New "All Appropriate Inquiry" Rule to Change Environmental Due Diligence

On November 1, 2005, the United States Environmental Protection Agency (U.S.EPA) issued the final rule defining the standard for conducting "All Appropriate Inquiry" (AAI) for Phase I Environmental Site Assessments (Phase I ESAs). Phase I ESAs are the most common means by which parties to a property or business transaction conduct "environmental due diligence" to understand the potential for environmental liabilities and costs associated with a property – Phase I ESAs are also typically a minimum requirement for lenders to provide real estate backed financing.

When the AAI rule takes effect in one year, on November 1, 2006, a Phase I ESA will need to satisfy the AAI standards in order to qualify the user of the Phase I ESA for certain defenses and protections available under the federal Superfund law. In addition, the AAI rule will likely set the bar for environmental due diligence for all property transactions, even before the rule takes effect in late 2006.