EPA has, at long last, established regulatory standards and practices for evaluating a property’s environmental conditions necessary to qualify for certain landowner liability protections under the Superfund law and, as such, it is now time to modify the scope of future Phase I Environmental Site Assessments.

Background

The Small Business Liability Relief and Revitalization Act (the Brownfields Amendments) amends the Superfund law (CERCLA) liability provisions for certain landowners and potential property owners. The Brownfields Amendments provide liability protections from the strict liability of the Superfund law for releases or threatened releases of hazardous substances, if the property owner complies with specific provisions of the statute, including having conducted “all appropriate inquiries” into present and past uses of the property and the potential presence of environmental contamination on the property.

Beyond clarifying the requirements necessary to establish the “innocent landowner” defense (which is in and of itself important because, since the defense was created by Congress in 1986, there has been no statutory nor final regulatory standard for what “all appropriate inquiries” requires), significantly, the Brownfields Amendments add protections from Superfund liability for “bona fide prospective purchasers” and “contiguous property owners” who meet certain requirements.

The Brownfields Amendments amend Section 101(35)(B) of CERCLA and require EPA to promulgate regulations that establish federal standards and practices for conducting all appropriate inquiries.

All Purchasers of Commercial Property are Impacted

The all appropriate inquiries standards and practices are relevant to all prospective purchasers of commercial property who may, after purchasing the property, need to assert a defense to Superfund liability, claiming they “did not know and had no reason to know” that any hazardous substance was disposed of on, in, or at the property, by way of: (1) the innocent landowner defense to CERCLA liability (§101 (35)); (2) the contiguous property exemption to CERCLA liability (§107 (q)); (3) the bona fide prospective purchaser exemption to CERCLA liability (§107 (r)(1) and (§101 (40)); and the Brownfields site characterization and assessment grant programs (§104 (k)(2)).

When is the New Rule Effective?

The final rule is effective on November 1, 2006, a date that is one year after being published in the Federal Register. Until November 1, 2006, both the standards and practices included in the new final regulation and the current ‘interim’ standards established by Congress for all appropriate inquiries (e.g., ASTM E1527-00) will satisfy the statutory requirements for the conduct of all appropriate inquiries in an environmental due diligence effort. Parties may now begin to use the newly revised ASTM standard, ASTM E1527-05.

When is the Inquiry to be Conducted?

All appropriate inquiries must be conducted or updated within one year in advance of the date of acquisition of a property. If all appropriate inquiries are conducted more than 180 days prior to the acquisition date, certain aspects of the inquiries must be updated.

What Specific Practices Does the Rule Require?

Many of the inquiry’s activities must be conducted by, or under the supervision or responsible charge of, an individual who qualifies as an “environmental professional” as defined in the final rule.

The inquiry of the environmental professional must include: (1) interviews with past and present owners, operators and occupants; (2) reviews of historical sources of information; (3) reviews of federal, state, tribal and local government records; (4) visual inspections of the facility and adjoining properties; (5) commonly known or reasonably ascertainable information; and (6) degree of obviousness of the presence or likely presence of contamination at the property and the ability to detect the contamination.

Additional inquiries that must be conducted by or for the prospective landowner or grantee include: (7) searches for environmental cleanup liens; (8) assessments of any specialized knowledge or experience of the prospective landowner (or grantee); (9) an assessment of the relationship of the purchase price to the fair market value of the property, if the property was not contaminated; and (10) commonly known or reasonably ascertainable information.

How does the New Rule Change the Current Environment Site Assessment Practice?

The new “all appropriate inquiries” rule does not differ significantly from the way most Phase I environmental site assessments have been conducted, in accordance with ASTM E1527-00 standard. The rule includes all the significant activities that previously were performed as part of environmental due diligence such as site reconnaissance, records review, interviews, and documentation of recognized environmental conditions. The new rule, however, enhances the inquiries by extending the scope of a few of the environmental due diligence activities. In addition, the new rule requires that significant data gaps or uncertainties be documented.

Under the new all appropriate inquiries rule, interviewing the current owner or occupants of the property is mandatory. The prior ASTM E1527-00 standard only required a reasonable attempt to conduct such interviews. In addition, the new rule includes provisions for interviewing past owners and occupants of the property, if necessary to meet the objectives and performance factors. Under the ASTM E1527-00 standard, the environmental professional had to inquire about past uses of the subject property when interviewing the current property owner.

The new rule also requires an interview with an owner of a neighboring property if the subject property is abandoned. The ASTM E1527-00 standard only included such interviews at the environmental professional’s discretion.

The new rule does not specify who is responsible for performing record searches, including searches for use limitations and environmental cleanup liens. The ASTM E1527-00 standard specified that these record searches are the responsibility of the user and required that the results be reported to the environmental professional.

Unlike the ASTM E1527-00 standard, the new rule requires the examination of tribal and local government records and more extensive documentation of data gaps. And the new rule includes specific documentation requirements if the subject property cannot be visually inspected. The ASTM E1527-00 standard did not include such requirements.

Who is Qualified to Conduct the All Appropriate Inquiries?

To ensure the quality of all appropriate inquiries, the new rule includes specific educational and experience requirements for an environmental professional. The rule defines an environmental professional as someone who possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases on, at, in, or to a property, sufficient to meet the objectives and performance factors of the rule, and has: (1) a state or tribal issued certification or license and three years of relevant full-time work experience; or (2) a Baccalaureate degree or higher in science or engineering and five years of relevant full-time work experience; or (3) ten years of relevant full-time work experience.

Is There an Updated ASTM Phase I Site Assessment Standard?

Yes. ASTM International updated its E1527-00 standard, “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” EPA provided by regulation that the revised ASTM E1527-05 standard is “consistent and compliant” with the requirements of the new rule for all appropriate inquiries and may be used to satisfy with the provisions of the rule.

In the interest of caution (and despite a modest higher cost), a prospective property owner should likely, now, require adherence to the new ASTM E1527-05 standard from an environmental professional when ordering an environmental site assessment as part of the due diligence effort in a commercial property transaction.

Much of the information above was provided by U.S. EPA’s Office of Brownfields Cleanup and Redevelopment