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The Off-Site Plume and the Innocent Purchaser Defense

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The Off-Site Plume and the Innocent Purchaser Defense

A buyer is acquiring a 5-acre parcel adjacent to a former plating facility. A Phase I identifies the plating facility as a REC and recommends a Phase II. The Phase II finds chromium and trichloroethene in groundwater beneath the subject property at concentrations above state standards, with the plume migrating from the plating facility. The buyer proceeds and closes. Two years later the state names the buyer as a potentially responsible party. The buyer's Phase I was conducted 14 months before closing and did not include a title search or a review of environmental liens.

1. Can the buyer assert the bona fide prospective purchaser (BFPP) defense? Identify each element that is at risk.

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The BFPP defense requires, among other things:

  1. All appropriate inquiries (AAI) conducted before acquisition, consistent with ASTM E1527.
  2. No knowledge of the release after the inquiry.
  3. Reasonable steps to stop continuing releases and prevent threatened future releases.
  4. Full cooperation with response actions.
  5. Compliance with land use restrictions and institutional controls.
  6. No affiliation with a liable party.

The buyer's position is at risk on several elements:

  • AAI timing and content. The Phase I was 14 months old at closing. AAI must be conducted or updated within 180 days of acquisition, and certain components (interviews, regulatory review, lien search) within 180 days. A 14-month-old report fails the timing requirement.
  • Environmental lien/title search. The Phase I did not include the required title search and lien review, which is a mandatory AAI component. This is a separate, independent failure.
  • Knowledge. The Phase II found contamination above standards. The buyer had knowledge, which is a problem for the 'no knowledge' element of some defenses, though BFPP is designed to allow acquisition with knowledge if AAI is done. The critical failures are the AAI defects, not the knowledge itself.

The buyer likely cannot assert BFPP as things stand.

2. What could the buyer have done differently, and what should the current file contain?

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At acquisition, the buyer should have:

  • Commissioned a current Phase I (or a documented update) within 180 days of closing.
  • Included a title search and environmental lien review as part of AAI.
  • Conducted the Phase II before closing so the AAI and the knowledge were contemporaneous.
  • Documented reasonable steps and cooperation commitments in the purchase agreement and post-closing plan.

Now, the file should contain:

  • A current AAI report or update.
  • The title/lien search.
  • A written record of reasonable steps taken since closing.
  • Evidence of cooperation with the state.

The lesson the exam tests: the BFPP defense is procedural. A good Phase II does not cure a defective AAI, and a stale Phase I can forfeit the defense even when the buyer acted in good faith.