12.03.2021 Virginia DEQ Suspends Issuance of Bona Fide Prospective Purchaser, Lender Liability and other Brownfield Program Comfort Letters
The Virginia Department of Environmental Quality (VDEQ) has just given notice on its website that, effective immediately, it has stopped issuing so-called “comfort letters” as part of its brownfield program. Such comfort letters include those to provide assurance of eligibility for bona fide prospective purchaser (BFPP) status and certain liability defenses available to prospective purchasers and tenants of real property provided under Virginia Code § 10.1-1234 of the Virginia Brownfield Restoration and Land Renewal Act (Act). They also include lender comfort letters provided to lenders as assurance that they are eligible for defenses to these liabilities when they act to protect their collateral/security interests in real properties, normally upon default of the borrower or at foreclosure. However, VDEQ staff have advised us that they will process applications for comfort letters that were received by December 1, 2021.
This notice is certainly not good news, as many prospective buyers and tenants of commercial and industrial real property and lenders seek these letters for assurance of covered status and the associated defenses to certain contamination/remediation liabilities under several state laws. For those involved in any pending transactions where the buyer is planning to seek a comfort letter for qualifying status under the Act, this notice from VDEQ is sure to be disappointing and may complicate the buyer’s or prospective tenant’s efforts to get comfortable with liability risk for preclosing/pre-leasehold site contamination.
It is unclear from VDEQ’s notice how long the stoppage of these comfort letters may last, but the notice indicates it is more for lack of staffing than any policy shift, and VDEQ staff have confirmed to us that this is the case. Notably, VDEQ is not under any legal mandate to offer these comfort letters, and so they have been provided as a voluntary brownfield program service to the regulated community at very low cost. At this point, though, VDEQ feels the need to focus remaining manpower on core agency functions for the brownfield program set by law and EPA grant obligations, as well as other key land renewal program efforts such as administration of state brownfield grants to localities and for economic development and the state Voluntary Remediation Program. As context, VDEQ advises us that about five to eight VDEQ staff are involved in each request for a comfort letter, which includes regional and central office staff. For 2021 alone, and as of the December 1 stoppage date, VDEQ will have processed about 156 comfort letters. Despite this volume, VDEQ generally has been very responsive in preparing BFPP comfort letters to facilitate property transaction and the productive or improved use of brownfields, in turn supporting many economic development opportunities. For these reasons, it seems likely that VDEQ would resume issuance of such comfort letters as soon as its brownfield program staffing concerns are resolved.
All of that said, and as disappointing as VDEQ’s notice may be, it should be remembered that these comfort letters are not essential to determining or qualifying for covered party status and benefiting from the corresponding liability defenses. Eligibility for qualifying status for BFPPs, lenders, and other covered parties under the Act and their respective defenses to liability actually hang on meeting the Act’s statutory criteria, not on getting a comfort letter from VDEQ. While a comfort letter can be useful, it is not controlling in the end: its functionality depends on the accuracy of the information provided when requesting the letter and a party’s ultimate fulfillment of obligations under the Act to meet and maintain its status and defenses. Therefore, a would-be buyer or tenant or a lender (or other potentially covered party) can – and should – determine on its own whether it is eligible for such status and defenses, even if that process lacks the additional assurance of obtaining the comfort letter from VDEQ. Indeed, regardless of whether comfort letters are issued, it is good practice for parties to consult sooner rather than later with experienced environmental legal counsel as to whether they meet the statutory criteria for BFPP, qualifying lender, or other covered status under the Act and what is needed to maintain that status after closing, or in its ownership or operation of, or foreclosure on the property. This step remains foundational to determining whether such status and liability defenses will apply, keeping a transaction on track, and maintaining protected status and related defenses.
We will keep you apprised of further developments on this front and, as is hoped, any resumption of the issuance of these comfort letters.