Buyers, Sellers and Lenders Beware: Standards for Environmental Due Diligence Are Changing
April 1, 2003
Amy L. Edwards- Washington
Thanks to the Brownfields Amendments of 2001, P.L. 107-118,
the standards for conducting environmental due diligence are changing. These changes will affect anyone who
commissions or relies upon Phase I Environmental Site Assessments.
The Brownfields Amendments directed the Environmental
Protection Agency (EPA) to promulgate regulations regarding what constitutes
“all appropriate inquiry” under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) no later than January 11, 2004. The Brownfields Amendments
state that the EPA must consider the following criteria in developing its
regulations:
- use of an
environmental professional
- interviews
with past and present owners, operators and occupants
- review of
historical sources of information
- searches for
recorded liens
- review of
federal, state and local records regarding waste disposal practices, spills,
underground storage tanks, and the like
- visual
inspections of the facility and adjoining properties
- utilization
of any specialized knowledge
- evaluation
of the relationship between the purchase price and the value of the property
- utilization
of commonly known or reasonably ascertainable information about the property
- consideration
of the degree of obviousness of the contamination
Until the new regulations are issued, Congress specified in
the amendments that parties may use the Standard Practice on Environmental
Sites Assessments: Phase I Environmental
Site Assessment Process (ASTM Standard Practice E 1527-97) as the basis for
determining what constitutes “all appropriate inquiry.”
Because the ASTM Standard Practice changed in 2000, EPA
recently clarified in a direct final rule that parties conducting “all
appropriate inquiry” may rely upon either the 1997 or the 2000 version of the
ASTM Standard (68 Fed. Reg. 3430-3435).
In addition, EPA has recently announced that it is establishing a
Negotiated Rulemaking Committee, or “reg neg,” to develop standards and
practices for conducting “all appropriate inquiry.” ( 68 Fed. Reg.
10675-10680). Among the issues to be resolved by the Committee are the
following:
- ways to
minimize disruption to the real estate market
- shelf life
of an assessment
- balancing
the need for a high level of certainty without imposing time consuming and
expensive regulatory requirements
- defining the
extent to which sampling may be required
At the same time, ASTM has convened a task group to work on
changes to the existing standard to clarify that anyone conducting “all
appropriate inquiry” in accordance with the standard should qualify as having
conducted “all appropriate inquiry” for purposes of all three defenses to
CERCLA liability recognized in the Amendments.
These defenses are the “innocent landowner,” “prospective purchaser” and
the “contiguous landowner” defenses.
The EPA is also planning to issue within the next few weeks
its “common elements” guidance on the steps that are required to qualify for
the three defenses to CERCLA liability under the amendments. These steps include, among other things,
conducting “all appropriate inquiry”; preserving the integrity and
effectiveness of institutional controls; taking reasonable steps to prevent
releases; and complying with all legally required release reporting
requirements.
Finally, substantial progress is being made by the National
Conference of Commissioners on Uniform State Laws (NCCUSL) in drafting a model
uniform environmental covenant act. Such
an act is needed to enhance all parties’ ability to implement and enforce
institutional controls at contaminated sites.
The Brownfields Amendments require states to maintain a
database of brownfields sites that rely on institutional controls, and also require parties who wish to qualify for
one of the three defenses to CERCLA liability to establish that they “preserved
the integrity and effectiveness of institutional controls.”
In the absence of a uniform model law, this may be extremely
difficult to do, given the current state of legal authority in many
jurisdictions to implement, track and enforce institutional controls. The NCCUSL drafting committee recently
concluded its winter 2003 drafting session, and hopes to have a final version
of the model law ready for presentation to the full conference for final
approval at its next meeting this summer.
Amy Edwards is a member of the ASTM Task Group that is
working on the revisions to the ASTM Phase I ESA Standard (E 1527) and an
advisor to the NCCUSL committee that is drafting the Uniform Environmental
Covenant Act. She also is the
editor/author of a book entitled Institutional Controls: Their Implementation and Enforcement at
Brownfields Sites, that will be published this spring by the American Bar
Association. For more information, contact Amy Edwards, toll free, at
1-888-688-8500.
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