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Implications of PFAS Regulation on the Commercial Real Estate Industry
Newly designated “hazardous substances” could pose fresh challenges for stakeholders.
The term “forever chemicals” generally refers to per- and polyfluoroalkyl substances, also known as “PFAS.” PFAS are human-made and have been manufactured in the United States for over 70 years. Used in a wide array of consumer and commercial products and processes across industry sectors, they have achieved popularity and success in large part because of their unique resilience to degradation. While this chemical makeup has made PFAS critical to certain industries, it has also allowed them to persist widely in the environment (and potentially in humans and animals).
Over the past several years, states and the federal government have undertaken efforts to regulate PFAS. Most of the regulations have been directly aimed at protecting human health, such as the regulation of certain PFAS in drinking water systems and limitations on the future manufacture or use of particular PFAS compounds.
Recently, however, the Environmental Protection Agency (EPA) has also taken steps to regulate certain PFAS — perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) — under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). EPA designated PFOA and PFOS as “hazardous substances,” meaning they now trigger both the “reportable quantity” release reporting requirements and the statute’s strict liability scheme familiar to many in the commercial real estate industry. Given these compounds’ ubiquitous nature, this designation will have wide-ranging impacts for current property owners and those engaged in buying, selling, financing or redeveloping many types of commercial properties.
Liability Exposure
One of the most significant implications of the CERCLA listing is potential liability exposure. Under that statute, current and former owners and operators of property with contamination can face liability for cleanup costs associated with the release of PFOA and PFOS, regardless of fault (unless one of the defenses or exemptions from CERCLA liability applies). This liability is triggered by any amount of PFOA or PFOS.
The designation is also likely to affect transactional due diligence. While PFOA and PFOS have not traditionally been within the scope of Phase I environmental site assessments in real estate transactions, prospective buyers and lenders will now need to consider potential PFOA and PFOS sources or contamination, especially when a property may have been impacted by historic uses of PFAS on-site or at nearby properties.
The more a buyer or lender knows about the existence of PFOA or PFOS prior to finalizing a transaction, the more they can protect themselves or mitigate related risks before closing. However, sellers may be reluctant to grant preacquisition sampling for two reasons. First, the strict liability scheme under CERCLA means that sellers could face liability for identified PFOA or PFOS should the transaction fall through. Second, because some states require that all sampling results be reported to the local or state environmental agency, sellers may be unwilling to generate data that triggers potentially problematic reporting requirements.
Even if prospective purchasers or lenders include PFAS within the scope of their transactional due diligence, many questions will likely remain unanswered. For example, it may be difficult to discern which PFAS contaminants to include in the scope of sampling. To date, EPA has approved some sampling protocols, but few laboratories and samplers are fully capable of implementing those methods. Furthermore, if sampling identifies PFAS in on- or off-site media, only a few viable options are currently available for addressing or remediating those contaminants.
Final Rule To Be Determined
While all of this may seem daunting for the commercial real estate industry, stakeholders can take some reassurance in the unknown as well. Concurrent with the CERCLA listing, EPA issued its PFAS Enforcement Discretion & Settlement Policy Under CERCLA, which provides some exceptions to the otherwise strict liability scheme and is intended to give comfort to certain stakeholder groups (including some private owners or operators of contaminated properties). In addition, based on the recent actions of Congress and certain states, carve-outs and challenges to the scope and implementation of the final rule are likely.
Regardless of the potential uncertainties, stakeholders should prepare to comply with the rule, which became effective July 8. Those engaged in various aspects of real estate could face novel challenges as the rule is implemented over the next several months and years. NAIOP is paying close attention to Congress, the courts and the actions of the states, all of which are likely to shape the ultimate reach of the final rule.
Laura Boorman Truesdale is counsel in the environmental practice at Moore & Van Allen in Charlotte, North Carolina. Mary Katherine H. Stukes is head of the environmental practice at Moore & Van Allen.
