New EPA Rule Alters Approach to Environmental Due Diligence

A final rule issued by the United States Environmental Protection Agency ("EPA") on November 1, 2005¹ will have a significant effect on how environmental due diligence is conducted by prospective purchasers of commercial real estate, as well as other entities who wish to avail themselves of CERCLA "Superfund" liability protections. The rule creates new obligations for users of environmental site assessments (ESAs) (commonly known as "Phase I reports"), including an obligation to affirmatively provide information to the Environmental Professional ("EP") who conducts the diligence.

In order to achieve the status of an "innocent purchaser"² under CERCLA, a party is required to undertake diligence with "all appropriate inquiry" ("AAI"). Unfortunately, the CERCLA statute as originally enacted did not define the criteria for conducting an "appropriate" inquiry. Therefore, the American Society for Testing and Materials ("ASTM") promulgated ASTM Standard E1527 in order to provide a