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Underground Storage Tanks--Lender Liability
Note: EPA no longer updates this information, but it may be useful as a reference or resource.
[Federal Register: September 7, 1995 (Volume 60, Number 173)]
[Rules and Regulations ]
[Page 46691-46715]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[[Page 46691]]
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Part II
Environmental Protection Agency
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40 CFR Parts 280 and 281
Underground Storage Tanks--Lender Liability; Final Rule
[[Page 46692]]
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 280 and 281
[FRL-5292-1]
RIN 2050-AD67
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Underground Storage Tanks--Lender Liability
AGENCY: Environmental Protection Agency.
ACTION: Final rule.
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SUMMARY: The Environmental Protection Agency (EPA) is issuing this rule
under the Resource Conservation and Recovery Act (RCRA), Subtitle I--
Regulation of Underground Storage Tanks. This rule limits the
regulatory obligations of lending institutions and other persons who
hold a security interest in a petroleum underground storage tank (UST)
or in real estate containing a petroleum underground storage tank, or
that acquire title or deed to a petroleum UST or facility or property
on which an UST is located. This final rule specifies conditions under
which these ''security interest holders'' may be exempted from the RCRA
Subtitle I corrective action, technical, and financial responsibility
regulatory requirements that apply to an UST owner and operator. This
rule should result in additional capital availability for UST owners,
many of whom are small businesses, and will assist them in meeting
environmental requirements by improving their facilities.
EFFECTIVE DATE: This rule is effective December 6, 1995.
ADDRESSES: The official record for this rulemaking, Docket Number UST
3-18, is located in the UST Docket, room M2616 of the U.S.
Environmental Protection Agency, 401 M Street, SW., Washington, DC. The
docket is open from 9 a.m. to 4 p.m., Monday through Friday, excluding
Federal holidays. Docket materials, including a comprehensive document
containing EPA's response to comments received on the proposed rule,
may be reviewed by appointment by calling (202) 260-9720. Copies of
docket materials may be made at a cost of $0.15 per page. The mailing
address is U.S. Environmental Protection Agency, OUST Docket (5305),
401 M Street, SW., Washington, DC 20460. Please note that EPA is
planning to relocate the UST Docket to Arlington, VA during September
1995. You may call (202) 260-9720 for up-to-date information on access
to the docket.
FOR FURTHER INFORMATION CONTACT: For further information about this
rule, contact the RCRA/Superfund Hotline, U.S. Environmental Protection
Agency, Washington, DC. 20460, (800) 424-9346 (toll-free) or (703) 412-
9810 (local). For the hearing impaired, the number is (800) 553-7672
(toll-free), or (703) 412-3323 (local). For technical information on
this rule, contact John Heffelfinger in the EPA Office of Underground
Storage Tanks at (703) 308-8881.
SUPPLEMENTARY INFORMATION: The contents of today's preamble are listed
in the following outline:
I. Background
II. Description of the UST Regulatory Program
A. UST Technical Standards
1. Leak Prevention
2. Leak Detection
3. Release Reporting
4. Closure
5. Notification, Reporting, and Recordkeeping
B. Corrective Action Requirements
C. Financial Responsibility Requirements
D. State Program Approval Regulations
E. Scope of the UST Program
III. The UST Security Interest Exemption and Intent of Today's Rule
A. Overview
B. Legal Authority
C. Real Property Used as Collateral
D. Abandoned Tanks
E. Liability of a Holder as an Owner of an Underground Storage
Tank or Underground Storage Tank System
1. Petroleum Production, Refining, and Marketing
2. Indicia of Ownership
3. Primarily to Protect a Security Interest
4. ''Holder'' of Ownership Indicia
5. Participating in Management
F. Liability of a Holder as an Operator of an Underground
Storage Tank or Underground Storage Tank System
1. Pre-Foreclosure Operation
2. Post-Foreclosure Operation
3. Release Reporting Requirements Following Foreclosure
G. Financial Responsibility Requirements
H. State Implementation and State Program Approval
I. Holders' Access to State Funds
J. Outstanding Loans and Loans in Foreclosure Upon the Effective
Date of the Rule
IV. Issues Outside the Scope of this Rule
A. Petroleum Producers, Refiners, and Marketers
B. Third Party Liability
C. Trustee and Fiduciary Liability
D. Hazardous Substance Tanks
E. Hazardous Waste Tanks
F. Aboveground Storage Tanks and Heating Oil Tanks
V. Economic Analysis
VI. Regulatory Assessment Requirements
A. Executive Order 12866
B. Regulatory Flexibility Act
C. Paperwork Reduction Act
D. Unfunded Mandates Reform Act
I. Background
EPA is establishing regulatory criteria specifying which RCRA
Subtitle I requirements are applicable to a secured creditor. Section
9003(h)(9) of RCRA exempts from the definition of ''owner,'' for
purposes of Sec. 9003(h)--EPA Response Program for Petroleum, those
persons who, without participating in the management of the UST or UST
system, and who are not otherwise engaged in petroleum production,
refining, and marketing, maintain indicia of ownership in an UST or UST
system primarily to protect a security interest. Those most affected by
this ''security interest exemption'' include private lending
institutions or other persons that provide loans secured by real estate
containing an UST or UST system, or that acquire title to, or other
indicia of ownership in, a contaminated UST or UST system.\1\ However,
the security interest exemption is not limited solely to lending
institutions; it potentially applies to any person whose indicia of
ownership in an UST or UST system is maintained primarily to protect a
security interest.
\1\ Under the laws of some states, an interest in real property
may include an interest in USTs or UST systems located on that
property. See Sunnybrook Realty Co. Inc. v. State of New York,
Kesbec, Inc. v. State of New York, Claim Nos. 32844, 33125, 15 Misc.
2d 739; 182 N.Y.S. 2d 983. Of course, the loan documents may
specifically include or exclude USTs as collateral securing the
obligation.
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The RCRA Subtitle I security interest exemption affects not only
secured creditors but also UST and UST system owners who seek capital
through the private lending market. Today's rule provides a regulatory
exemption from the federal UST regulatory requirements for those
persons who provide secured financing to UST and UST system owners. EPA
expects this rule, in conjunction with the statutory exemption in
Sec. 9003(h)(9), to encourage the extension of credit to credit-worthy
UST owners. Until now, EPA believes that concerns over environmental
liability have made a significant number of lenders reluctant to make
loans to otherwise credit-worthy owners and operators of USTs. The free
flow of credit to UST owners (many of whom are small entities that may
rely on secured financing mechanisms for capital) is expected to assist
UST owners in meeting their obligations to upgrade, maintain, or
otherwise comply with RCRA Subtitle I and other environmental
requirements. Conversely, the lack of such capital may adversely affect
the ability of an UST owner to meet its obligations under Subtitle I,
with concomitant adverse environmental impacts from USTs and
[[Page 46693]]
UST systems that are out of compliance due to the lack of financing to
make the necessary improvements.
The Agency is also concerned that if otherwise credit-worthy UST
owners and operators are unable to obtain financing to perform leak
detection tests, or to upgrade or replace deficient tanks, the market
for UST equipment could be adversely affected, thereby limiting the
availability and/or affecting the cost of such equipment. In addition,
a lack of adequate capital could produce a ripple effect which would
cut across other portions of the UST-related industrial sector for
equipment and services. For example, based on letters received from UST
equipment manufacturers, EPA believes that this sector has suffered as
a direct result of the capital squeeze on UST owners and operators. The
Agency is further concerned that many UST equipment manufacturers may
find it increasingly difficult to sustain their production of UST
equipment. Unnecessary constrictions on the free flow of capital for
UST improvements to meet regulatory requirements could force companies
to abandon their production of UST equipment or to close altogether,
and it may have adverse impacts on the environment by inhibiting future
investment in or development of new UST technological innovations.
The preamble to this rule is structured as follows: The following
section briefly describes the UST program. This section is followed by
a discussion of the rule, which includes a description of the various
options lenders may exercise both pre- and post-foreclosure with
respect to regulatory compliance for a secured UST or UST system. The
rule concludes with regulatory text.
II. Description of the UST Regulatory Program
Based on the Agency's study of the banking community's lending
practices and discussions with representatives of both lenders and
borrowers, EPA believes that the lending community in general is not
particularly familiar with the UST statutory scheme and regulatory
program. Because USTs and UST systems are likely to be used as
collateral in securing loans to borrowers, the Agency believes that it
is appropriate and useful to briefly describe the UST program in the
preamble of this rule. The following discussion is general in nature
and is intended to provide a framework for lenders or others to better
understand the scope and intent of the program; it is not intended to
be a substitute for the regulations themselves.
Under the Hazardous and Solid Waste Amendments of 1984, Congress
responded to the increasing threat to groundwater posed by leaking
underground storage tanks by adding Subtitle I to the Resource
Conservation and Recovery Act. Subtitle I required EPA to develop a
comprehensive regulatory program for USTs storing petroleum or
hazardous substances. Congress directed the Agency to publish
regulations that would require owners and operators of new tanks and
tanks already in the ground to prevent and detect leaks, cleanup leaks,
and demonstrate that they are financially capable of cleaning up leaks
and compensating third parties for resulting damages.
EPA's UST regulations, 40 CFR Parts 280 and 281, apply to any
person who owns or operates an UST or UST system. The term ''owner'' is
defined in the statute generally to mean any person who owns an UST
used for the storage, use, or dispensing of substances regulated under
Subtitle I of RCRA (which includes both petroleum and hazardous
substances) (Sec. 9001(3), 42 USC 6991(3)). Owners are responsible for
complying with the ''technical requirements,'' ''financial
responsibility requirements,'' and ''corrective action requirements''
specified in the statute and regulations. These requirements are
intended to ensure that USTs are managed and maintained safely, so that
they will not leak or otherwise cause harm to human health and the
environment. In addition, should a leak occur, the requirements provide
that the owner is responsible for addressing the problem. These same
requirements apply to any person who ''operates'' an UST system. The
term ''operator'' is very broad and means ''any person in control of,
or having responsibility for, the daily operation of the underground
storage tank'' (Sec. 9001(4), 42 USC 6991(4)). As with owners, there
may be more than one operator of a tank at a given time. Each owner and
operator has obligations under the statute and regulations. In this
respect, it is important to understand that a person may have
obligations under Subtitle I either as an owner or as an operator, or
both.
The following subsections describe briefly each of the major
components of the UST regulatory program applicable to persons who own
or operate USTs and UST systems.
A. UST Technical Standards
The technical standards of 40 CFR Part 280 referred to here
include: Subpart B--UST systems: Design, Construction, Installation,
and Notification (including performance standards for new UST systems,
upgrading of existing UST systems, and notification requirements);
Subpart C--General Operating Requirements (including spill and overfill
control, corrosion protection, reporting and recordkeeping); Subpart
D--Release Detection; Sec. 280.50 (reporting of suspected releases) of
Subpart E--Release Reporting, Investigation, and Confirmation; and
Subpart G--Out of Service UST Systems (including temporary and
permanent closure). These regulations impose obligations upon UST
owners and operators, separate from the Subtitle I corrective action
requirements discussed in Section II. B of this preamble.
1. Leak Prevention
Before EPA regulations were issued, most tanks were constructed of
bare steel and were not equipped with release prevention or detection
features. 40 CFR Sec. 280.21 requires UST owners and operators to
ensure that their tanks are protected against corrosion and equipped
with devices that prevent spills and overfills no later than December
22, 1998. Tanks installed before December 22, 1988 must be replaced or
upgraded by fitting them with corrosion protection and spill and
overfill prevention devices to bring them up to new-tank standards.
USTs installed after December 22, 1988 must be fiberglass-reinforced
plastic, corrosion-protected steel, a composite of these materials, or
determined by the implementing agency to be no less protective of human
health and the environment, and must be designed, constructed, and
installed in accordance with a code of practice developed by a
nationally recognized association or independent testing laboratory.
Piping installed after December 22, 1988 generally must be protected
against corrosion in accordance with a national code of practice. All
owners and operators must also ensure that releases due to spilling or
overfilling do not occur during product transfer and that all steel
systems with corrosion protection are maintained, inspected, and tested
in accordance with Sec. 280.31.
2. Leak Detection
In addition to meeting the leak prevention requirements, owners and
operators of USTs must use a method listed in Secs. 280.43 through
280.44 for detecting leaks from portions of both tanks and piping that
routinely contain product. Deadlines for compliance with the leak
detection requirements have been phased in based on the tank's age: The
oldest tanks, which are most likely
[[Page 46694]]
to leak, had the earliest compliance deadlines. Phase-in of the leak
detection requirements was completed in 1993, and all UST systems
should now be in compliance with these requirements.
3. Release Reporting
UST owners and operators must, in accordance with Sec. 280.50,
report to the implementing agency within 24 hours, or another
reasonable time period specified by the implementing agency, the
discovery of any released regulated UST substances, or any suspected
release. Unusual operating conditions or monitoring results indicating
a release must also be reported to the implementing agency.
4. Closure
Owners or operators who would like to take tanks out of operation
must either temporarily or permanently close them in accordance with 40
CFR part 280 subpart G--Out-of-Service UST Systems and Closure. When
UST systems are temporarily closed, owners and operators must continue
operation and maintenance of corrosion protection and, unless all USTs
have been emptied, release detection. If temporarily closed for three
months or more, the UST system's vent lines must be left open and
functioning, and all other lines, pumps, manways, and ancillary
equipment must be capped and secured. After 12 months, tanks that do
not meet either the performance standards for new UST systems or the
upgrading requirements (excluding spill and overfill device
requirements) must be permanently closed, unless a site assessment is
performed by the owner or operator and an extension is obtained from
the implementing agency. To close a tank permanently, an owner or
operator generally must: Notify the regulatory authority 30 days before
closing (or another reasonable time period determined by the
implementing agency); determine if the tank has leaked and, if so, take
appropriate notification and corrective action; empty and clean the
UST; and either remove the UST from the ground or leave it in the
ground filled with an inert, solid material.
5. Notification, Reporting, and Recordkeeping
UST owners who bring an UST system into use after May 8, 1986 must
notify state or local authorities of the existence of the UST and
certify compliance with certain technical and other requirements, as
specified in Sec. 280.22. Owners and operators must also notify the
implementing agency at least 30 days (or another reasonable time period
determined by the implementing agency) prior to the permanent closure
of an UST. In addition, owners and operators must keep records of
testing results for the cathodic protection system, if one is used;
leak detection performance and upkeep; repairs; and site assessment
results at permanent closure (which must be kept for at least three
years).
B. Corrective Action Requirements
Owners and operators of UST systems containing petroleum or
hazardous substances must investigate, confirm, and respond to
confirmed releases, as specified in Secs. 280.51 through 280.67. These
requirements include, where appropriate: Performing a release
investigation when a release is suspected or to determine if the UST
system is the source of an off-site impact (investigation and
confirmation steps include conducting tests to determine if a leak
exists in the UST or UST system and conducting a site check if tests
indicate that a leak does not exist but contamination is present);
notifying the appropriate agencies of the release within a specified
period of time; taking immediate action to prevent any further release
(such as removing product from the UST system); containing and
immediately cleaning up spills or overfills; monitoring and preventing
the spread of contamination into the soil and/or groundwater;
assembling detailed information about the site and the nature of the
release; removing free product to the maximum extent practicable;
investigating soil and groundwater contamination; and, in some cases,
outlining and implementing a detailed corrective action plan for
remediation.
C. Financial Responsibility Requirements
The financial responsibility regulations (40 CFR part 280 subpart
H) require that UST owners or operators demonstrate the ability to pay
the costs of corrective action and to compensate third parties for
injuries or damages resulting from the release of petroleum from USTs.
The regulations require all owners or operators of petroleum USTs to
maintain an annual aggregate of financial assurance of $1 million or $2
million, depending on the number of USTs owned. Financial assurance
options available to owners and operators include: Purchasing
commercial environmental impairment liability insurance; demonstrating
self-insurance; obtaining guarantees, surety bonds, or letters of
credit; placing the required amount into a trust fund administered by a
third party; or relying on coverage provided by a state assurance fund.
D. State Program Approval Regulations
Subtitle I of RCRA allows state UST programs approved by EPA to
operate in lieu of the federal program. EPA's state program approval
regulations under 40 CFR Part 281 set standards for state programs to
meet.
E. Scope of the UST Program
This rule applies only to petroleum underground storage tanks that
are subject to Subtitle I of RCRA. There are certain types or classes
of tanks that are excluded from Subtitle I of RCRA. Therefore, the
provisions of this rule do not apply to holders of security interests
in excluded tanks. Among those tanks specifically excluded by statute
are: Farm and residential tanks of 1,100 gallons or less capacity used
for storing motor fuel for noncommercial purposes; tanks used for
storing heating oil for consumptive use on the premises where stored;
tanks stored on or above the floor of underground areas (such as
basements or tunnels); septic tanks; systems for collecting stormwater
or wastewater; and flow-through process tanks (42 U.S.C. Sec. 6991(1)).
III. The UST Security Interest Exemption and Intent of Today's Rule
A. Overview
Today's regulation addresses the requirements of Subtitle I that
are applicable to a person who holds a security interest in a petroleum
UST or UST system, or in a facility or property on which a petroleum
UST or UST system is located, from the time that the person extends the
credit up through and including foreclosure and re-sale. A holder of a
security interest who satisfies the conditions in this rule will not be
considered either an ''owner'' or an ''operator'' of an underground
storage tank for purposes of compliance with Subtitle I regulatory
requirements.
The security interest exemption under Subtitle I, Sec. 9003(h)(9)
of RCRA, 42 U.S.C. Sec. 6991b(h)(9), on which this rule is based,
provides:
As used in this subsection, the term ''owner'' does not include
any person who, without participating in the management of an
underground storage tank and otherwise not engaged in petroleum
production, refining, and marketing, holds indicia of ownership
primarily to protect the owner's security interest in the tank.
While limited legislative history exists concerning the RCRA
Subtitle I security interest exemption, EPA believes this provision is
intended to provide protection from liability for a
[[Page 46695]]
person whose only connection with a tank is as the holder of a security
interest; i.e., a bank or other creditor who has made a loan to a
borrower (commonly the tank's owner) and who has in return secured the
loan by taking a security interest in the tank or in the property on
which the tank is located. No guidance or other indication is available
concerning the types of activities that Congress considered to be
consistent with the Subtitle I security interest exemption, or about
the types of activities that Congress considered to be impermissible
participation in an UST or UST system's management.
The statutory exemption explicitly addresses liability for
corrective action at petroleum UST-contaminated sites. Other portions
of the statute and regulations applicable to an ''owner'' of a tank
include 40 CFR part 280 subparts B, C, D, E (Sec. 280.50 only), and G
(hereafter referred to as the ''UST technical standards'' for purposes
of this rule), and Subpart H--Financial Responsibility. The statute is
silent with respect to a holder's liability for these other
requirements solely as a consequence of having ownership rights in a
tank primarily to protect a security interest. The Agency does not
believe that these limited ownership rights rise to the level of full
''ownership'' sufficient to make the holder an ''owner'' of the tank,
as that term is used in Sec. 9001(3) of RCRA Subtitle I. Therefore, EPA
is providing, under its broad rulemaking authority in Sec. 9003, that a
holder who meets the criteria specified in this rule (i.e., whose only
connection with the tank is as the bona fide holder of a security
interest in a petroleum UST or UST system or in a facility or property
on which a petroleum UST or UST system is located) is not subject to
the UST technical standards, corrective action, and financial
responsibility requirements otherwise applicable to a tank owner. EPA
believes that this is both appropriate under the Agency's rulemaking
authority and consistent with Congressional intent in providing the
Sec. 9003(h)(9) exemption for those persons who provide only financing
to owners of a tank. Accordingly, a qualifying holder will not be
required to comply with the full panoply of EPA regulations
implementing Subtitle I that apply to tank owners prior to or following
foreclosure, provided that the requirements of today's rule are
satisfied.
With respect to a holder's potential to be an ''operator'' of a
tank prior to foreclosure, consistent with the provisions of this rule,
the holder typically will not be involved in the day-to-day operations
of the tank, and will therefore not incur liability as an ''operator.''
2 By foreclosing, however, the holder takes affirmative action
with respect to the tank and displaces the borrower; therefore, by
necessity, the holder has taken ''control of * * * [and] responsibility
for * * *'' the tank, and therefore could be considered a tank operator
under the definition at 42 USC 6991(4). However, under today's rule, a
foreclosing holder can avoid regulation as an UST ''operator'' in
certain circumstances. In general, a holder will not be considered an
UST ''operator'' if petroleum is not added to, stored in, or dispensed
from the UST. In order to satisfy this condition, this rule allows a
holder to empty the UST within a certain period of time after
foreclosure, and undertake specified minimally burdensome and
environmentally protective actions to secure and protect the UST or UST
system. On the other hand, a holder who operates a tank by, for
example, storing or dispensing petroleum following foreclosure will be
subject to the full range of requirements applicable to any person
operating a tank (including corrective action requirements).
\2\ Of course, a lender which has control of or responsibility
for the daily operation of a tank would be an ''operator'' under
Sec. 9001(4), and therefore subject to all requirements applicable
to an operator of a tank, including corrective action. Similarly,
such acts may also constitute ''participation in the management'' of
the tank, which would void the Sec. 9003(h)(9) exemption and
obligate the lender to comply with these same technical, financial,
and corrective action requirements as an owner.
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In developing today's rule, EPA examined the potential obligations
under Subtitle I of government entities that act as conservators or
receivers of assets acquired from failed lending and depository
institutions, such as the Federal Deposit Insurance Corporation (FDIC)
and Resolution Trust Corporation (RTC). Where a government entity or
its designee is acting as a conservator or receiver, EPA interprets the
security interest exemption RCRA Subtitle I section 9003(h)(9) to
preclude the imposition of the insolvent estate's liabilities against
the government entity acting as the conservator or receiver, and
considers the liabilities of the institution being administered to be
limited to the institution's assets. The situation of a conservator or
receiver of a failed or insolvent lending institution is analogous to
that of a trustee (particularly a trustee in bankruptcy) that is
administering an insolvent's estate and, in accordance with those
principles, the insolvent's liabilities generally are to be satisfied
from the estate being administered and not from the assets of the
conservator or receiver. Therefore, satisfaction of an estate's debts
or liabilities would not reach the general assets of the FDIC, the RTC,
those of any other government entity acting in a similar capacity, or
those of a private person acting on behalf of the conservator or
receiver. (The broader issue of trustee and fiduciary liability is
discussed in section IV.C. of this preamble.)
B. Legal Authority
EPA is promulgating today's rule to close a gap in the Subtitle I
security interest exemption that must be addressed in order to provide
holders with certainty regarding their responsibility for UST
regulatory compliance. While the statutory exemption explicitly applies
to holders who become owners of underground storage tanks, the
exemption does not address holders in the capacity of an UST operator.
The Agency believes that without promulgating a rule under EPA's broad
grant of rulemaking authority applying the protection found in the
statutory security interest exemption to holders as operators as well
as owners, the statutory exemption may be rendered virtually
meaningless, since an owner of an UST is also typically an UST
operator. EPA does not believe that Congress, in creating section
9003(h)(9), intended for an otherwise exempt holder of a security
interest to nonetheless fall subject to UST regulatory obligations as
an operator. As such, EPA's exercise of its rulemaking authority in
this rule is appropriate and, perhaps, needed to fully effectuate the
purpose of the statute.
In the proposed rule, EPA cited the legal authority that provides
the basis for development of the UST lender liability rule--section
9003(b), 42 U.S.C. 6991b(b) of RCRA Subtitle I, and briefly explained
the difference between the statutory authority supplied under the
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) for the vacated Superfund lender liability rule and the
authority supplied under RCRA Subtitle I for an UST lender liability
rule. While several commenters stated their belief that EPA has
sufficient authority under RCRA to promulgate a regulation regarding
UST lender liability, some commenters also expressed concern that the
rule would be challenged in light of the outcome of litigation on the
CERCLA lender liability rule.\3\
\3\ On Feb. 4, 1994, the U.S. Court of Appeals for the D.C.
Circuit vacated EPA's 1992 rule on lender liability under CERCLA in
Kelley, et al. v. EPA, No. 93-1312. The CERCLA rule interpreted a
statutory exemption under CERCLA that is similar to that under RCRA
Subtitle I. The Court held that ''EPA lack[ed] statutory authority
to restrict by regulation private rights of action arising under the
statute * * *'' Kelley, slip op. at 3. Whereas CERCLA contains a
provision regarding private rights of action, there is no explicit
provision for private rights of action contained in RCRA Subtitle I.
Furthermore, Sec. 9003 of Subtitle I expressly confers EPA a broad
rulemaking authority; to the extent that the grants of rulemaking
authority were not sufficiently explicit under CERCLA, such is not
the case under RCRA Subtitle I.
[[Page 46696]]
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EPA believes that the authority granted in section 9003 of Subtitle
I clearly provides the Agency with broad rulemaking authority, as well
as explicit rulemaking authority to, in its discretion, exempt certain
classes of owners and operators (i.e., holders of security interests as
described in this rule) from the UST technical standards, corrective
action requirements, and financial responsibility requirements. Section
9003 expressly directs the Agency to ''promulgate release detection,
prevention, and correction regulations applicable to all owners and
operators of underground storage tanks, as may be necessary to protect
human health and the environment.'' Section 9003(b) permits the Agency,
in promulgating regulations under Subtitle I, to make distinctions in
its UST regulations between types or classes of tanks, based upon,
inter alia, ''the technical capability of the owners and operators.''
Because security interest holders are typically not as a general matter
engaged in the operation and maintenance of USTs (and thus do not
possess the technical capacity of most UST owners and operators), EPA
does not believe that requiring them to comply with highly detailed
technical requirements is appropriate where requiring them to do so is
not necessary for protection of human health and the environment.
Furthermore, the Agency believes an exemption from these regulatory
requirements is appropriate in the context of this rule, where an
exemption will serve, albeit indirectly, to advance the goals of
Subtitle I by making credit more available and thus aiding in the
implementation of tank upgrading and replacement requirements.
However, this authority is not open-ended, as section 9003(a)
requires EPA to promulgate regulations that are protective of human
health and the environment. Without compromising the level of
protectiveness established by the UST program, EPA previously relied on
its section 9003(b) authority when it excluded a group of owners and
operators from RCRA Subtitle I requirements in the final Financial
Responsibility Rule (53 FR 43322, Oct. 26, 1988). (In relevant part,
the preamble to the final Financial Responsibility Rule states: ''The
Agency does not interpret the Congressional intent of Subtitle I to
preclude exempting any class of USTs from otherwise applicable
requirements when the Agency has determined that such requirements are
not necessary to protect human health or the environment.'') That rule
exempted states and the federal government from the UST financial
responsibility requirements since those entities were, as a class, able
to satisfy the purpose of the financial responsibility requirements in
the absence of regulation.
Similarly, for purposes of this rule, EPA believes that it is
reasonable, in light of the purposes behind this rule, to exempt a
holder from RCRA Subtitle I technical standards, corrective action
requirements, and financial responsibility requirements as an operator
if its USTs are empty and secure (as explained later in today's rule)
or if the holder chooses to also engage in environmentally beneficial
activities (as discussed later in this preamble). Because of the
eligibility conditions a holder must meet before enjoying this
regulatory exemption, EPA's UST regulations will satisfy the statutory
requirement that they be protective of human health and the
environment.
C. Real Property Used as Collateral
A number of commenters pointed out that the proposed rule conveys
the impression that under common commercial practice a security
interest holder typically holds an UST or UST system as collateral for
a loan obligation. These commenters went on to state that such an
impression is incorrect. They maintained that in a typical lending
relationship, the lender holds a security interest not in the UST or
UST system, but rather in the real property on which the UST or UST
system is located.
EPA recognizes that borrowers generally pledge real property as
collateral rather than tanks, which are considered fixtures of real
property under many state laws. While the Agency failed to refer to
real property in its definition of the term, ''holder,'' it
specifically defined ''security interest'' as meaning ''an interest in
a petroleum UST or UST system or in the facility or property on which
the UST or UST system is located, created or established for the
purpose of securing a loan or other obligation.'' EPA acknowledges that
the phrase, ''UST or UST system or facility or property on which the
UST or UST system is located,'' was not used consistently throughout
the proposed rule. This was due in part to the way in which Subtitle
I's requirements are structured--UST compliance responsibility rests
with the owner or operator of the UST or UST system, not the property
on which the UST or UST system is located. Therefore, when describing a
holder's liability as an owner or operator under Subtitle I
requirements, EPA is obliged to address that liability in terms of how
it relates to the ownership or operation of the UST or UST system.
Nevertheless, in order to maintain consistency with commercial practice
and to clarify that the exemption applies to a holder's collateral in
the real estate containing an UST, as well as to the UST itself, the
Agency has applied the use of the term, ''UST or UST system or facility
or property on which the UST or UST system is located,'' throughout
today's final rule, whenever appropriate.
D. Abandoned Tanks
A few commenters expressed concern about the effect that the rule
would have upon the number of contaminated sites for which there might
be no identifiable or financially capable liable party, which might
increase the number of abandoned tanks that would have to be cleaned up
with public funding. There are a number of reasons why EPA does not
expect the rule to increase the number of abandoned tanks.
First, this regulation is intended to provide clarity and meaning
to the existing federal statutory security interest exemption. The rule
does not decrease the universe of regulated tanks from those currently
regulated under Subtitle I. Further, the rule does not affect the legal
obligations to comply with applicable Subtitle I requirements of a
previous owner or operator who abandons a tank. Such previous UST
owners and operators can be held liable for regulatory compliance or
cost recovery under the Leaking Underground Storage Tank Trust Fund.
Financial condition does not affect the liability of a tank owner or
operator under Subtitle I.
Second, the rule is expected to help UST owners and operators
acquire capital to keep their businesses healthy and in compliance with
environmental requirements, and in the process, reduce the number of
abandoned tanks and potential petroleum releases. Furthermore, the
Agency believes that by expanding capital availability, this rule will
encourage early compliance with the upcoming 1998 Subtitle I
requirement regarding tank upgrading or
[[Page 46697]]
replacement. UST owners who acquire capital to upgrade or replace old,
corroded tanks earlier than 1998 greatly contribute to preventing
further petroleum contamination.
While contemplating the effect this rule might have upon the number
of abandoned tanks, the Agency also recognized that many holders
currently abandon UST properties they hold as collateral rather than
foreclosing on them and risking potential liability for cleanup costs.
EPA believes that this rule will actually improve protection of human
health and the environment by providing an incentive to holders who are
interested in taking advantage of this regulatory exemption to empty
any tanks they acquire through foreclosure, thus preventing future
releases. As a result of the rule's increasing the number of holders
who take advantage of the security interest exemption and subsequently
extend more UST-related loans, EPA expects there to be fewer abandoned
or so-called orphan tanks and fewer releases that might otherwise occur
due to the lack of capital available for tank upgrading and
replacement.
E. Liability of a Holder as an Owner of an Underground Storage Tank or
Underground Storage Tank System
The following sections describe the key terms used in this rule.
For the most part, these are also terms used in the Sec. 9003(h)(9)
security interest exemption. This section specifies the activities that
are not ''participating in the management'' of a tank and which a
holder may under today's rule, engage in consistent with Subtitle I
regulatory requirements.
1. Petroleum Production, Refining, and Marketing
''Production of petroleum'' includes, but is not limited to,
activities involved in the production of crude oil or other forms of
petroleum, as well as the production of petroleum products from
purchased materials, either domestically or abroad. ''Refining''
includes the processes of cracking, distillation, separation,
conversion, upgrading, and finishing of refined petroleum or petroleum
products. ''Marketing'' includes the distribution, transfer, or sale of
petroleum or petroleum products for wholesale or retail purposes. A
holder who stores petroleum products in USTs for on-site consumption
only, such as to provide heat to an office building or to refuel its
own vehicles, is not considered to be engaged in petroleum production,
refining, or marketing for the purposes of the UST regulatory program.
2. Indicia of Ownership
For purposes of this rule, ''indicia of ownership'' means ownership
or evidence of an ownership interest in a petroleum UST or UST system,
or in a facility or property on which a petroleum UST or UST system is
located. This definition is not intended to limit or qualify type,
quality, or quantity of ownership indicia that may be held by a person
for the purpose of the regulatory exemption. The nature of the
ownership interest may vary according to the type of secured
transaction and the nature of the holder's relationship (such as that
of a guarantor or surety). Accordingly, indicia of ownership may be
evidence of any ownership interest or right to an UST or UST system,
such as a security interest, an interest in a security interest, or any
other interest in an UST or UST system. For purposes of this rule,
examples of such indicia include, but are not limited to, a mortgage,
deed of trust, or legal or equitable title obtained pursuant to
foreclosure or its equivalents, a surety bond, guarantee of an
obligation, or an assignment, lien, pledge, or other right to or form
of encumbrance against a petroleum UST or UST system, or a facility or
property on which a petroleum UST or UST system is located.
Accordingly, it is not necessary for a person to hold actual title or a
security interest in order to maintain some indicia or evidence of
ownership in an UST or UST system.
3. Primarily To Protect a Security Interest
The term, ''primarily to protect a security interest'' as used in
this regulation, means a holder's indicia of ownership are held
primarily for the purpose of securing payment or performance of an
obligation. EPA intends this phrase to require that the ownership
interest be maintained primarily for the purpose of, or primarily in
connection with, securing payment or performance of a loan or other
obligation (a security interest), and not an interest in the UST or UST
system or facility or property on which the UST or UST system is
located held for some other reason.
A security interest may arise pursuant to a variety of statutory or
common law financing transactions. While a security interest is
ordinarily created by mutual consent, such as a secured transaction
within the scope of Article 9 of the Uniform Commercial Code, there are
other means by which a security interest may be created, some of which
may or may not be the result of a consensual arrangement between the
parties to the transaction. In general, a transaction that gives rise
to a security interest within the ambit of this rule is one that
provides the holder with recourse against the UST or UST system or
facility or property on which the UST or UST system is located; the
purpose of the interest is to secure the repayment of money, the
performance of a duty, or of some other obligation. See generally J.
White & R. Summers, Handbook on the Uniform Commercial Code Sec. 22 (2d
Ed. 1980); Restatement of Security (1941).
As a matter of general law, security interests may arise from
transactions in which an interest in an UST or UST system is created or
established for the purpose of securing a loan or other obligation, and
includes mortgages, deeds of trust, liens, and title held pursuant to
lease financing transactions. Security interests may also arise from
transactions such as sale-and-leasebacks, conditional sales,
installment sales, trust receipt transactions, certain assignments,
factoring agreements or accounts receivable financing agreements,
consignments, among others, provided that the transaction creates or
establishes an interest in an UST or UST system for the purpose of
securing a loan or other obligation.
Some commenters were confused by and requested clarification of the
term ''lease financing transaction in which the lessor does not select
initially the leased property,'' as used is the rule. A ''lease
financing transaction'' is a common financing transaction for equipment
and other types of personal property, and is treated under this rule as
a security interest. These are leases where the form of the transaction
provides for the lessor to acquire title to the property for and at the
discretion of the lessee. The lessor then recovers its loan (i.e., the
purchase price of the property) through rental payments from the lessee
and, in some cases, from the sale of the property to the lessee or a
third party at the end of the lease. Thus, the lessee is the borrower
and the lessor is the holder of a security interest in the property.
At the beginning of the lease financing transactions covered by
this rule, the lessor does not initially select the leased property.
Instead, this is done by the lessee or a third party. Further, during
the initial lease or any re-lease, the lessor does not control the
daily operation and maintenance of the property. The primary reason the
lessor holds indicia of ownership in the property is to protect its
security interest in the event that the debtor/lessee fails to pay off
its obligation to
[[Page 46698]]
the lessor. If a debtor/lessee defaults, a lessor may acquire the
property through a variety of mechanisms, and is still considered to
hold indicia of ownership under this rule provided that it complies
with the other provisions of this rule.
In contrast to the preceding discussions, ''indicia of ownership''
held ''primarily to protect [a] security interest'' do not include
evidence of interests in the nature of an investment in the UST or UST
system or in the facility or property on which the UST or UST system is
located, or an ownership interest held primarily for any reason other
than as protection for a security interest. The person holding
ownership indicia to protect a security interest may have additional,
secondary reasons for maintaining the indicia in addition to protecting
a security interest; maintaining indicia for reasons in addition to
protecting a security interest may be consistent with the exemption and
this rule. However, any such additional reasons must be secondary to
protecting a security interest in the secured UST or UST system or in
the facility or property on which the UST system is located. EPA
recognizes that lending institutions have revenue interests in the loan
transactions that create security interests; such revenue interests are
not considered to be investment interests, but are considered secured
transactions falling within the security interest regulatory exemption.
4. ''Holder'' of Ownership Indicia
A ''holder'' as used in this regulation is a person who maintains
ownership indicia primarily to protect a security interest, however
acquired or held. The term ''holder'' includes the initial holder (such
as the loan originator) and any subsequent holder, such as a successor-
in-interest, subsequent purchaser on the secondary market, loan
guarantor, surety, or other person who maintains indicia of ownership
primarily to protect a security interest. The term also includes any
person acting on behalf of or for the benefit of the holder, such as a
court-appointed receiver or a holder's agent, employee, or
representative.
Finally, it should be noted that lending institutions, which
typically hold a large number of security interests, may also act in
some trustee, fiduciary, or other capacity with respect to an UST or
UST system. However, this rule does not address circumstances in which
a lending institution or any person acts as a trustee, or in a non-
lending capacity, or has any interest in an UST or UST system other
than as provided in this rule. Because this regulation, as well as the
exemption in Sec. 9003(h)(9), addresses only persons who maintain a
''security interest,'' any discussion of persons with other interests
or involvement in an UST or UST system is beyond the scope of this
rule. Of course, a trustee or other fiduciary, or any other person who
holds indicia of ownership in the UST or UST system primarily to
protect a security interest, may fall within this security interest
regulatory exemption.
5. Participating in Management
As used in this rule, ''participation in management'' means actual
involvement in the management or control of decisionmaking related to
the operational aspects or day-to-day operations of an UST or UST
system by the holder. Participation in management does not include the
mere capacity or unexercised right or ability to influence the
operational aspects or day-to-day operations of an UST or UST system or
facility or property on which an UST or UST system is located. For
purposes of this rule, actual involvement in the operational aspects or
day-to-day operation of the UST or UST system means use of the UST to
contain petroleum, and includes the storage, filling, or dispensing of
petroleum contained in an UST or UST system. For purposes of this rule,
a holder performing the functions of a plant manager, operations
manager, chief operating officer, chief executive officer, and the
like, of the facility or business at which the UST is located is
considered to be exercising management control or decisionmaking
authority over the operational aspects of the UST or UST system and
therefore, participating in management, unless the responsibilities for
the position specifically exclude all UST operational responsibilities.
Control over the operational aspects of management should not be
confused, however, with those activities which constitute
administrative or financial management, or involvement in environmental
compliance activities or activities taken to protect human health and
the environment. Involvement in administrative, financial management,
or environmental compliance activities does not, by itself, constitute
participation in management under this rule.
The proposed rule included a two-pronged general test of management
participation that attempted to distinguish between the scope of
general activities acceptable for a holder to undertake, and those
activities that could be carved out purely as operational activities
rather than other activities related to UST or UST system
responsibilities. However, the Agency received a number of comments on
the proposed rule indicating that the general test merely added
confusion in determining whether or not a holder was engaging in
management participation. Consequently, the general test has been
omitted in this final rule. Instead, the Agency has concluded that
management participation is best defined as actual involvement in the
management or control of decisionmaking related to the operational
aspects or day-to-day operations of the UST or UST system, and not the
financial, administrative or environmental compliance aspects of the
UST or UST system or facility or property on which the UST or UST
system is located.
The following sections discuss and describe the specific activities
of a holder that the rule defines as not being instances of
participation in management by a person holding indicia of ownership
primarily to protect a security interest in the UST or UST system or
facility or property on which an UST or UST system is located.
Therefore, conduct of these activities will not, by itself, void the
exemption for holders of security interests provided under this rule.
It bears repeating, however, that the activities identified in this
rule do not specify the only activities that may be undertaken by a
holder without losing the protection of this security interest
regulatory exemption, and one should not infer that activities not
specifically mentioned in this rule are automatically considered
evidence of participation in management--those must be addressed on a
case-by-case basis, generally determined by whether or not the holder
is involved in the management or control of decisionmaking related to
the operational aspects or day-to-day operations of an UST or UST
system.
a. Actions that are not participation in management. Participation
in the following activities will not exclusively, in themselves, exceed
the bounds of this regulatory exemption: Policing the loan; undertaking
financial work out with a borrower where the obligation is in default
or in threat of default; undertaking foreclosing and winding up
operations (as described later in this preamble); or preparing for sale
or liquidation of the UST or UST system or facility or property on
which the UST or UST system is located. In addition, the holder is not
considered to be participating in the management of the UST or UST
system or facility or property on which the UST or UST system is
located, by monitoring the
[[Page 46699]]
borrower's business; by requiring or conducting environmental
compliance activities related to the UST technical standards or other
federal, state or local environmental laws and regulations; by
requiring or conducting on-site investigations, including site
assessments, inspections, and audits, of the environmental condition of
the UST or UST system or facility or property on which the UST or UST
system is located or of the borrower's financial condition; by
requiring or conducting UST or UST system corrective action in
compliance with 40 CFR part 280 subpart F or applicable state
requirements in those states which have been delegated authority by EPA
to administer the UST program; by monitoring other aspects of the UST
or UST system considered relevant or necessary by the holder; by
requiring certification of financial information or compliance with
applicable duties, laws, or regulations, or by requiring other similar
actions. Such oversight and obligations of compliance imposed by the
holder are not considered part of the management of an UST or UST
system or facility or property on which the UST or UST system is
located. Although such oversight and obligations may inform and perhaps
strongly influence the borrower's management of an UST or UST system,
the holder is not considered to be participating in management where
the borrower continues to be in control of the day-to-day operations of
the UST or UST system.
The following sections describe in more detail two areas of special
interest to those who commented on the proposed rule regarding actions
in which holders may engage without jeopardizing their security
interest exemption.
(1) Administrative and Financial Management. Administrative and
financial management activities may be engaged in by a holder in the
course of managing a loan portfolio and do not exceed the boundaries of
the security interest exemption. Such activities may include providing
financial or other assistance, environmental investigations or
monitoring of the borrower's business and collateral, engaging in
''loan work out'' activities, foreclosing on a secured UST or UST
system or facility or property on which an UST or UST system is
located, winding down operations following foreclosure, or divesting
itself of the foreclosed-on property containing an UST or UST system.
(2) Actions Taken to Protect Human Health and the Environment. In
the proposed rule, EPA included a separate discussion of voluntary
environmental activities undertaken by a holder to protect human health
and the environment. A number of commenters stated that this discussion
conflicted in part with the discussion entitled ''Participating in
Management,'' thereby creating uncertainty regarding a holder's ability
to conduct or to require a borrower to conduct site investigation and
remediation activities, as well as leak prevention and leak detection
activities. The ''Participating in Management'' section of the
proposal's preamble contained information that simultaneously stated
that environmental compliance activities would be considered evidence
of participation in UST or UST system management, while describing
several environmental compliance activities for which a lender could
engage in without being considered to be participating in UST or UST
system management. The Agency also stated in the proposal's preamble
that lender actions which protect human health and the environment are
appropriate to include within the scope of protected UST or UST system
activities because of the special position and role played by holders
in the Subtitle I program, and recognized by Congress in the UST
security interest statutory exemption. Several commenters stated the
importance of allowing security interest holders to undertake UST
remediation to ensure that they can sell UST properties they acquire
through foreclosure without jeopardizing protection from Subtitle I
liability. Commenters stated that without such protection, many holders
will remain reluctant to extend loans to UST owners and operators,
undermining the intent of the statutory exemption. Several of these
commenters asserted the advantage of allowing holders to take the lead
in remediating contaminated sites, rather than waiting on state
agencies with limited resources to conduct such cleanups. By directly
undertaking such voluntary corrective actions, holders can more quickly
eliminate threats to public safety, health, and the environment.
Thus, in order to clarify EPA's original intent to allow holders to
voluntarily conduct site remediations as well as other environmentally
beneficial activities on properties on which they hold a security
interest, the Agency asserts that both environmental compliance
activities and activities that are undertaken voluntarily to protect
human health and the environment will not be considered evidence of
participation in the management of an UST or UST system or facility or
property on which an UST or UST system is located. A holder who
undertakes these actions must do so in compliance with the applicable
requirements in 40 CFR part 280 or applicable state requirements in
those states that have been delegated authority by EPA to administer
the UST program pursuant to 42 USC Sec. 6991c and 40 CFR part 281.
The following list provides examples of those activities that a
holder can engage in without exceeding the bounds of the UST security
interest exemption--these are examples only and do not represent all
allowable activities: release response and corrective action for UST
systems, environmental site investigations, tank upgrading and
replacement, leak detection, and maintenance of corrosion protection.
These activities are not required of a holder as a condition for
obtaining the security interest exemption as an UST ''owner''; holders
are allowed to participate in these activities without losing the
protection of the exemption. Other activities that are not considered
participation in management may be required of a holder as a condition
for obtaining the security interest exemption as an UST ''operator.''
These activities are discussed later in this preamble, and include:
tank emptying, capping and securing lines, permanent or temporary
closure of an UST or UST system, and release reporting.
b. Actions taken throughout the loan transaction process that are
not participation in management. In the proposed rule, EPA described
the major components of the loan transaction process, including
elements of that process that occur both prior to and after
foreclosure. Most of that discussion is included in this final rule as
well, in order to provide clarity and guidance to those UST owners and
operators and security interest holders interested in this rule.
(1) Actions at the inception of the loan or other transaction
giving rise to a security interest. Actions undertaken by a holder
prior to the inception of a transaction in which indicia of ownership
are held primarily to protect a security interest are not considered
evidence of participation in the management of the UST or UST system.
Thus, consultation and negotiation concerning the structure and terms
of the loan or other obligation, the payment of interest, the payment
period, and specific or general financial or other advice, suggestions,
counseling, guidance, or other actions at or prior to the time that
indicia of ownership are
[[Page 46700]]
first held are not, for purposes of this rule, considered evidence of
participation in the management of the UST or UST system or facility or
property on which the UST or UST system is located. Activities that
take place prior to holding indicia of ownership are not relevant for
determining whether the holder has participated in the management of
the UST or UST system after the time that the holder acquires indicia
of ownership.
In addition to such pre-loan involvement, a holder may determine
(whether for risk management or any other business purpose) to
undertake or require an environmental investigation (which could
include a site assessment, inspection, and/or audit) of an UST or UST
system securing the loan or other obligation. Such environmental
investigation may be undertaken by the holder, for example, or the
holder may require one to be conducted by another party (such as the
borrower) as a condition of the loan or other transaction. Neither RCRA
Subtitle I nor this rule require that such an environmental
investigation be undertaken to qualify for the security interest
exemption, and the obligations of a holder seeking to avail itself of
the exemption cannot be based on or affected by the holder's not
conducting or not requiring an environmental investigation in
connection with the security interest. Similarly, a holder is not
engaged in management participation as a result of undertaking or
requiring an environmental investigation, and nothing in this rule
should be understood to discourage a holder from undertaking or
requiring such an environmental investigation in circumstances deemed
appropriate by the holder. Because lender-conducted or required
investigations of a borrower's business or collateral are information-
gathering in nature, such activities cannot be considered to be
management participation by a holder.
In the event that a pre-loan environmental investigation of an UST
or UST system reveals contamination, the holder may undertake any one
of a variety of responses that it deems appropriate: For example, the
holder may refuse to extend credit or to follow through with the
transaction or instead maintain indicia of ownership in other, non-
contaminated property as protection for the security interest.
Alternatively, a holder may determine that the risk of default is
sufficiently slight (or that the extent of contamination is minimal and
does not significantly affect the value of the UST or UST system as
collateral) to proceed to extend credit and maintain indicia of
ownership in the UST or UST system. Additionally, the holder may
require the borrower to report and clean up the contamination as a
condition for extending the loan. Such activities are not considered
participation in the management of the UST or UST system or facility or
property on which the UST or UST system is located, and a holder that
knowingly takes a security interest in contaminated collateral is not
subject to compliance with the RCRA Subtitle I corrective action
regulatory program on that basis.
(2) Policing the security interest or loan. A holder may undertake
actions that are consistent with holding ownership indicia primarily to
protect a security interest which include, but are not limited to, a
requirement that the borrower clean up a release from the UST or UST
system which may have occurred prior to or during the life of the loan
or security interest (as described in the last section); a requirement
of assurance of the borrower's compliance with applicable federal,
state, and local environmental or other laws and regulations during the
life of the loan or security interest; securing authority or permission
for the holder to periodically or regularly monitor or inspect the UST
or UST system or facility or property on which the UST or UST system is
located, or the borrower's business or financial condition, or both; or
to comply with legal requirements to which the holder is subject; or
other requirements or conditions by which the holder is able to police
adequately the loan or security interest, provided that the exercise by
the holder of such other loan policing activities are not considered
evidence of control over the operational aspects of UST or UST system
or facility or property on which the UST or UST system is located.
The authority for the holder to take such actions may be contained
in contractual (e.g., loan) documents or other relevant documents
specifying requirements for financial, environmental, and other
warranties, covenants, and representations or promises from the
borrower. While the regulatory exemption in this rule requires that the
actions undertaken by a holder in overseeing or managing the loan or
other obligation be consistent with those of a person whose indicia of
ownership in an UST or UST system (or facility or property on which an
UST or UST system is located) is held primarily to protect a security
interest, a holder is not expected to be an insurer or guarantor of
environmental safety or quality at a secured UST or UST system. The
inclusion of environmental warranties and covenants is not considered
to be evidence of a holder's acting as an insurer or guarantor, and a
finding of ''management participation'' cannot be premised on the
existence of such terms or upon the holder's actions that ensure that
the UST or UST system is managed in an environmentally sound manner.
Since these actions are consistent with holding indicia of ownership
primarily to protect a security interest, they are not considered to be
participation in management in this rule.
(3) Loan work out. The holder may determine that actions need to be
taken with respect to the UST or UST system to safeguard the security
interest from loss. These actions may be necessary when, for example, a
loan is in default or threat of default, and are commonly referred to
as ''loan work out'' activities. ''Loan work out'' is largely an
undefined term but is generally understood in the financial community
to mean those activities undertaken to prevent, mitigate, or cure a
default by the obligor or to preserve or prevent the diminution of the
value of the security. Loan work out activities are recognized by EPA
as a common lender undertaking and, as such, these actions will not
take a holder outside of the scope of the security interest exemption
provided that such actions do not include decisionmaking control over
the day-to-day operation of the UST or UST system or facility or
property on which the UST or UST system is located.
When the holder undertakes loan work out activities, provides
financial or other advice, or similar support to a financially
distressed borrower, the holder will remain within the scope of this
security interest regulatory exemption only so long as the holder does
not participate in management as defined herein under the section
entitled ''Participating in Management.'' Loan work out actions that
are not evidence of ''participation in management'' include, but are
not limited to: Restructuring or renegotiating the terms of the
security interest; requiring payment of additional rent or interest;
exercising forbearance with regard to the security interest; requiring
or exercising rights pursuant to an assignment of accounts or other
amounts owing to an obligor; requiring or exercising rights pursuant to
an escrow agreement pertaining to amounts owing to an obligor;
providing specific or general financial or other advice, suggestions,
counseling, or guidance; and exercising any right or remedy the holder
is entitled to by law or under any warranties, covenants, conditions,
[[Page 46701]]
representations, or promises from the borrower.
(4) Foreclosure. In order to secure performance of an obligation, a
holder often must take possession of an UST or UST system or facility
or property on which an UST or UST system is located, as a result of a
borrower's business failure and the subsequent foreclosure of the real
property used to secure that obligation. The foreclosure process often
results in the holder's taking record title or deed to the UST or UST
system or facility or property on which an UST or UST system is
located. Financial institutions and others who hold security interest
exemptions are thereby justifiably concerned about the risks inherent
in acquiring liability for compliance with the RCRA Subtitle I
requirements for underground storage tanks.
EPA received several comments regarding the foreclosure process and
the use of the term ''foreclosure or its equivalents'' in the proposed
rule to trigger the date upon which several conditional measures were
proposed to begin. Several commenters explained the linear fashion in
which the foreclosure process generally works, indicating that no
specific date could be tied to the term ''foreclosure'' by itself. EPA
recognizes that since this rule places several time-related conditions
upon a holder to enable it to avoid liability as an UST ''operator''
under the security interest exemption, it is incumbent upon the Agency
to select a precise definition of the term ''foreclosure.'' On the
other hand, as commenters suggested, there is no one best consistently
used and practical step in the process that can be used as a date to
define the end of the foreclosure process. EPA has taken all of these
facts into consideration and determined that for purposes of this rule,
''foreclosure'' means that a legal, marketable or equitable title or
deed has been issued, approved and recorded, and that the holder has
obtained access to the UST, UST system, UST facility, and property on
which the UST or UST system is located, provided that the holder acted
diligently to acquire marketable title or deed and to gain access to
the UST, UST system, facility and property on which the UST or UST
system is located.
EPA acknowledges that the definition of ''foreclosure'' used in
this rule describes only part of the process that is generally
associated with the foreclosure process. In response to many comments,
however, the concept of real property ''access'' has also been included
in the definition. The definition used in this rule was selected to
provide a point of reference for indicating the completion of the
foreclosure process and point at which a holder could physically access
any USTs or UST systems located on the property acquired through the
foreclosure process.
Other components of the foreclosure process not referenced
specifically in this rule's definition of foreclosure include:
foreclosure judgment, foreclosure sale, purchase at foreclosure sale,
acquisition or assignment of title in lieu of foreclosure, acquisition
of a right to possession or title, or other agreement in settlement of
the loan obligation, or any other formal or informal manner by which
the holder acquires possession of the borrower's collateral for
subsequent disposition in partial or full satisfaction of the
underlying obligation. These actions associated with the foreclosure
process are considered to fall within the scope of this regulatory
exemption as necessary incidents to holding ownership indicia primarily
to protect a security interest, so long as the holder's acquisition
pursuant to foreclosure is reasonably necessary to ensure satisfaction
or performance of the obligation, is temporary in nature, and occurs
while the holder is actively seeking to sell or otherwise divest the
foreclosed-on UST or UST system of facility or property on which the
UST or UST system is located.
In general, under this rule, a foreclosing holder must, in order to
maintain consistency with the security interest exemption, seek to sell
or otherwise divest itself of foreclosed-on property in a reasonably
expeditious manner using whatever commercially reasonable means are
available or appropriate, taking all facts and circumstances into
account. A holder cannot, under the terms of this rule, reject or
refuse offers for the property that represent fair consideration for
the asset and remain within the regulatory exemption. ''Fair
consideration,'' for purposes of this rule, is equivalent to or in
excess of the sum of the outstanding principal (or comparable amount in
the case of a lease that constitutes a security interest) owed to the
holder immediately preceding the acquisition of full title (or in the
case of a lease financing transaction, possession of an UST or UST
system or facility or property on which an UST or UST system is
located) pursuant to foreclosure, plus any unpaid interest, rent, or
penalties (whether arising before or after foreclosure). ''Fair
consideration'' also includes all reasonable and necessary costs,
debts, fees or other charges incurred by the holder incident to work
out, foreclosure, retention, preserving, protecting, and preparing the
UST or UST system or facility or property on which the UST or UST
system is located, prior to sale, re-lease pursuant to a lease
financing transaction (whether by a new lease financing transaction or
substitution of the lessee) or other disposition, plus environmental
compliance costs (such as tank emptying, upgrading, replacement, and
removal, as well as site assessment and corrective action costs); less
any amounts received by the holder in connection with any partial
disposition of the property and any amounts paid by the borrower
subsequent to the acquisition of full title (or possessions in the case
of an UST or UST system subject to a lease financing transaction)
pursuant to foreclosure. A holder that outbids or refuses offers from
parties offering fair consideration for the property establishes that
the property is no longer being held primarily to protect a security
interest. The terms of the bid are relevant for this purpose, and a
holder is not required to accept offers that would require it to breach
duties owed to other holders, the borrower, or other persons with
interests in the property that are owed a legal duty. In addition, the
term ''fair consideration'' refers to an all cash offer, which is
intended to ensure that this rule would not require a holder to accept
a bid that contains unacceptable conditions, such as requirements for
indemnification agreements, non-cash offers, ''bundled'' offers, etc.
This provision should not be read to require that a holder may accept
only cash offers, however; a holder is always free to accept any offer
satisfactory to the holder. The exact requirement that would be imposed
by this regulation is that a holder may not reject a cash offer of fair
consideration for the foreclosed-on property. If it does, or if it
outbids others offering fair consideration, then the holder would,
under this rule, be considered to be an owner of the UST or UST system
or facility or property on which the UST or UST system is located in
the same manner as any other purchaser.
This rule's provisions defining ''fair consideration'' and
specifying when the foreclosing holder may reject or outbid offers for
the property were formulated to reflect the amount that the holder may
bid at the foreclosure sale, or not reject during the foreclosure sale
or thereafter, in order to recover on its loan or other obligation. In
addition, there may be multiple security interests in a borrower's
property held by secured creditors, which the definition of ''fair
consideration'' must account for. Therefore, for a senior creditor, the
term
[[Page 46702]]
''fair consideration'' means a cash amount that represents a value
equal to or greater than the outstanding obligation owed to the holder
(including the fees, penalties, and other charges incurred by the
holder in connection with the property). ''Fair consideration'' further
indicates that the amount that will recover the holder's ''security
interest'' in the property may vary depending on the seniority of the
loan or other obligation that is being foreclosed upon. Specifically, a
junior creditor may be required to outbid senior creditors in order to
recover the value of its loan or other obligation. The definition of
fair consideration therefore distinguishes between what junior or
senior creditors may bid or not reject for purposes of maintaining the
exemption. In addition, in order to avoid liability under law (for
example, to the borrower), the foreclosing holder may be required to
seek an amount at the foreclosure sale that is greater than the
outstanding obligation owed to the foreclosing holder, or to sell the
property in a different manner; therefore, this rule does not require a
holder to accept an offer of ''fair consideration'' if to do so would
subject the holder to liability under federal or state law.
In this way the rule's provisions with respect to the sale or
disposition of property will not conflict with the manner in which such
sales are required to be conducted under general principles of law
applicable to the holder and the disposition of the property including
the UST or UST system. For purposes of this rule, the definition of
''fair consideration'' is an objective test to determine whether the
foreclosing holder has an investment or other interest in the property
that is not within the exemption, or whether the holder's post-
foreclosure activities indicate that it continues to maintain its
ownership indicia in the property primarily to protect a security
interest, and is therefore within the protective ambit of this rule.
While a holder may use whatever means are reasonable and
appropriate for marketing foreclosed-on property to establish that it
is seeking to divest itself of property in an expeditious manner, EPA
has established the following ''bright line'' test that a holder may
choose to use to definitely establish that it continues to hold indicia
of ownership primarily to protect a security interest, and is not an
''owner'' of foreclosed-on property for purposes of complying with the
UST regulatory program. Under the ''bright line'' test a holder must,
within 12 months following foreclosure (as defined herein under the
section entitled ''Foreclosure''), list the property with a broker,
dealer, or agent who deals with the type of property in question, or
advertise the property as being for sale or disposition on at least a
monthly basis in either a real estate publication or a trade or other
publication suitable for the property in question, or a newspaper of
general circulation (defined as one with a circulation over 10,000, or
one suitable under any applicable federal, state, or local rules of
court for publication required by court order or rules of civil
procedure) covering the area where the property is located. If the
holder satisfies these criteria, the holder is considered to have
complied with the requirement in this rule that it is seeking to sell
or otherwise divest the property in an expeditious manner. A holder
choosing to avail itself of this bright line test will be able to
provide clear and unambiguous evidence that it is not the UST or UST
system's ''owner'' following foreclosure, for purposes of complying
with the UST regulatory program.
EPA also recognizes that market conditions, the condition of the
property, and other factors may mean that despite reasonable efforts to
expeditiously sell or divest foreclosed-on property, the property may
not be quickly sold. Therefore, this regulation does not impose a time
requirement for the ultimate disposition of foreclosed-on property.
Provided that the property is being actively offered for sale by the
holder and no offers of fair consideration are ignored, outbid, or
rejected, foreclosed-on property may continue to be held by the holder
without the holder being considered an ''owner'' of the UST or UST
system or facility or property on which the UST or UST system is
located.
In the proposed rule, EPA proposed that in order for a holder to
avoid losing the protection of the security interest exemption, the
holder must act upon a written, bona fide, firm offer of fair
consideration for the property within 90 days of receipt of the offer.
A few commenters expressed a concern that 90 days would not provide a
holder enough time to complete such a transaction in cases where the
purchaser undertakes a site assessment before finalizing the
transaction. The Agency has maintained the same language as that
contained in the proposed rule, but wants to clarify that the
requirement to ''act upon'' an offer does not mean that a purchase
transaction must be completed with the 90-day time period. Rather, the
holder must consider the offer, which may include, but is not limited
to, responding to the offer and/or initiating a purchase transaction
within 90 days. If at any time after six months following the
acquisition of marketable title the holder outbids, rejects, or does
not act upon within 90 days of receipt of, a written, bona fide, firm
offer of fair consideration for the property, the holder will lose the
protection of the rule. Under this rule, a ''written, bona fide, firm
offer'' is a legally enforceable, commercially reasonable, offer,
including all material terms of the transaction, from a ready, willing,
and able purchaser who demonstrates to the holder's satisfaction the
ability to perform. Where a holder outbids, rejects, or fails to act
upon an offer of fair consideration, the holder is considered, for the
purpose of this regulatory exemption, to be maintaining its indicia of
ownership in the property as protection for investment purposes, and
not as security for the obligation.
(5) Winding up operations after foreclosure. In addition, in the
post-foreclosure context, this rule provides that a holder that
forecloses on an UST or UST system with ongoing operations may wind up
the UST or UST system's operations without also being considered to be
participating in management. Winding up is considered a protected
activity by a foreclosing holder because, without such protection,
foreclosure would not be possible where practical or commercial
necessity dictates that the foreclosing holder undertake such actions.
''Winding up'' in the post-foreclosure context includes those actions
that are necessary to close down an UST or UST system's operations,
secure the site, and otherwise protect the value of the foreclosed
assets for subsequent sale or liquidation. In winding up an UST or UST
system, a holder may undertake all necessary security measures or take
other actions that protect and preserve an UST or UST system's assets,
including steps taken to prevent or minimize the risk of a release or
threat of release of the UST or UST system's contents.
F. Liability of a Holder as an Operator of an Underground Storage Tank
or Underground Storage Tank System
While the Subtitle I security interest exemption excludes a holder
from the definition of ''owner'' for regulatory compliance purposes,
the statute does not explicitly address a holder's responsibilities as
an UST or UST system ''operator.'' EPA recognizes that the absence of
explicit language in the security interest exemption regarding a
holder's responsibility for the Subtitle I requirements as an
''operator'' creates a potential problem for holders, since
[[Page 46703]]
EPA's UST regulations (as described in Section II of this preamble)
apply to both owners and operators of underground storage tanks.
Some concern was expressed by commenters regarding the absence in
the proposed rule of an outright exemption for holders from the
definition of ''operator'' and the potential liability to which a
holder could be exposed by engaging in any affirmative action in
respect to an UST or UST system. EPA believes that Congress did not
grant holders an outright exemption to the term ''operator'' in the
Subtitle I security interest exemption because it may have wanted to
ensure that holders did not engage in the day to day operations of the
UST or UST system. The Agency believes this intent can be inferred from
the statutory requirement that a holder may not ''participate in the
management'' of the UST or UST system without voiding the exemption.
EPA realizes that in order to provide meaning to the exemption,
however, it is important to define how a holder can acquire title and
access to an UST or UST system or facility or property on which an UST
is located, and take affirmative actions to protect the value of their
security interest, without losing the protection of the security
interest exemption. Consequently, this regulation provides a road map
that ensures that holders can utilize the security interest exemption,
while reflecting the intent that exempted holders be prohibited from
operating USTs or UST systems. The following sections discuss the
actions that a holder can and cannot take to remain within the
protective ambit of the regulatory security interest exemption.
1. Pre-Foreclosure Operation
Prior to foreclosure, it is the borrower, not the holder, who
generally is in control of, or has responsibility for, the daily
operation of an UST or UST system, and is subject to the full range of
requirements applicable to operators of USTs. During this time period,
a holder is permitted to conduct those activities related to its
financial and administrative obligations of managing a loan portfolio,
as well as environmental compliance activities and activities
undertaken voluntarily to protect human health and the environment in
compliance with 40 CFR part 280. The holder in this position will not
lose its ability to take advantage of this regulatory exemption as a
result of engaging in these activities. If the holder becomes engaged
in the daily operation of an UST or UST system, however, it becomes
subject to the full range of requirements applicable to operators of
USTs or UST systems.
2. Post-Foreclosure Operation
Once a holder has foreclosed on an UST or UST system or facility or
property on which the UST or UST system is located, it displaces the
borrower and could become engaged in the day-to-day operation of an UST
or UST system merely by storing product in the UST or UST system. EPA
considers an UST to be in use and in operation if petroleum is added
to, dispensed from, or stored in the UST. Therefore, except as provided
in this rule, a holder cannot continue to use, store, dispense, or fill
petroleum in an UST or UST system after obtaining marketable title and
access to the UST or UST system or facility or property on which the
UST or UST system is located without incurring Subtitle I liability
(unless there is another operator available, as described later in this
section). That does not mean, however, that a holder is barred from
taking affirmative actions to ensure that a tank is no longer in use,
by demonstrating that the tank is no longer storing, dispensing or
being filled with petroleum. The holder best demonstrates this by
emptying tanks it acquires through the foreclosure process. Thus, in
order to qualify for the exemption, it is essential for a holder to
empty all tanks that it knows about or should know about shortly after
undertaking foreclosure (the time period following foreclosure is
discussed later in this section), unless there is another operator who
takes responsibility for complying with 40 CFR part 280 (as described
later in this section). An UST or UST system is empty--in accordance
with Sec. 280.70--when all materials have been removed using commonly
employed practices so that no more than 2.5 centimeters (one inch) of
residue, or 0.3 percent by weight, of the total capacity of the UST
system, remain in the system. Stated simply, this means that all
product must be removed from the UST or UST system so that only one
inch of residue remains. To ensure that the UST system has been
adequately secured, vent lines must be left open and functioning, and
all other lines, pumps, manways, and ancillary equipment must be capped
and secured (Sec. 280.70).
Several commenters expressed concern about a blanket requirement
for holders to discontinue operation of an UST or UST system upon
acquisition of the UST or UST system through foreclosure, particularly
if a lessee or other tenant was present at the site. In response to
these commenters concerns, EPA believes that tanks can remain in use if
there is someone who is available to take responsibility as an operator
for compliance with the Subtitle I requirements. There may be
situations, for example, when a lessee is willing to continue operating
an UST or UST system as the ''operator,'' in compliance with Subtitle
I, while a holder is in possession of the UST or UST system or facility
or property on which the UST is located. In some instances, the holder
may want to arrange for a different person to operate the UST or UST
system, for example, when the existing lease expires. In those cases
where an operator (other than the holder) exists who is in control of
and has responsibility for the daily operation of the UST, and who can
be held responsible for compliance with 40 CFR part 280 requirements,
the holder would not be considered the operator. Under these
circumstances it is not necessary, in order to retain the security
interest exemption, for a holder to empty the tanks for which it is
knowledgeable about upon foreclosure, or to empty tanks that it becomes
knowledgeable of later. (The issue of known and unknown tanks is
discussed later in this section.)
In foreclosure, to avoid being an ''operator'' of the UST, in
addition to emptying and securing the UST or UST system, a holder must
also comply with the Subtitle I requirements for either temporary or
permanent closure, in order to retain the security interest exemption.
A holder who chooses to permanently close its UST or UST system, must
do so in accordance with Secs. 280.71 through 280.74, Subpart G--Out of
Service UST Systems and Closure, except the holder is not required to
perform corrective action if contamination is discovered. A holder who
chooses to temporarily close its tanks is required to maintain
corrosion protection and report any known or suspected releases from
the UST system. In accordance with Sec. 280.70(a), release detection is
not required as long as the UST system is empty. A foreclosing holder
who fails to satisfy the conditions established in this rule for
retaining the security interest exemption could be an ''operator''
under the Subtitle I regulations and would therefore be subject to the
full panoply of Subtitle I regulatory obligations applicable to all
operators of tanks, including the corrective action regulations.
a. Costs of post-foreclosure temporary closure conditions. A few
commenters expressed concern that the costs associated with the
proposed rule's post-foreclosure conditions to empty tanks and enter
temporary closure
[[Page 46704]]
would prevent lenders from making UST-related loans. EPA does not
believe that the costs associated with performing these actions are
significant, compared to the cost of alternatives that holders would
otherwise face.
First, in the absence of this regulatory exemption, as an
''operator'' upon foreclosure, a holder would have to comply with the
UST technical standards in some manner. Entering temporary closure is
one way to comply with the UST technical standards. The only condition
placed upon a holder by this rule that differs from what normally
constitutes temporary closure under the technical standards is the
requirement for emptying tanks. The estimated total cost of emptying
one tank and draining the associated pipes is $950. $350 of this cost
is attributed to the mobilization of a truck for fuel disposal, which
remains a fixed price per site. The total estimated cost per four-tank
facility is $2750 ($600 per tank, plus $350 for the truck). The total
cost for securing the lines is estimated at $225 per facility. These
costs could be as much as the cost for release detection for tanks that
a holder does not empty and that remain in use, estimated at up to
$2800 for a four-tank facility. Under the requirements in 40 CFR
Sec. 280.70 for temporary closure, an owner or operator is allowed to
either empty and secure its tanks, or perform release detection. While
this regulatory exemption restricts a holder's choice to emptying and
securing its tanks, no new costs are imposed upon the holder, since
without this rule, the holder would have to pay approximately the same
cost, whether it chose to empty its tanks or maintain release
detection. For further information regarding the costs of emptying
tanks and securing lines, please see the ''Background Document in
Support of the Lender Liability Rule for Underground Storage Tanks
Under Subtitle I of the Resource Conservation and Recovery Act''
located in the UST Docket at 401 M Street, SW., room 2616, Washington,
DC 20460.
b. Time frame for emptying USTs and securing UST systems EPA
received the most comments regarding the period of time allowed to
demonstrate that a holder is no longer storing product, and thereby no
longer operating an UST or UST system. All but one person who commented
on the 15-day time frame in the proposed rule maintained that 15 days
was not enough time to empty tanks and complete temporary closure after
foreclosure. EPA proposed 15 days originally because our research
indicated that only seven days should be necessary to empty the tanks
and secure the lines at an UST facility once a contractor had been
selected. Another seven days was added to provide time for the holder
to become familiar with the details of this regulatory exemption and
identify a qualified contractor. The Agency is obliged by the
regulatory authority under section 9003(b), 42 U.S.C. 6991b(b) of
Subtitle I to promulgate regulations based not only upon the technical
capability of owners and operators, but also upon what is necessary to
protect human health and the environment. It is therefore incumbent
upon the Agency to select the shortest time period needed by a holder
to empty tanks and secure lines.
Commenters listed a variety of reasons why more time would be
needed for emptying tanks, including: special problems associated with
rural communities such as long distances--travel time and locating a
qualified contractor; snow, ice and other inclement weather conditions
(thick snow and/or ice can make tanks difficult or impossible to detect
and empty during winter months); contracting delays related to
difficulties in locating, scheduling and negotiating a price with a
contractor, and in some cases, in obtaining various bids; banks'
(especially small banks') unfamiliarity with EPA regulations; multiple
tanks at large facilities; laboratory testing requirements imposed by
some states; and finding alternative storage arrangements, especially
for non-marketers. Government agencies, acting in a receivership
capacity, could face special difficulties due to protracted contract
bidding requirements. Recommendations proposed by commenters, due to
these various delays, ranged from 30 to 140 days.
Based on these commenters' concerns and information that they
provided, the Agency has concluded that 60 calendar days is a
reasonable, minimum period of time after undergoing foreclosure, as
that term is defined under section III. C. 5. of this preamble, to
allow a holder to empty its known tanks (see discussion of unknown
tanks later in this section). This decision is based upon the following
estimated time frame developed from information received by commenters:
approximately one week to become familiar with Subtitle I and the
details of this regulatory exemption, and to locate all USTs and the
extent of the UST system on the foreclosed property; 5 weeks to
complete a contractor bidding process and hire a qualified contractor,
perform laboratory tests if necessary (accounting for travel time and
weather delays), and apply for and obtain approval for content disposal
if required by the state; two weeks to schedule contractor and for
contractor to perform and complete work related to emptying all USTs
and securing the UST system (accounting for travel time, other
commitments and weather delays).
EPA also recognizes that the time needed for a holder to empty its
tanks and secure its UST system may vary based upon the holder's
geographic location. Extreme weather conditions in areas such as
Alaska, special problems associated with rural communities, and
additional requirements imposed by some states, may pose special
problems for holders attempting to empty tanks in an expeditious
manner. Thus, holders in some states may need more than 60 days to
empty their tanks and secure their UST systems. Therefore, EPA believes
that the implementing agency should have the ability to select a time
frame that it finds most appropriate for holders, either based upon
individual holders' needs (case-by-case determination), or based upon a
standard time frame for all holders under the jurisdiction of that
implementing agency. Thus, a holder who wishes to take advantage of
this regulatory exemption, must empty its known tanks within 60 days
after foreclosure or within 60 days after the effective date of this
rule, whichever is later, or within another reasonable timeframe as
specified by the implementing agency.
c. Unknown Tanks. Many commenters noted that a holder may not know
of the existence of an UST when, through foreclosure, it acquires title
to an UST or UST system or facility or property on which an UST or UST
system is located. Several examples were provided by commenters
demonstrating the problems associated with identifying all the USTs
that may be located on a property it acquires. Among the examples,
commenters stated that USTs may not be registered with the state, or it
may be difficult for a holder to know of the existence of an UST on
agricultural property or on other non-fuel-marketer properties.
Sometimes the borrower does not disclose the existence of any USTs or
the exact number and location of the USTs. Even if the holder is aware
that USTs may be located on the property, it may encounter difficulty
in identifying the USTs' exact locations. This could be especially
difficult when a site is covered with snow or ice during the winter.
Furthermore, USTs are sometimes hidden under asphalt or even under
buildings. Performing an environmental assessment or audit is no
guarantee that USTs will be found. As one commenter asserted, even a
phase II
[[Page 46705]]
site assessment could fail to indicate the presence of USTs.
Several commenters urged EPA to adopt a more practical approach to
emptying tanks that may not be discovered by the holder until after the
60-day time period following foreclosure. EPA believes that unless a
holder is allowed to empty a tank upon discovering it, rather than
potentially losing the protection of the regulatory security interest
exemption if it fails to identify and empty all its tanks within 60
days after foreclosure, holders will remain suspicious of extending
credit to UST owners and operators, undermining the purpose of this
rule. Therefore, a holder can remain within the protective ambit of
this rule by emptying an unknown UST within 60 days after discovering
it or within 60 days after the effective date of this rule, whichever
is later, or within another timeframe as specified by the implementing
agency.
d. Permanent closure. A number of commenters objected to EPA's
proposal pertaining to holders who had not disposed of the UST or UST
system or facility or property on which the UST or UST system is
located, within 12 months after foreclosure. The Agency proposed that
in order for these holders to maintain the regulatory exemption, they
must either enter permanent closure if they failed to dispose of the
UST or UST system 12 months after foreclosure, or perform a site
assessment and apply for an extension of temporary closure from the
implementing agency. Several commenters doubted that they would be able
to sell properties with USTs within 12 months. They argued that
permanent closure would be burdensome and unnecessary to protect human
health and the environment, since the requirement to empty the UST
would eliminate the threat of contamination from further releases from
the UST.
Commenters also insisted that holders do not possess the technical
capacity of the average UST owner or operator, so they should not have
to enter permanent closure to retain the exemption. Furthermore,
commenters did not believe that it was appropriate for a holder, who
acts as a temporary custodian of the UST or UST system, to decide the
ultimate fate of a facility (whether to take the tanks permanently out
of operation). Rather, they asserted, that decision should be left up
to the subsequent purchaser. As one commenter stated, total closure
could severely hinder a holder's selling opportunities and eventually
remove the property from the mainstream of commerce. Although the
proposed rule offered holders the option of applying for an extension
of temporary closure from the implementing agency, some states prohibit
such extensions, which would leave holders in those states without any
option other than permanent closure of the tanks.
EPA agrees with commenters that the decision regarding whether or
not a tank should be permanently closed should generally be left with
whoever purchases the UST or UST system or facility or property on
which the UST is located from the holder. The Agency has concluded that
USTs that are emptied, secured and placed in temporary closure for the
temporary period of time for which they are possessed by a holder
should not need to be permanently removed or permanently closed in
place in order to protect human health and the environment. Therefore,
in this final rule, a holder may retain the regulatory exemption by
temporarily closing but not permanently closing its USTs and UST
systems. However, if a holder is unable to dispose of an UST property
within 12 months, it must conduct a site assessment if the USTs are
older and do not meet new tank performance standards (discussed later
in this section). EPA believes that it is important for a holder to
conduct such an assessment in order for the implementing agency to
determine if there is any contamination on the site, and if so, make a
determination regarding the potential amount of risk posed to human
health and the environment and whether that risk warrants the
implementing agency taking corrective action. (While this rule
precludes a holder's liability for corrective action costs if the
holder retains its eligibility for the exemption as provided in the
rule, the implementing agency can undertake corrective action measures
on the holder's site based upon its assessment of the risks posed by
any contamination identified there.) As in the case of other
temporarily closed tanks, in order to maintain protection of human
health and the environment, contamination should not be allowed to
remain unidentified for more than 12 months after an UST or UST system
has been taken out of service (or in this case, more than 12 months
after foreclosure, as that term is defined under Sec. 280.210(c) of
this rule). For purposes of this provision, the 12-month period begins
to run from the effective date of the rule or from the date on which
the UST or UST system is emptied and secured, whichever is later.
The Agency does not consider the site assessment condition to be
unduly burdensome for several reasons. First, a holder will only need
to perform a site assessment if the USTs that the holder has acquired
have not been upgraded or replaced to meet the requirements of
Sec. 280.20 for new UST systems or Sec. 280.21 for upgraded systems, or
if no external release detection method is in operation. Many of a
holder's USTs should be upgraded or replaced since many of the loans
that UST owners and operators are requesting are expected to be used
for upgrading or replacing substandard tanks. Furthermore, after 1998,
all tanks are required to be upgraded or replaced, so holders should
encounter few substandard USTs after that time. A site assessment can
also be averted if one of the external release detection methods
allowed in Sec. 280.43 (e) or (f) is operating at the end of the 12-
month period, and the release detection method operating indicates that
no release has occurred.
The Agency is also aware that conducting a site assessment during
property transfers has become a standard business practice and that few
property transactions currently take place without one. If a holder
should have to bear the cost of performing a site assessment, that cost
may in some cases be passed on to the subsequent purchaser, and in some
states, the holder may be reimbursed for the cost of performing a site
assessment through the state's petroleum assurance fund or through
other assistance programs. While EPA cannot require states to pay or
reimburse a holder for performing a site assessment (or for undertaking
any other actions that would protect the environment, such as
corrective action), the Agency encourages states to provide assistance
to holders who wish to engage in environmental compliance activities or
voluntary environmental actions in order to protect their security
interest.
3. Release Reporting Requirements Following Foreclosure
Under today's rule, upon foreclosure, a holder taking advantage of
the regulatory exemption from corrective action regulations must
nevertheless comply with the requirement in Sec. 280.50 that the
discovery of any releases from the UST be reported to the implementing
agency. Only the reporting requirement must be followed; the holder
need not comply with Sec. 280.52, despite the reference to that
provision in Sec. 280.50. The release reporting requirement of
Sec. 280.50 is part of Subpart E, which details the obligations for
reporting known or suspected releases, investigating off-site impacts,
confirming that a release has occurred, and cleaning up spills and
[[Page 46706]]
overfills. While Subpart E generally implements Subtitle I's corrective
action and site investigation requirements, from which a holder may be
excluded under today's rule, Sec. 280.50 has historically been viewed
by EPA as part of the UST technical standards.
A holder is responsible, following foreclosure, for reporting to
the implementing agency, any discovery of released regulated
substances, or any suspected release at an UST site or in the
surrounding area. Such reporting is considered necessary to ensure
protection of human health and the environment. By the holder's
informing the implementing agency of a release, the implementing agency
can then determine the appropriate response action, if any.
In the absence of today's rule a holder, as an UST operator, would
have to perform release investigation and confirmation in accordance
with Secs. 280.51 through 280.53. Under today's rule, a holder who
chooses to take the tank(s) out of service as described in this rule is
required to follow the procedures established in Sec. 280.50 but is not
subject to the release investigation and confirmation requirements in
Secs. 280.51 through 280.53. A holder who elects to keep the tank(s) in
operation, however, is obligated to comply with all of the Subpart E
requirements, including those related to release investigation and
confirmation, and corrective action.
G. Financial Responsibility Requirements
RCRA Sec. 9003(c), as implemented by EPA at 40 CFR Part 280 Subpart
H--Financial Responsibility, requires owners or operators of petroleum
USTs to demonstrate financial responsibility for taking corrective
action and for compensating third parties for bodily injury and
property damage caused by accidental UST releases. As discussed earlier
under Section III. A. of this preamble, EPA is defining, for purposes
of its Subtitle I corrective action and technical requirements, the
term ''owner'' to mean that a holder who maintains ownership rights in
an UST or UST system primarily to protect a security interest does not
rise to the level of a full ''owner,'' and therefore is not subject to
compliance with those regulatory requirements. As described earlier,
this approach to EPA's regulatory program is consistent with the
Subtitle I statutory security interest exemption. Similarly, a holder
is not subject to the financial responsibility requirements as an UST
owner.
The Agency is also exempting a holder as an UST ''operator'' from
the financial responsibility requirements, provided the holder
satisfies the conditions contained in this rule. Before a holder takes
possession of an UST or UST system, a holder is not considered an UST
operator, for purposes of EPA's technical and financial responsibility
regulations, if it is acting merely as a holder and is not in control
of the daily operation of the UST or UST system. Therefore, a holder
typically is not subject to the UST financial responsibility
requirements of 40 CFR Part 280 Subpart H as an operator prior to
foreclosure.
Under this rule a holder is exempted from corrective action as an
operator after foreclosure if it ensures that its tanks no longer store
petroleum and it complies with the temporary or permanent closure
requirements specified in this rule. (See Section III. F. 2. of this
preamble). In these situations, where the holder is not liable for
corrective action and where the tanks are empty and pose little threat
of release, it would serve no useful purpose to require a holder to
demonstrate compliance with the financial responsibility requirements
for corrective action. Therefore, the Agency is exempting holders who
satisfy all the other requirements in this rule from demonstrating
Subtitle I financial responsibility for UST corrective action.
A holder's responsibility for demonstrating UST financial
responsibility for third-party bodily injury and property damage
compensation poses a different issue. While RCRA Subtitle I does not
include provisions that actually impose third-party liability upon UST
owners and operators, it does require UST owners and operators to
demonstrate their ability to compensate third parties for bodily injury
and property damage caused by accidental releases arising from the
operation of an UST or UST system. The Agency believes that a holder
who complies with all the conditions set forth in today's rule should
not be required to comply with any of the UST financial responsibility
requirements as an owner or operator, including those for both
corrective action and third-party liability coverage. This regulatory
exemption is consistent with the interpretation of that language
adopted in the preamble to the UST financial responsibility final rule
(53 FR at 43323). In that rule, EPA exempted tanks taken out of
operation prior to the effective date of the rule from UST financial
responsibility compliance. In the preamble to the final rule, EPA
recognized that ''insurance providers would be extremely reluctant to
assure tanks taken out of operation because of the perceived greater
uncertainty associated with them'' (53 FR at 43327). In particular,
insurers have indicated that in the case of foreclosed USTs, they would
be concerned about vandalism and other threats to USTs at non-
operational, unattended gas stations or similar locations with public
access. The preamble also states that ''even if providers of assurance
would assure these tanks, it is unlikely that they would cover leaks
which occurred before the effective date of the policy'' (53 FR at
43327).
A similar situation exists for holders who empty their tanks and
enter temporary or permanent closure after foreclosure. EPA has
discovered that it is practically impossible to obtain third-party
environmental insurance coverage for a new owner of empty tanks.
Providers of financial assurance are reluctant to provide any coverage
for tanks that no longer store petroleum product. Further, providers
are reluctant to provide coverage for damages that occur after the
effective date of the policy for releases that might have occurred
prior to the effective date of the policy. Under this rule a holder is
required to empty its tanks in order to be exempt from corrective
action regulatory requirements. Since providers are unlikely to provide
any coverage for empty tanks at non-operational facilities or for
releases that occurred prior to foreclosure, and since third-party
damages would be extremely unlikely to stem from releases occurring
after the holder forecloses on and empties its tanks, the Agency
believes it is unnecessary to require third-party liability coverage
for such tanks.
RCRA Sec. 9003(c)(6) supports this regulatory exemption. That
provision emphasizes the connection between the UST financial
responsibility requirement and a tank's operational status: ''The
regulations promulgated pursuant to this section shall include: * * *
(6) requirements for maintaining evidence of financial responsibility
for taking corrective action and compensating third parties for bodily
injury and property damage caused by sudden and nonsudden accidental
releases arising from operating an underground storage tank.''
[emphasis added.] The Agency believes that since a holder must
demonstrate that its tanks are empty and that it is complying with the
UST temporary or permanent closure requirements in order to avoid
corrective action liability as an operator, there should be no need for
a holder who meets these requirements to demonstrate financial
responsibility for corrective action or third-party damages. By
requiring the holder to empty the
[[Page 46707]]
tank in order to be exempt from corrective action requirements, EPA is
ensuring that damages caused by future releases from that tank will be
minimized if not avoided altogether. As a result, holders who act in
accordance with the requirements described in this rule are exempt from
all Subtitle I financial responsibility requirements.
H. State Implementation and State Program Approval
EPA received numerous comments regarding the problems associated
with the absence of lender liability provisions in many states, as well
as the problems generated by the variety of state UST lender liability
provisions that currently exist. Some commenters argued that the only
way to make today's rule effective would be for EPA to require states
to enact state legislation regarding UST lender liability. Other
commenters specifically addressed state program approval requirements
and state clean up funds. In general, the comments indicate that
several misconceptions exist regarding the role of state programs in
implementing Subtitle I, the state program approval process and state
clean up funds.
First, as many commenters pointed out, today's rule only affects
federal UST requirements, and only provides an eligible holder
protection against federal enforcement actions. Since the UST program
is implemented primarily through the states under state laws, a holder
can be afforded protection against UST liability at the state level
only if the state has enacted its own lender liability legislation,
regulations, or policies.
Several states have already enacted laws or regulations containing
UST lender liability provisions. In many states without existing lender
liability provisions, state legislatures are debating lender liability
bills. While EPA can encourage states to enact UST lender liability
provisions, the Agency does not have the authority to require that
states adopt such provisions. Therefore, the Agency strongly urges
those states without security interest exemptions to enact legislation
similar to what is included in today's Federal rule. EPA believes that
such action is crucial in the effort to increase the availability of
capital to UST owners and operators.
Several comments submitted to EPA addressed state program approval
and whether or not states could broaden protections for holders. A
state's lender liability legislation or regulations may affect the
state's program approval and states need to be cognizant of that
relationship when considering the enactment of a security interest
exemption.
UST state program approval, as provided for under RCRA Subtitle I
Sec. 9004, and as implemented by 40 CFR part 281, provides states the
ability to operate an UST regulatory program in lieu of the federal
program if they first submit the program for review and receive
approval from EPA. EPA approval of a state program means that the
requirements in the state's laws and regulations will be in effect
rather than the federal requirements. Program approval ensures that a
single set of requirements (the state's) will be enforced in that
state, thus eliminating the duplication and confusion that can result
from having separate state and federal requirements. EPA considers
state program approval to be an integral part of the UST regulatory
program.
EPA's approval review focuses primarily on the basic state
authorities (laws and regulations) needed to achieve the underlying
objectives of the federal regulations covering the UST technical
standards, corrective action, and financial responsibility
requirements. The UST state program approval process is also based upon
a performance-oriented approach. The statutory test for an approvable
state program is that it be ''no less stringent'' than the federal
requirements and include as many categories of UST systems (or be as
broad in scope) as the federal requirements. EPA reviews the state's
specific statutory and regulatory provisions as well as their
interpretation by the Attorney General of the state.
Enactment of lender liability legislation or regulations is not a
requirement for receiving or maintaining state program approval. A
state program without a security interest exemption is acceptable under
EPA's state program approval requirements, since failure to have such a
provision would not narrow the scope of the state program, nor render
it ''less stringent'' than the federal program. However, in order to
fully effectuate the purpose of today's rule in expanding capital
opportunities to UST owners and operators, EPA recommends that states
act promptly to enact secured creditor provisions.
If a state program includes an UST security interest exemption, EPA
will evaluate it against the criteria in Sec. 281.39 of this rule. A
state program that exempts a holder from UST requirements as an owner
and operator may be approved if: The holder is maintaining indicia of
ownership primarily to protect a security interest in a petroleum UST
or UST system; the holder does not participate in the management or
operation of the UST or UST system; and the holder does not engage in
petroleum production, refining, and marketing. The state's program
application should address the issue of UST lender liability in the
''Scope'' section of its state program description, under Sec. 281.21
of the State Program Approval regulations.
A state may encounter program approval conflicts if it enacts a
lender liability provision that is broader in scope or less stringent
than today's federal lender liability rule. However, this rule should
not present a barrier for states to receive state program approval. The
program approval requirements contained in this rule are intended to
provide enough flexibility to allow states to enact various UST lender
liability provisions without jeopardizing their ability to receive or
maintain approval of their state program.
I. Holders' Access to State Funds
EPA received several comments regarding a holder's ability to apply
for state cleanup funding to remediate an UST property acquired through
foreclosure. Some commenters also expressed concern about a holder's
ability to access other state assistance programs intended for UST
owners and operators. While the EPA cannot require states to ensure
that holders are included among those eligible for a state's cleanup
fund, reinsurance program, loan or grant program, today's rule is not
intended to prohibit or discourage states from allowing holders access
to these programs.
A few commenters highlighted the confusion that exists regarding
the association between EPA's financial responsibility requirements and
the state cleanup funds. EPA believes that it is important for holders
to understand the purpose of state cleanup funds, the relationship
between EPA and these state funds, and the relationship between the
financial responsibility requirements and state cleanup funds.
As described earlier under section II. C. of this preamble, the
financial responsibility requirements were promulgated to ensure that
UST owners and operators demonstrated their ability to pay the costs of
conducting remediation and compensating third parties for injuries or
damages due to UST contamination. There are an array of acceptable
financial responsibility compliance mechanisms, including insurance,
guarantees, letters of credit, surety bonds, fully-funded trust funds
and state assurance funds. State assurance or cleanup funds have become
the most common and low cost financial responsibility compliance
[[Page 46708]]
mechanism for tank owners and operators. As described earlier in this
preamble under section III. G., holders who are eligible for today's
regulatory security interest exemption are not responsible for
demonstrating financial assurance. However, as noted by commenters,
many holders would like to obtain access to state cleanup funds to
voluntarily remediate any contamination that might be located on an UST
property they obtain through foreclosure in order to protect human
health and the environment, and make the property more attractive to
potential purchasers. Some commenters were concerned that the proposed
lender liability rule would have the unintended effect of blocking such
access.
State cleanup funds have been established in many states to assist
UST owners and operators in performing corrective action. States may
apply to EPA for approval of its cleanup fund as a financial assurance
mechanism. States are not, however, required by law or regulation to
establish a cleanup fund or any other state UST assistance program, or
to submit the fund to EPA for approval.
Each state fully controls how its fund functions. No two state
cleanup funds are identical; they vary in the amounts and types of
coverage provided, in their eligibility requirements, in the amount of
funding, funding source, method of payment, and program implementation.
EPA's understanding is that currently, holders are eligible to apply
for state cleanup fund monies in some states and not in others. That
situation will likely continue upon promulgation of this rule, as this
rule is not intended to alter the eligibility of holders to apply for
state cleanup fund monies. While EPA cannot require that states provide
holders access to these funds, EPA encourages states to recognize the
benefits associated with remediating UST properties held by holders in
terms of increased protection of human health and the environment, and
the enhanced ability to return these properties to productive use.
J. Outstanding Loans and Loans in Foreclosure Upon the Effective Date
of the Rule
In the proposed rule, EPA requested comments regarding how the
potential liability associated with a holder's current holdings
acquired through foreclosure could affect the extension of future UST-
related loans. Many commenters expressed their concern that financial
institutions would be unwilling to extend loans to properties
containing USTs if those institutions incurred significant costs in
relation to properties on which they had already foreclosed. Several
commenters also insisted that the Subtitle I security interest
exemption was not intended by Congress to be contingent upon EPA's
exercise of its rulemaking authority. These commenters noted that a
rule that does not include a holder's current UST holdings would
effectively void the secured creditor exemption that has been part of
RCRA since 1986, thereby denying holders the protection that Congress
provided in the law. Commenters also expressed concern that failure to
include in the exemption a holder's outstanding loans in foreclosure
would create the need for a cumbersome recordkeeping system, in which
holders would have to keep track of whether foreclosures occurred prior
to or after the effective date of the rule. Commenters also indicated
that enforcement would be hampered unless states began requiring
holders to report the date on which foreclosures occur, as defined
under Sec. 280.210(c). They stated that such a reporting requirement
would add an additional burden on security interest holders, not
intended by Congress' statutory exemption for security interest
holders.
In addition, several commenters mentioned the benefits that would
be afforded the environment by including outstanding loans within the
exemption's protective ambit. For example, commenters stated that
holders would be encouraged to empty USTs and undertake voluntary
cleanups on currently foreclosed properties containing USTs if such
properties were included in the rule.
Based on the comments received, EPA has concluded that there is
sufficient evidence to indicate that the intent of the rule in
expanding credit opportunities for UST owners and operators would be
undermined if the rule does not cover holders of existing security
interests and holders of security interests already in foreclosure upon
the effective date of the rule. Furthermore, such protection for
holders could provide additional environmental benefits; by encouraging
holders in foreclosure at the time the rule is issued to empty their
tanks, contamination will be curtailed at numerous UST sites throughout
the country. Therefore, holders of existing as well as future security
interests, including those in foreclosure upon the effective date of
this rule, fall within the rule's protective ambit as long as the
holder satisfies the conditions contained in this rule for the
regulatory security interest exemption.
IV. Issues Outside the Scope of This Rule
A. Petroleum Producers, Refiners, and Marketers
Several commenters requested that the security interest exemption
be expanded to cover petroleum producers, refiners, and marketers who
hold indicia of ownership primarily to protect a security interest.
They claimed that a petroleum marketer who extends loans to UST owners
is no different than a financial institution that extends loans to UST
owners, except that a marketer's experience in the petroleum industry
helps it avoid unsound practices that lead to foreclosures. Commenters
further stated that these ''petroleum marketer-creditors'' supply loans
to many small businesses that cannot get loans elsewhere, and that
without an exemption for petroleum producers, refiners, and marketers,
capital from these sources would dry up.
The statutory exemption for security interest holders in Subtitle I
specifically excludes petroleum producers, refiners, and marketers.
Since the Subtitle I security interest exemption excludes petroleum
producers, refiners, and marketers, the Agency has not extended the
regulatory exemption to these persons.
EPA disagrees with commenters who stated that small businesses will
be harmed by today's rule. To the contrary, the Agency expects this
regulatory exemption to increase the total amount of capital available
to small businesses, who are currently most in need of capital for UST
improvements. Financial institutions, currently reluctant to make UST-
related loans to small businesses should, as a result of this rule,
greatly increase the total availability of capital for UST owners who
are otherwise credit worthy.
Although holders who engage in petroleum production, refining, and
marketing are not covered by this regulatory exemption, they should not
expect to automatically be held liable for cleaning up contamination
caused by a borrower. Under the federal UST regulations, such a holder
would need to meet the regulatory definition of either ''owner'' or
''operator'' of the UST in order to be potentially liable for
contamination caused by the UST. A determination as to whether or not a
holder who engages in petroleum production, refining, and marketing is
responsible for UST cleanup costs as an owner or operator will be based
on the individual circumstances of the case, as has been the situation
in the past. Thus, this rule does not affect the current liability
scheme for holders who also
[[Page 46709]]
engage in petroleum production, refining, and marketing. As a result,
EPA does not believe that capital from these sources will ''dry up'' as
some commenters stated.
A few commenters were confused about the effect of the rule upon a
holder's ability to extend capital to or foreclose on an UST property
that was used by a borrower to produce, refine, or market petroleum.
EPA believes that the restriction in the statutory security interest
exemption was intended to prevent petroleum producers, refiners, and
marketers from personally employing the exemption. Thus, the
restriction in the exemption allows holders who do not engage in
petroleum production, refining, and marketing to hold a security
interest in an UST or UST system for a borrower who engages in these
areas of business.
B. Third Party Liability
Several commenters addressed the issue of a holder's protection
from third party actions. In general, these commenters requested that
the final rule provide protection for holders from UST litigation
initiated by private parties (i.e., private legal actions not involving
the United States government). Since RCRA Subtitle I does not impose
liability pertaining to third parties, EPA has not addressed third
party liability in this rule. Third parties who wish to recover UST
regulatory compliance and corrective action response costs may have a
cause of action against holders under various provisions of federal and
state law, other than Subtitle I of RCRA.
While this rule cannot offer protection for holders from every
conceivable type of liability related to UST contamination on
properties held by holders to protect a security interest, it specifies
the types of activities that holders may engage in while remaining
within the protective ambit of the Subtitle I security interest
exemption. In so doing, it provides certainty for holders whose primary
concern is fear of being held liable by the federal government under
relevant UST statutes and regulations--not third-party actions.
C. Trustee and Fiduciary Liability Under Subtitle I
EPA received a number of comments requesting that the security
interest exemption be expanded to cover trustees and fiduciaries acting
in a fiduciary capacity. Commenters stressed the importance of
providing the trust operations of a financial institution protection
from RCRA Subtitle I liability. They expressed concern that the
financial institution or individual financial officer acting as a
trustee or fiduciary could face personal liability under RCRA Subtitle
I if any or all of a trust's assets are contaminated by an UST release.
Commenters asserted that they should not be held personally liable for
the cleanup of trust properties because prior to their appointment as
trustee or fiduciary they would have no way of knowing whether the
trust's property was contaminated, nor would they have been able to
have prevented the contamination. They maintained that protection for
all areas of a financial institution's operations was crucial to
stimulate more credit for small businesses to upgrade and improve their
UST systems. Commenters further stated that a large environmental
expense on the trust side of a financial institution would have a
significant, negative effect upon UST-related lending on the commercial
side.
EPA carefully considered the comments received regarding this
issue, but has not provided the specific relief requested by
commenters. Since the primary purpose of this rule is to expand the
availability of capital to UST owners by encouraging lenders to make
loans to credit-worthy UST owners, it is appropriate for EPA to provide
an exemption for holders of security interests on UST-related loans.
The Agency is not convinced, however, that it is necessary to extend
the exemption to other persons, such as trustees, who, in their
capacity as trustee, are not involved in making UST-related loans to
tank owners.
The Agency believes that in most instances, however, the liability
of a trustee may be limited by the operation of existing trust law.
While acknowledging the complexities of trust law as well as numerous
jurisdictional variations, EPA believes the concepts described in the
Restatement (Second) of Trusts (1959) 4 provide a fair
representation of the common law of trusts, and generally would be
applicable to trusts involving underground storage tanks.
\4\ The Restatement (Second) of Trusts (1959) is an
authoritative summary of the law of trusts prepared by the American
Law Institute. Although the Restatement is not codified into law, it
is frequently used as a guide to interpretation by courts.
---------------------------------------------------------------------------
Under the well-established and generally accepted principles
governing the obligations of trusts and the liability of trustees, as
articulated in the Restatement, the trustee is technically personally
responsible for the liability: ''The trustee is subject to personal
liability to third persons on obligations incurred in the
administration of the trust to the same extent that he would be liable
if he held the property free of trust.'' Restatement (Second) of Trusts
Sec. 261. However, the rule of personal liability is tempered by a
right to indemnification: ''The Trustee is entitled to indemnity out of
the trust estate for expenses properly incurred by him in the
administration of the trust.'' ID. Sec. 244. Accordingly, the rule is
that ordinarily the trustee may obtain indemnification from the trust
assets for the acts within his or her official capacity. Thus, EPA
believes that in most instances, a trust's assets would be available
for cleanup of trust property contaminated by USTs.
D. Hazardous Substance Tanks
Several commenters noted that hazardous substance UST systems are
regulated under Subtitle I, and indicated that the rule would be more
useful if holders would not have to concern themselves with determining
which USTs contained petroleum and which contained other substances.
They requested that the rule also apply to USTs storing hazardous
substances. Such a rule, reasoned one commenter, would better reflect
the actual property inspection and examination process that holders
undertake with respect to their collateral.
Today's regulatory exemption does not apply to non-petroleum,
hazardous substance USTs or UST systems regulated under Subtitle I. The
primary reasons for this are, first, the security interest exemption
appears in one specific section of RCRA Subtitle I, titled EPA Response
Program for Petroleum (see RCRA section 9003(h)). As the title
indicates, the security interest provision applies to petroleum USTs
and UST systems. Second, the primary purpose of this rule is to expand
capital availability for small business petroleum UST owners and
operators, particularly petroleum retailers. The Agency believes that a
rule pertaining exclusively to petroleum USTs and UST systems will
address the needs of this particular group of tank owners and
operators.
E. Hazardous Waste Tanks
As explained under section III of this preamble, the RCRA Subtitle
I security interest exemption specifically applies to USTs that are
regulated under Subtitle I and that are used to contain an accumulation
of petroleum. A few commenters requested that EPA expand the exemption
to include tanks storing hazardous waste as well.
Today's rule only addresses petroleum USTs regulated under Subtitle
I of RCRA. Hazardous waste is regulated under Subtitle C of RCRA.
Section 9001(2)(A) of Subtitle I explicitly excludes USTs containing
[[Page 46710]]
hazardous waste from regulation under Subtitle I. EPA derives its
authority to develop today's rule in part from section 9003(h) of
Subtitle I of RCRA--EPA Response Program for Petroleum. This authority
applies exclusively to Subtitle I USTs and does not extend to the
regulation of hazardous waste under Subtitle C. Thus, today's rule
applies exclusively to EPA's RCRA Subtitle I UST program and does not
affect any environmental requirements outside of the Subtitle I
regulatory context.
F. Aboveground Storage Tanks and Heating Oil Tanks
A few commenters requested that in addition to petroleum USTs, the
proposed regulatory exemption apply to aboveground storage tanks (ASTs)
and heating oil tanks. Neither ASTs nor tanks used to store heating oil
for consumptive use on the premises where stored are regulated under
RCRA Subtitle I, although they may be regulated sometimes under other
federal laws (e.g., the Oil Pollution Act) or state laws. Today's rule
only addresses petroleum USTs regulated under Subtitle I of RCRA. The
rule applies exclusively to EPA's RCRA Subtitle I UST program and does
not affect any environmental requirements outside of the Subtitle I
regulatory context.
While ASTs and heating oil tanks used for on-site consumption are
excluded from the federal UST requirements, several states do regulate
them. Under federal law, states are allowed to develop more stringent
requirements, as well as requirements that are broader in scope than
federal the ones. Thus, holders may find themselves responsible for
certain state-imposed AST and/or heating oil tank requirements. States
that are concerned about lender liability issues may choose to provide
statutory and regulatory exclusions for holders that extend loans to
borrowers who own or operate ASTs or heating oil tanks, particularly if
it would have a positive influence on the ability of an UST owner or
operator to obtain capital.
V. Economic Analysis
In the proposed rule, EPA requested that commenters furnish
information that would help the Agency better understand how this
regulatory exemption would affect an UST owner or operator's ability to
comply with UST regulations. The Agency specifically requested
information regarding the current interest rate charged for loans when
property with one or more USTs is used as collateral. In addition,
holders were asked about the extent to which credit might have been
more available in the past if the rule had been in effect.
EPA did not receive any substantive comments or data regarding this
request for information, and as a result, was unable to collect and
analyze any new data that would assist the Agency in quantitatively
evaluating further the rule's potential effects upon environmental
protection and economic growth. For those interested in a more detailed
discussion of the costs and benefits associated with today's rule,
please refer to the ''Background Document in Support of the Lender
Liability Rule for Underground Storage Tanks Under Subtitle I of the
Resource Conservation and Recovery Act,'' located in the OUST Docket at
401 M Street, SW., room M2616, Washington, DC 20460.
VI. Regulatory Assessment Requirements
A. Executive Order 12866
Under Executive Order 12866 [58 FR 51735 (October 4, 1993)], the
Agency must determine whether the regulatory action is ''significant''
and therefore subject to review by the U.S. Office of Management and
Budget (OMB) and the requirements of the Executive Order. The Order
defines ''significant regulatory action'' as one that is likely to
result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof, or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this rule is a ''significant regulatory action''
because it raises unique or novel policy issues. Therefore, this rule
is subject to review by OMB. OMB, however, elected to waive its review
of the final rule. Thus, no changes were made in the final rule in
response to OMB recommendations.
B. Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act of 1980, agencies
must evaluate the effects of a regulation on small entities. If the
rule is likely to have a ''significant impact on a substantial number
of small entities,'' then a Regulatory Flexibility Analysis must be
performed. Because this rule may actually result in cost savings for
small entities that hold security interests in USTs or UST systems, by
lowering the cost and increasing the availability of capital for small
business UST owners, EPA certifies that today's rule would not have a
significant impact on a substantial number of small entities.
C. Paperwork Reduction Act
This rule does not contain any new information collection
requirements under the provision of the Paperwork Reduction Act, 44
U.S.C. 3501 et seq.
To the extent that this rule discusses any information collection
requirements imposed under existing underground storage tank
regulations, those requirements have been approved by the OMB under the
Paperwork Reduction Act and have been assigned control number 2050-0068
(ICR no. 1360.04).
D. Unfunded Mandates Reform Act
Under Section 202 of the Unfunded Mandates Reform Act of 1995,
signed into law on March 22, 1995, EPA must prepare a statement to
accompany any rule where the estimated costs to state, local, or tribal
governments in the aggregate, or to the private sector, will be $100
million or more in any one year. Under Section 205, EPA must select the
most cost-effective and least burdensome alternative that achieves the
objective of the rule and is consistent with statutory requirements.
Section 203 requires EPA to establish a plan for informing and advising
any small governments that may be significantly impacted by the rule.
EPA has determined that this rule does not include a federal
mandate that may result in estimated costs of $100 million or more to
either state, local or tribal governments in the aggregate, or to the
private sector.
List of Subjects in 40 CFR Parts 280 and 281
Hazardous substances, Insurance, Oil pollution, Reporting and
recordkeeping requirements, Surety bonds, Water pollution control,
Water supply.
Dated: August 29, 1995.
Carol M. Browner,
Administrator.
For the reasons set out in the preamble title 40, chapter I of the
Code of Federal Regulations is amended as follows:
[[Page 46711]]
PART 280--TECHNICAL STANDARDS AND CORRECTIVE ACTION REQUIREMENTS
FOR OWNERS AND OPERATORS OF UNDERGROUND STORAGE TANKS (UST)
1. The authority citation for part 280 is revised to read as
follows:
Authority: 42 U.S.C. 6912, 6991, 6991a, 6991b, 6991c, 6991d,
6991e, 6991f, 6991g, 6991h.
2. Part 280 is amended by adding subpart I consisting of
Secs. 280.200 through 280.240 to read as follows:
Subpart I--Lender Liability
Sec.
280.200 Definitions.
280.210 Participation in management.
280.220 Ownership of an underground storage tank or underground
storage tank system or facility or property on which an underground
storage tank or underground storage tank system is located.
280.230 Operating an underground storage tank or underground
storage tank system.
Subpart I--Lender Liability
Sec. 280.200 Definitions.
(a) UST technical standards, as used in this subpart, refers to the
UST preventative and operating requirements under 40 CFR part 280,
subparts B, C, D, G, and Sec. 280.50 of subpart E.
(b) Petroleum production, refining, and marketing.
(1) Petroleum production means the production of crude oil or other
forms of petroleum (as defined in Sec. 280.12) as well as the
production of petroleum products from purchased materials.
(2) Petroleum refining means the cracking, distillation,
separation, conversion, upgrading, and finishing of refined petroleum
or petroleum products.
(3) Petroleum marketing means the distribution, transfer, or sale
of petroleum or petroleum products for wholesale or retail purposes.
(c) Indicia of ownership means evidence of a secured interest,
evidence of an interest in a security interest, or evidence of an
interest in real or personal property securing a loan or other
obligation, including any legal or equitable title or deed to real or
personal property acquired through or incident to foreclosure. Evidence
of such interests include, but are not limited to, mortgages, deeds of
trust, liens, surety bonds and guarantees of obligations, title held
pursuant to a lease financing transaction in which the lessor does not
select initially the leased property (hereinafter ''lease financing
transaction''), and legal or equitable title obtained pursuant to
foreclosure. Evidence of such interests also includes assignments,
pledges, or other rights to or other forms of encumbrance against
property that are held primarily to protect a security interest. A
person is not required to hold title or a security interest in order to
maintain indicia of ownership.
(d) A holder is a person who, upon the effective date of this
regulation or in the future, maintains indicia of ownership (as defined
in Sec. 280.200(c)) primarily to protect a security interest (as
defined in Sec. 280.200(f)(1)) in a petroleum UST or UST system or
facility or property on which a petroleum UST or UST system is located.
A holder includes the initial holder (such as a loan originator); any
subsequent holder (such as a successor-in-interest or subsequent
purchaser of the security interest on the secondary market); a
guarantor of an obligation, surety, or any other person who holds
ownership indicia primarily to protect a security interest; or a
receiver or other person who acts on behalf or for the benefit of a
holder.
(e) A borrower, debtor, or obligor is a person whose UST or UST
system or facility or property on which the UST or UST system is
located is encumbered by a security interest. These terms may be used
interchangeably.
(f) Primarily to protect a security interest means that the
holder's indicia of ownership are held primarily for the purpose of
securing payment or performance of an obligation.
(1) Security interest means an interest in a petroleum UST or UST
system or in the facility or property on which a petroleum UST or UST
system is located, created or established for the purpose of securing a
loan or other obligation. Security interests include but are not
limited to mortgages, deeds of trusts, liens, and title pursuant to
lease financing transactions. Security interests may also arise from
transactions such as sale and leasebacks, conditional sales,
installment sales, trust receipt transactions, certain assignments,
factoring agreements, accounts receivable financing arrangements, and
consignments, if the transaction creates or establishes an interest in
an UST or UST system or in the facility or property on which the UST or
UST system is located, for the purpose of securing a loan or other
obligation.
(2) Primarily to protect a security interest, as used in this
subpart, does not include indicia of ownership held primarily for
investment purposes, nor ownership indicia held primarily for purposes
other than as protection for a security interest. A holder may have
other, secondary reasons for maintaining indicia of ownership, but the
primary reason why any ownership indicia are held must be as protection
for a security interest.
(g) Operation means, for purposes of this subpart, the use,
storage, filling, or dispensing of petroleum contained in an UST or UST
system.
Sec. 280.210 Participation in management.
The term ''participating in the management of an UST or UST
system'' means that, subsequent to the effective date of this subpart,
December 6, 1995, the holder is engaging in decisionmaking control of,
or activities related to, operation of the UST or UST system, as
defined herein.
(a) Actions that are participation in management.
(1) Participation in the management of an UST or UST system means,
for purposes of this subpart, actual participation by the holder in the
management or control of decisionmaking related to the operation of an
UST or UST system. Participation in management does not include the
mere capacity or ability to influence or the unexercised right to
control UST or UST system operations. A holder is participating in the
management of the UST or UST system only if the holder either:
(i) Exercises decisionmaking control over the operational (as
opposed to financial or administrative) aspects of the UST or UST
system, such that the holder has undertaken responsibility for all or
substantially all of the management of the UST or UST system; or
(ii) Exercises control at a level comparable to that of a manager
of the borrower's enterprise, such that the holder has assumed or
manifested responsibility for the overall management of the enterprise
encompassing the day-to-day decisionmaking of the enterprise with
respect to all, or substantially all, of the operational (as opposed to
financial or administrative) aspects of the enterprise.
(2) Operational aspects of the enterprise relate to the use,
storage, filling, or dispensing of petroleum contained in an UST or UST
system, and include functions such as that of a facility or plant
manager, operations manager, chief operating officer, or chief
executive officer. Financial or administrative aspects include
functions such as that of a credit manager, accounts payable/receivable
manager, personnel manager, controller, chief financial officer, or
similar functions. Operational aspects of the enterprise do not include
the financial or administrative aspects of the enterprise,
[[Page 46712]]
or actions associated with environmental compliance, or actions
undertaken voluntarily to protect the environment in accordance with
applicable requirements in 40 CFR part 280 or applicable state
requirements in those states that have been delegated authority by EPA
to administer the UST program pursuant to 42 USC 6991c and 40 CFR part
281.
(b) Actions that are not participation in management pre-
foreclosure.
(1) Actions at the inception of the loan or other transaction. No
act or omission prior to the time that indicia of ownership are held
primarily to protect a security interest constitutes evidence of
participation in management within the meaning of this subpart. A
prospective holder who undertakes or requires an environmental
investigation (which could include a site assessment, inspection, and/
or audit) of the UST or UST system or facility or property on which the
UST or UST system is located (in which indicia of ownership are to be
held), or requires a prospective borrower to clean up contamination
from the UST or UST system or to comply or come into compliance
(whether prior or subsequent to the time that indicia of ownership are
held primarily to protect a security interest) with any applicable law
or regulation, is not by such action considered to be participating in
the management of the UST or UST system or facility or property on
which the UST or UST system is located.
(2) Loan policing and work out. Actions that are consistent with
holding ownership indicia primarily to protect a security interest do
not constitute participation in management for purposes of this
subpart. The authority for the holder to take such actions may, but
need not, be contained in contractual or other documents specifying
requirements for financial, environmental, and other warranties,
covenants, conditions, representations or promises from the borrower.
Loan policing and work out activities cover and include all such
activities up to foreclosure, exclusive of any activities that
constitute participation in management.
(i) Policing the security interest or loan.
(A) A holder who engages in policing activities prior to
foreclosure will remain within the exemption provided that the holder
does not together with other actions participate in the management of
the UST or UST system as provided in Sec. 280.210(a). Such policing
actions include, but are not limited to, requiring the borrower to
clean up contamination from the UST or UST system during the term of
the security interest; requiring the borrower to comply or come into
compliance with applicable federal, state, and local environmental and
other laws, rules, and regulations during the term of the security
interest; securing or exercising authority to monitor or inspect the
UST or UST system or facility or property on which the UST or UST
system is located (including on-site inspections) in which indicia of
ownership are maintained, or the borrower's business or financial
condition during the term of the security interest; or taking other
actions to adequately police the loan or security interest (such as
requiring a borrower to comply with any warranties, covenants,
conditions, representations, or promises from the borrower).
(B) Policing activities also include undertaking by the holder of
UST environmental compliance actions and voluntary environmental
actions taken in compliance with 40 CFR part 280, provided that the
holder does not otherwise participate in the management or daily
operation of the UST or UST system as provided in Sec. 280.210(a) and
Sec. 280.230. Such allowable actions include, but are not limited to,
release detection and release reporting, release response and
corrective action, temporary or permanent closure of an UST or UST
system, UST upgrading or replacement, and maintenance of corrosion
protection. A holder who undertakes these actions must do so in
compliance with the applicable requirements in 40 CFR part 280 or
applicable state requirements in those states that have been delegated
authority by EPA to administer the UST program pursuant to 42 U.S.C.
6991c and 40 CFR part 281. A holder may directly oversee these
environmental compliance actions and voluntary environmental actions,
and directly hire contractors to perform the work, and is not by such
action considered to be participating in the management of the UST or
UST system.
(ii) Loan work out. A holder who engages in work out activities
prior to foreclosure will remain within the exemption provided that the
holder does not together with other actions participate in the
management of the UST or UST system as provided in Sec. 280.210(a). For
purposes of this rule, ''work out'' refers to those actions by which a
holder, at any time prior to foreclosure, seeks to prevent, cure, or
mitigate a default by the borrower or obligor; or to preserve, or
prevent the diminution of, the value of the security. Work out
activities include, but are not limited to, restructuring or
renegotiating the terms of the security interest; requiring payment of
additional rent or interest; exercising forbearance; requiring or
exercising rights pursuant to an assignment of accounts or other
amounts owing to an obligor; requiring or exercising rights pursuant to
an escrow agreement pertaining to amounts owing to an obligor;
providing specific or general financial or other advice, suggestions,
counseling, or guidance; and exercising any right or remedy the holder
is entitled to by law or under any warranties, covenants, conditions,
representations, or promises from the borrower.
(c) Foreclosure on an UST or UST system or facility or property on
which an UST or UST system is located, and participation in management
activities post-foreclosure.
(1) Foreclosure. (i) Indicia of ownership that are held primarily
to protect a security interest include legal or equitable title or deed
to real or personal property acquired through or incident to
foreclosure. For purposes of this subpart, the term ''foreclosure''
means that legal, marketable or equitable title or deed has been
issued, approved, and recorded, and that the holder has obtained access
to the UST, UST system, UST facility, and property on which the UST or
UST system is located, provided that the holder acted diligently to
acquire marketable title or deed and to gain access to the UST, UST
system, UST facility, and property on which the UST or UST system is
located. The indicia of ownership held after foreclosure continue to be
maintained primarily as protection for a security interest provided
that the holder undertakes to sell, re-lease an UST or UST system or
facility or property on which the UST or UST system is located, held
pursuant to a lease financing transaction (whether by a new lease
financing transaction or substitution of the lessee), or otherwise
divest itself of the UST or UST system or facility or property on which
the UST or UST system is located, in a reasonably expeditious manner,
using whatever commercially reasonable means are relevant or
appropriate with respect to the UST or UST system or facility or
property on which the UST or UST system is located, taking all facts
and circumstances into consideration, and provided that the holder does
not participate in management (as defined in Sec. 280.210(a)) prior to
or after foreclosure.
(ii) For purposes of establishing that a holder is seeking to sell,
re-lease pursuant to a lease financing transaction (whether by a new
lease financing transaction or substitution of the lessee), or divest
in a reasonably expeditious
[[Page 46713]]
manner an UST or UST system or facility or property on which the UST or
UST system is located, the holder may use whatever commercially
reasonable means as are relevant or appropriate with respect to the UST
or UST system or facility or property on which the UST or UST system is
located, or may employ the means specified in Sec. 280.210(c)(2). A
holder that outbids, rejects, or fails to act upon a written bona fide,
firm offer of fair consideration for the UST or UST system or facility
or property on which the UST or UST system is located, as provided in
Sec. 280.210(c)(2), is not considered to hold indicia of ownership
primarily to protect a security interest.
(2) Holding foreclosed property for disposition and liquidation. A
holder, who does not participate in management prior to or after
foreclosure, may sell, re-lease, pursuant to a lease financing
transaction (whether by a new lease financing transaction or
substitution of the lessee), an UST or UST system or facility or
property on which the UST or UST system is located, liquidate, wind up
operations, and take measures, prior to sale or other disposition, to
preserve, protect, or prepare the secured UST or UST system or facility
or property on which the UST or UST system is located. A holder may
also arrange for an existing or new operator to continue or initiate
operation of the UST or UST system. The holder may conduct these
activities without voiding the security interest exemption, subject to
the requirements of this subpart.
(i) A holder establishes that the ownership indicia maintained
after foreclosure continue to be held primarily to protect a security
interest by, within 12 months following foreclosure, listing the UST or
UST system or the facility or property on which the UST or UST system
is located, with a broker, dealer, or agent who deals with the type of
property in question, or by advertising the UST or UST system or
facility or property on which the UST or UST system is located, as
being for sale or disposition on at least a monthly basis in either a
real estate publication or a trade or other publication suitable for
the UST or UST system or facility or property on which the UST or UST
system is located, or a newspaper of general circulation (defined as
one with a circulation over 10,000, or one suitable under any
applicable federal, state, or local rules of court for publication
required by court order or rules of civil procedure) covering the
location of the UST or UST system or facility or property on which the
UST or UST system is located. For purposes of this provision, the 12-
month period begins to run from December 6, 1995 or from the date that
the marketable title or deed has been issued, approved and recorded,
and the holder has obtained access to the UST, UST system, UST facility
and property on which the UST or UST system is located, whichever is
later, provided that the holder acted diligently to acquire marketable
title or deed and to obtain access to the UST, UST system, UST facility
and property on which the UST or UST system is located. If the holder
fails to act diligently to acquire marketable title or deed or to gain
access to the UST or UST system, the 12-month period begins to run from
December 6, 1995 or from the date on which the holder first acquires
either title to or possession of the secured UST or UST system, or
facility or property on which the UST or UST system is located,
whichever is later.
(ii) A holder that outbids, rejects, or fails to act upon an offer
of fair consideration for the UST or UST system or the facility or
property on which the UST or UST system is located, establishes by such
outbidding, rejection, or failure to act, that the ownership indicia in
the secured UST or UST system or facility or property on which the UST
or UST system is located are not held primarily to protect the security
interest, unless the holder is required, in order to avoid liability
under federal or state law, to make a higher bid, to obtain a higher
offer, or to seek or obtain an offer in a different manner.
(A) Fair consideration, in the case of a holder maintaining indicia
of ownership primarily to protect a senior security interest in the UST
or UST system or facility or property on which the UST or UST system is
located, is the value of the security interest as defined in this
section. The value of the security interest includes all debt and costs
incurred by the security interest holder, and is calculated as an
amount equal to or in excess of the sum of the outstanding principal
(or comparable amount in the case of a lease that constitutes a
security interest) owed to the holder immediately preceding the
acquisition of full title (or possession in the case of a lease
financing transaction) pursuant to foreclosure, plus any unpaid
interest, rent, or penalties (whether arising before or after
foreclosure). The value of the security interest also includes all
reasonable and necessary costs, fees, or other charges incurred by the
holder incident to work out, foreclosure, retention, preserving,
protecting, and preparing, prior to sale, the UST or UST system or
facility or property on which the UST or UST system is located, re-
lease, pursuant to a lease financing transaction (whether by a new
lease financing transaction or substitution of the lessee), of an UST
or UST system or facility or property on which the UST or UST system is
located, or other disposition. The value of the security interest also
includes environmental investigation costs (which could include a site
assessment, inspection, and/or audit of the UST or UST system or
facility or property on which the UST or UST system is located), and
corrective action costs incurred under Secs. 280.51 through 280.67 or
any other costs incurred as a result of reasonable efforts to comply
with any other applicable federal, state or local law or regulation;
less any amounts received by the holder in connection with any partial
disposition of the property and any amounts paid by the borrower (if
not already applied to the borrower's obligations) subsequent to the
acquisition of full title (or possession in the case of a lease
financing transaction) pursuant to foreclosure. In the case of a holder
maintaining indicia of ownership primarily to protect a junior security
interest, fair consideration is the value of all outstanding higher
priority security interests plus the value of the security interest
held by the junior holder, each calculated as set forth in this
paragraph.
(B) Outbids, rejects, or fails to act upon an offer of fair
consideration means that the holder outbids, rejects, or fails to act
upon within 90 days of receipt, a written, bona fide, firm offer of
fair consideration for the UST or UST system or facility or property on
which the UST or UST system is located received at any time after six
months following foreclosure, as defined in Sec. 280.210(c). A
''written, bona fide, firm offer'' means a legally enforceable,
commercially reasonable, cash offer solely for the foreclosed UST or
UST system or facility or property on which the UST or UST system is
located, including all material terms of the transaction, from a ready,
willing, and able purchaser who demonstrates to the holder's
satisfaction the ability to perform. For purposes of this provision,
the six-month period begins to run from December 6, 1995 or from the
date that marketable title or deed has been issued, approved and
recorded to the holder, and the holder has obtained access to the UST,
UST system, UST facility and property on which the UST or UST system is
located, whichever is later, provided that the holder was acting
diligently to acquire marketable title or
[[Page 46714]]
deed and to obtain access to the UST or UST system, UST facility and
property on which the UST or UST system is located. If the holder fails
to act diligently to acquire marketable title or deed or to gain access
to the UST or UST system, the six-month period begins to run from
December 6, 1995 or from the date on which the holder first acquires
either title to or possession of the secured UST or UST system, or
facility or property on which the UST or UST system is located,
whichever is later.
(3) Actions that are not participation in management post-
foreclosure. A holder is not considered to be participating in the
management of an UST or UST system or facility or property on which the
UST or UST system is located when undertaking actions under 40 CFR part
280, provided that the holder does not otherwise participate in the
management or daily operation of the UST or UST system as provided in
Sec. 280.210(a) and Sec. 280.230. Such allowable actions include, but
are not limited to, release detection and release reporting, release
response and corrective action, temporary or permanent closure of an
UST or UST system, UST upgrading or replacement, and maintenance of
corrosion protection. A holder who undertakes these actions must do so
in compliance with the applicable requirements in 40 CFR part 280 or
applicable state requirements in those states that have been delegated
authority by EPA to administer the UST program pursuant to 42 U.S.C.
6991c and 40 CFR part 281. A holder may directly oversee these
environmental compliance actions and voluntary environmental actions,
and directly hire contractors to perform the work, and is not by such
action considered to be participating in the management of the UST or
UST system.
Sec. 280.220 Ownership of an underground storage tank or underground
storage tank system or facility or property on which an underground
storage tank or underground storage tank system is located.
Ownership of an UST or UST system or facility or property on which
an UST or UST system is located. A holder is not an ''owner'' of a
petroleum UST or UST system or facility or property on which a
petroleum UST or UST system is located for purposes of compliance with
the UST technical standards as defined in Sec. 280.200(a), the UST
corrective action requirements under Secs. 280.51 through 280.67, and
the UST financial responsibility requirements under Secs. 280.90
through 280.111, provided the person:
(a) Does not participate in the management of the UST or UST system
as defined in Sec. 280.210; and
(b) Does not engage in petroleum production, refining, and
marketing as defined in Sec. 280.200(b).
Sec. 280.230 Operating an underground storage tank or underground
storage tank system.
(a) Operating an UST or UST system prior to foreclosure. A holder,
prior to foreclosure, as defined in Sec. 280.210(c), is not an
''operator'' of a petroleum UST or UST system for purposes of
compliance with the UST technical standards as defined in
Sec. 280.200(a), the UST corrective action requirements under
Secs. 280.51 through 280.67, and the UST financial responsibility
requirements under Secs. 280.90 through 280.111, provided that, after
December 6, 1995, the holder is not in control of or does not have
responsibility for the daily operation of the UST or UST system.
(b) Operating an UST or UST system after foreclosure. The following
provisions apply to a holder who, through foreclosure, as defined in
Sec. 280.210(c), acquires a petroleum UST or UST system or facility or
property on which a petroleum UST or UST system is located.
(1) A holder is not an ''operator'' of a petroleum UST or UST
system for purposes of compliance with 40 CFR part 280 if there is an
operator, other than the holder, who is in control of or has
responsibility for the daily operation of the UST or UST system, and
who can be held responsible for compliance with applicable requirements
of 40 CFR part 280 or applicable state requirements in those states
that have been delegated authority by EPA to administer the UST program
pursuant to 42 U.S.C. 6991c and 40 CFR part 281.
(2) If another operator does not exist, as provided for under
paragraph (b)(1) of this section, a holder is not an ''operator'' of
the UST or UST system, for purposes of compliance with the UST
technical standards as defined in Sec. 280.200(a), the UST corrective
action requirements under Secs. 280.51 through 280.67, and the UST
financial responsibility requirements under Secs. 280.90 through
280.111, provided that the holder:
(i) Empties all of its known USTs and UST systems within 60
calendar days after foreclosure or within 60 calendar days after
December 6, 1995, whichever is later, or another reasonable time period
specified by the implementing agency, so that no more than 2.5
centimeters (one inch) of residue, or 0.3 percent by weight of the
total capacity of the UST system, remains in the system; leaves vent
lines open and functioning; and caps and secures all other lines,
pumps, manways, and ancillary equipment; and
(ii) Empties those USTs and UST systems that are discovered after
foreclosure within 60 calendar days after discovery or within 60
calendar days after December 6, 1995, whichever is later, or another
reasonable time period specified by the implementing agency, so that no
more than 2.5 centimeters (one inch) of residue, or 0.3 percent by
weight of the total capacity of the UST system, remains in the system;
leaves vent lines open and functioning; and caps and secures all other
lines, pumps, manways, and ancillary equipment.
(3) If another operator does not exist, as provided for under
paragraph (b)(1) of this section, in addition to satisfying the
conditions under paragraph (b)(2) of this section, the holder must
either:
(i) Permanently close the UST or UST system in accordance with
Secs. 280.71 through 280.74, except Sec. 280.72(b); or
(ii) Temporarily close the UST or UST system in accordance with the
following applicable provisions of Sec. 280.70:
(A) Continue operation and maintenance of corrosion protection in
accordance with Sec. 280.31;
(B) Report suspected releases to the implementing agency; and
(C) Conduct a site assessment in accordance with Sec. 280.72(a) if
the UST system is temporarily closed for more than 12 months and the
UST system does not meet either the performance standards in
Sec. 280.20 for new UST systems or the upgrading requirements in
Sec. 280.21, except that the spill and overfill equipment requirements
do not have to be met. The holder must report any suspected releases to
the implementing agency. For purposes of this provision, the 12-month
period begins to run from December 6, 1995 or from the date on which
the UST system is emptied and secured under paragraph (b)(2) of this
section, whichever is later.
(4) The UST system can remain in temporary closure until a
subsequent purchaser has acquired marketable title to the UST or UST
system or facility or property on which the UST or UST system is
located. Once a subsequent purchaser acquires marketable title to the
UST or UST system or facility or property on which the UST or UST
system is located, the purchaser must decide whether to operate or
close the UST or UST system in accordance with applicable requirements
in 40 CFR part 280 or applicable state requirements in
[[Page 46715]]
those states that have been delegated authority by EPA to administer
the UST program pursuant to 42 U.S.C. 6991c and 40 CFR part 281.
PART 281--APPROVAL OF STATE UNDERGROUND STORAGE TANK PROGRAMS
1. The authority citation for part 281 is revised to read as
follows:
Authority: 42 U.S.C. 6912, 6991 (c), (d), (e), (g).
Subpart C--[Amended]
2. Section 281.39 is added to subpart C to read as follows:
Sec. 281.39 Lender liability.
(a) A state program that contains a security interest exemption
will be considered to be no less stringent than, and as broad in scope
as, the federal program provided that the state's exemption:
(1) Mirrors the security interest exemption provided for in 40 CFR
part 280, subpart I; or
(2) Achieves the same effect as provided by the following key
criteria:
(i) A holder, meaning a person who maintains indicia of ownership
primarily to protect a security interest in a petroleum UST or UST
system or facility or property on which a petroleum UST or UST system
is located, who does not participate in the management of the UST or
UST system as defined under Sec. 280.210 of this chapter, and who does
not engage in petroleum production, refining, and marketing as defined
under Sec. 280.200(b) of this chapter is not:
(A) An ''owner'' of a petroleum UST or UST system or facility or
property on which a petroleum UST or UST system is located for purposes
of compliance with the requirements of 40 CFR part 280; or
(B) An ''operator'' of a petroleum UST or UST system for purposes
of compliance with the requirements of 40 CFR part 280, provided the
holder is not in control of or does not have responsibility for the
daily operation of the UST or UST system.
(ii) [Reserved]
(b) [Reserved]
[FR Doc. 95-21982 Filed 9-6-95; 8:45 am]
BILLING CODE 6560-50-P