due diligence in commercial real estate transactions.

For instance, previously, PFOA and PFOS were outside the scope of Phase I Environmental Site Assessments (ESAs). However, prospective buyers and lenders should now consider possible PFOA and PFOS sources or contamination, even if the historical or current operations may not have directly used these compounds. At-risk businesses may include laundromats, dry cleaners, airports, oil refineries, landfills, or any business where non-stick or waterproofing applications are applied. Determining whether PFOA and PFOS were used at a site will prove challenging because many historical records do not specify individual PFAS compounds.

Moreover, the already heavy burden of due diligence is further complicated by the realities of current environmental sampling. Unlike other compounds assessed at the part-per-billion level, the EPA requires PFAS compounds to be assessed at a part-per-trillion level. When performing Phase II ESAs, laboratories and samplers may initially struggle to evaluate PFAS use at a particular property as the EPA has approved only a limited number of sampling protocols.

Undoubtedly, navigating the ever-changing PFAS landscape will be a shared experience for a sizable group of stakeholders. In conjunction with the new rule, the EPA issued a CERCLA enforcement discretion policy that makes clear that the EPA intends to focus enforcement on parties who significantly contributed to the release of PFAS chemicals into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process, federal facilities, and other industrial parties. The EPA does not intend to pursue, based on equitable factors, PFAS response actions or costs under CERCLA against the following parties:

1. Community Water Systems and Publicly Owned Treatment Works
2. Municipal Separate Storm Sewer Systems (MS4)
3. Publicly Owned or Operated Municipal Solid Waste Landfills
4. Publicly Owned Airports and Local Fire Departments
5. Farms that Apply Biosolids to Land

Further, the EPA will exercise its enforcement discretion not to pursue additional entities for PFAS response actions or costs under CERCLA, guided by the totality of the following factors:

1. Whether the entity is a state, local, or Tribal government, or works on behalf of or conducts a service that otherwise would be performed by a state, local, or Tribal government.
2. Whether the entity performs a public service role in:
   1. providing safe drinking water,
   2. handling municipal solid waste,
   3. treating or managing stormwater or wastewater,
   4. disposing of, arranging for the disposal of, or reactivating pollution control residuals,
   5. ensuring beneficial application of products from the wastewater treatment process as a fertilizer substitute or soil conditioner, or
   6. performing emergency fire suppression services.
3. Whether the entity manufactured PFAS or used PFAS as part of an industrial process.
4. Whether, and to what degree, the entity is actively involved in the use, storage, treatment, transport, or disposal of PFAS.

To ensure equitable outcomes in addressing PFAS contamination, the EPA alleges that the above factors will be instructive in determining whether an entity's CERCLA responsibility should be limited. But as we know all too well, only time will tell and the CRE industry will have to wait and see how PFAS regulation and enforcement takes shape.