On November 1, 2005, the Environmental Protection Agency published its long-awaited final rule setting federal standards for the conduct of all appropriate inquiries. 70 Fed. Reg. 66070 (Nov. 1, 2005). "All appropriate inquiries" is the process of evaluating a property’s environmental conditions and assessing potential liability for any contamination, and is a key test in determining future liability for prospective purchasers of the property. The new rule, at 40 CFR Part 312, establishes specific regulatory requirements for conducting all appropriate inquiries into the previous ownership, uses, and environmental conditions of a property for the purposes of qualifying for certain landowner liability protections under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").

Background

The Small Business Liability Relief and Revitalization Act (the Brownfields Amendments) clarifies CERCLA liability provisions for certain landowners and potential property owners. The Brownfields Amendments provide liability protections for certain property owners, if the property owners comply with specific provisions outlined in the statute, including conducting all appropriate inquiries into present and past uses of the property and the potential presence of environmental contamination on the property. 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. The all appropriate inquiries standards and practices are relevant to the innocent landowner defense to CERCLA liability, the contiguous property exemption to CERCLA liability, the bona fide prospective purchaser exemption to CERCLA liability, and the brownfields site characterization and assessment grant programs.

When the Rule Becomes Effective

The final rule is effective on November 1, 2006—one year after being published in the Federal Register. Until November 1, 2006, both the standards and practices included in the final regulation and the current interim standards established by Congress for all appropriate inquiries (ASTM E1527-00) will satisfy the statutory requirements for the conduct of all appropriate inquiries.

Specific Requirements of the Final Rule

Timing: All appropriate inquiries must be conducted or updated within one year of the date of acquisition of a property. The investigation must be updated if it was conducted more than 180 days before the acquisition date.

Who Can Perform The Investigation: The final rule requires that many of the inquiry’s activities be conducted by an individual who qualifies as an environmental professional. An environmental professional must 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 possess (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.

What Is Included in the Investigation: Performance of "all appropriate inquiry" will be assessed by the degree of obviousness of the presence or likely presence of contamination at the property and the ability to detect the contamination. It must include certain specific activities, including:

  • interviews with past and present owners, operators and occupants;
  • reviews of historical sources of information;
  • reviews of federal, state, tribal and local government records;
  • visual inspections of the facility and adjoining properties; and
  • searches for environmental cleanup liens;
  • assessments of any specialized knowledge or experience of the prospective landowner (or grantee);
  • an assessment of the relationship of the purchase price to the fair market value of the property, if the property was not contaminated; and
  • commonly known or reasonably ascertainable information.

How the Final Rule Differs From the Interim Standard

The final rule largely tracks the requirements of the ASTM E1527-00 standard, which will be updated to reflect the new rule (E1527-05). The rule includes all of the 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 final rule, however, enhances the inquiries by extending the scope of a few of the environmental due diligence activities. In addition, the final rule requires that significant data gaps or uncertainties be documented.

Under the final rule, interviewing the subject property’s current owner or occupants is mandatory. The ASTM E1527-00 standard only required that the environmental professional make a reasonable attempt to conduct such interviews. In addition, the final rule includes provisions for interviewing past owners and occupants of the subject 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 final rule also requires an interview with an owner of a neighboring property if the subject property is abandoned. The ASTM E1527-00 standard included such interviews at the environmental professional’s discretion.

The final 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 final rule requires the examination of tribal and local government records and more extensive documentation of data gaps.

Finally, the final rule includes specific documentation requirements if the subject property cannot be visually inspected. The ASTM E1527-00 standard did not include such requirements.

Conclusion

Prospective purchasers that conduct all appropriate inquiry will be taking a major step towards meeting the requirements for obtaining the liability protections under CERCLA. Although conducting all appropriate inquiry will not provide a full defense to CERCLA liability, properly conducting such inquiry is a significant part of obtaining such a defense. In order to qualify for one of the landowner liability defenses, the person or entity must also comply with the other criteria set forth in CERCLA and the Brownfields Amendments. Those criteria require that the person or entity must exercise appropriate care with respect to any release hazardous substance; provide full cooperation, assistance, and access to persons authorized to undertake response actions or natural resource restoration; comply with land use restrictions and not impede performance of institutional controls; comply with all EPA information requests; provide all legally required notices regarding releases of hazardous substances; and not be potentially liable or affiliated with any other person potentially liable for the release.

The final rule will result in more thorough investigations into – and more detailed reporting of – past uses and occupancies of property, and potential sources of releases of hazardous substances that could affect such property. Prospective purchasers can expect that it will likely take environmental professionals more time to complete environmental due diligence in compliance with the proposed standard that it takes to prepare an ASTM-compliant Phase I ESA report. In addition, the new standard may result in increased costs for environment due diligence activities.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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