EPA Property Acquisition Due Diligence Rule Prescribes Standards for Conducting "All Appropriate Inquiry"

The U.S. Environmental Protection Agency (EPA) this month published its final "All Appropriate Inquiry" (AAI) rule (70 Fed. Reg. 66070) which establishes environmental due diligence standards applicable to property acquisitions as well as to persons conducting site characterization or assessment activities using grants awarded under EPA’s Brownfields program. The new standards are required by the 2002 Brownfields Revitalization Act Amendments to CERCLA (Pub. L. 107-118, 115 Stat. 2356) (Brownfields Amendments).

At the same time, EPA announced that the 2005 update of the ASTM E1527 Phase I Environmental Site Assessment Standard is consistent with the new regulation and hence may be used in lieu of the AAI rule. The new AAI regulation becomes effective in one year, on November 1, 2006. DLA Piper partner Bill Weissman played an active role in the development of the AAI rule and the updated ASTM Phase I standard.

We have provided a brief outline of the rule below and welcome any questions you may have about the rule or its applicability.

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), persons may be held strictly liable for releases or threatened releases of hazardous substances at properties that they either currently own or operate or owned or operated at the time of disposal. Strict liability in this context means that a potentially responsible party may be liable for environmental contamination based solely on property ownership, without regard to fault or negligence.

In 2002, President George W. Bush signed the Brownfields Amendments, which, among other things, provide CERCLA landowner liability protections to innocent landowners, bona fide prospective purchasers, and contiguous property owners if certain specified conditions are met, one of which is conducting "all appropriate inquiries" before acquiring property. The focus of the due diligence inquiry is on the prior ownership and use of a property, and the aim is to evaluate the property for potential environmental contamination and to assess potential liability for contamination that may be present at the property. Because compliance with AAI is one of the paths to achieving CERCLA landowner liability protection, the scope of the inquiry is on conditions that could result in CERCLA liability – that is, identifying releases or threatened releases of hazardous substances at the property that could be the subject of a Superfund response action. The Brownfields Amendments directed EPA to establish federal standards and practices for conducting AAI, and the new rule was EPA’s response to that mandate.

Under the rule, AAI must be conducted within one year prior to the date of acquisition by an environmental professional (whose qualifications are spelled out in the rule) to identify conditions indicative of a hazardous substance release or threatened release as defined by CERCLA. Specifically, the inquiry must include:

• Interviews with past and present owners, operators, and occupants;
• Reviews of historical sources, such as the chain of title documents, aerial photographs, building department records, and land use records;
• Searches for recorded environmental cleanup liens;
• Reviews of federal, state, local, and tribal government records, including waste disposal records, underground storage tank records, hazardous waste management records, and spill records;
• Visual inspections of the facility and of adjoining properties;
• Evaluations of the purchaser’s specialized knowledge or experience;
• Assessment of the relationship of the purchase price to the value of the property, if the property was not contaminated; and
• Information that is commonly known or reasonably ascertainable about the property.

The environmental professional must take all of this information into account in considering the degree to which the presence (or likely presence) of contamination at the property is obvious as well as the potential that appropriate investigation will detect contamination.

A written report of the investigation must be prepared. It must include among other things, the environmental professional’s opinion about the possibility of conditions indicative of a hazardous substance release, an evaluation of data gaps; and documentation of the environmental professional’s qualifications, including a prescribed declaration by the environmental professional. While not mandatory, EPA recommends that the environmental professional provide an opinion about the need (if any) for additional appropriate investigation.

Specific requirements for implementing the components of AAI are spelled out in the regulations, with even greater detail to be found in the ASTM E1527-05 Phase I standard. Several of these areas of inquiry must be updated if they have been conducted more than 180 days prior to the date of acquisition.

To be eligible for CERCLA landowner liability protection, a purchaser must do more than conduct AAI. Eligibility also requires compliance with certain "continuing obligations" spelled out in the Brownfields Amendments, including:

• Compliance with land use restrictions;
• Not impeding the effectiveness or integrity of institutional controls;
• Taking "reasonable steps" to prevent releases of hazardous substances affecting the property;
• Cooperating with and assisting federal or state regulatory officials or other persons who are conducting response actions or natural resource restoration at the property;
• Complying with CERCLA information requests and administrative subpoenas; and
• Providing legally required notices.

Standards for satisfying "continuing obligations" are not defined in the statute or in EPA regulations, though EPA has published interim guidance to provide some assistance to the regulated community. (EPA, Interim Guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability, Common Elements, 2003.) ASTM recently began the process for developing a consensus standard on "continuing obligations."

Until the November 1, 2006. effective date, EPA will recognize as compliance with AAI any of the following standards:

• The new AAI rule, even though not yet legally in effect;
• ASTM E1527-05;
• ASTM E1527-00;
• ASTM E1527-97.

After November 1, 2006, only the new AAI rule and ASTM E1527-05 will constitute compliance with AAI.

For further information, please contact your DLA Piper Environmental attorney, or:

Matt Covington, Michael Elam, Douglas H. Green, John E. Griffith, Jr., Christina King Loundy, Roger Truitt, Steven Jay Shimberg, Bill Weissman and Gina Zawitoski.

This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.