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All Appropriate Inquiry Update
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November 2005 |
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On November 1, 2005 the Environmental Protection Agency (EPA) published in the Federal Register the Final Rule of the new standards and practices for conducting All Appropriate Inquiries (due diligence) as required under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), section 101 (35)(B). This Final Rule establishes the specific regulatory requirements and standards for conducting All Appropriate Inquires (AAI) into the previous ownership and uses of a property for the purpose of evaluating the potential presence of environmental contamination and meeting criteria necessary to qualify for certain landowner liability protections under CERCLA. |
| AAI Effective Date: November 1, 2006 |
As we have discussed previously, the new rule affects those who seek to claim protection from CERCLA liability for releases or threatened releases of hazardous substances. The new rule replaces the interim standards previously approved by Congress in 2003: the ASTM E1527-2000 or the earlier ASTM E1527-1997. The effective date of the new AAI rule is November 1, 2006. Until that date, the new final regulation and the prior two ASTM standards will all be recognized by EPA as satisfying the requirements for conducting all appropriate inquiry. Conducting “all appropriate inquiry” on or before the acquisition date of a property will then allow the acquiring party to qualify as a contiguous property owner, a bona fide prospective purchaser, or an innocent landowner. Each of these classifications allows a purchaser to claim certain CERCLA liability protections.
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| New 2005 ASTM Standards Now Available |
EPA references and recognizes the standards and practices developed by the American Society for Testing and Materials (ASTM) in the updated ASTM E1527-05, as “consistent with today’s final rule.” To be clear, the new published standard states: “Persons conducting all appropriate inquiries may use the procedures included in the ASTM E1527-05 standard to comply with today’s final rule.” The new E1527-05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, is now available online from ASTM. The ASTM’s website is: www.astm.org. The link to the new E1527-05 can be found here.
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| Changes From Current ASTM Standards |
Of the several modifications to the current ASTM standards for conducting a Phase I ESA, some of the more important are discussed below. The EPA Final Rule requires that a written report document the results of the AAI and include an opinion by “an environmental professional as to whether the conditions were identified that are indicative of releases or threatened releases of hazardous substances on, at, in or to the subject property.” The Rule also requires that the report “identify data gaps in the information collected that affect the ability of the environmental professional to render such an opinion” and that the environmental professional comment on the significance of the data gaps.
The Final Rule also states that the environmental professional who conducts or oversees the AAI must sign the written report. The individual signing the report must declare on the signature page that he/she meets the definition of an environmental professional, as defined by the final rule, and that the individual declares they have performed the AAI in conformance with the Rule.
The Final Rule requires the environmental professional’s inquiry to included interviewing the current owner and occupant of the subject property. In additional, the rule provides that the inquiry of the environmental professional included interviews of additional individuals, including current and past facility managers with relevant knowledge of the property, past owners and occupants or operators of the subject property or employees of current and past occupants of the subject property. A primary purpose of the interview portion of the AAI is to obtain information regarding the current and past ownership and uses of the property and the potential environmental conditions of the property.
In addition, ‘the relationship of the purchase price to the fair market value of the property if it were not contaminated’ must be evaluated. This could likely take the form of an appraisal, although a formal appraisal is not required.
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| How Will This Affect Phase I Environmental Site Assessments? |
This is the most fundamental question and it has not yet been clearly answered. In our opinion, the answer will reflect the risk management needs of the parties involved and the history of the property in question. This, of course, should be discussed with either appropriate legal counsel or other risk management professionals prior to committing to a specific course of action.
Some commentators on the new AAI standard have concluded that perhaps two types of Phase I ESAs will emerge: one to comply fully with the AAI requirements and thus make available the CERCLA-related protections and another that would be similar in content to the current ASTM standards but intended to be used as a pre-acquisition risk management tool. A ‘less than the AAI’ standard may be completely adequate and appropriate for certain properties that have not had a long development history or have not included current or past uses that could have caused environmental impact.
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| Conclusions |
Undoubtedly the cost to conduct an ESA will increase to reflect the additional time and services needed to meet the new standard. Phase I users should review their risk management practices internally to ensure that their institutional requirements will be met by the ESA product they pay for. Consultants will need to be very clear in their contractual arrangements as to what environmental risk management product is being delivered when they provide a Phase I ESA report. Neither the consultant nor the Phase I user should expect any future surprises.
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