Environmental Due Diligence Standards Are Changing

The standards that govern environmental due diligence and "all appropriate inquiry" under CERCLA are changing.  Anyone who is involved in commissioning, preparing or reviewing "Phase I ESAs" needs to be aware of these changes. 

A negotiated rulemaking proceeding has been convened by the Environmental Protection Agency (EPA).  This rulemaking is required by the Small Business Liability Relief and Brownfields Revitalization Act of 2001 (P.L. 107-118) (Brownfields Amendments).  The goal is to develop a rule governing "all appropriate inquiry" under CERCLA by January 2004. 

The rulemaking committee has already met four times and will meet three more times before year's end.  The committee has already achieved general agreement on draft language for the primary sections of the proposed rule.  One change from current practice is that the proposed rule does not use the terminology "recognized environmental conditions," but instead refers to "releases or threatened releases" of hazardous substances on a property.  Other key changes include establishing minimum criteria for an "environmental professional," requiring interviews of past owners and occupants of the property, and potentially requiring interviews of adjoining property owners, particularly for "abandoned" properties.  Open issues include the precise definition of an "environmental professional," how far back in time the consultant should review historical records, whether the subject property must always be physically inspected, and whether any intrusive sampling should ever be required as part of "all appropriate inquiry."  The proposed rule will also require persons commissioning the report to search for environmental liens and institutional controls and to disclose to the environmental professional any specialized knowledge that he or she may have concerning prior releases of hazardous substances on the property. The proposed rule should be released for public comment by January 2004.

Those who are familiar with ASTM Phase I ESAs will find that the proposed EPA rule is likely to be more "performance-based," in that the amount of due diligence that will be "appropriate" will depend upon resolving "open" issues.  For example, if an aerial photograph suggests that a gasoline service station may have been present on the property in the past, there will be a need to review Sanborn maps or other historical sources of information to confirm whether tanks may have been present.  The final rule is also likely to diminish the role of "checklists."  For example, should the environmental professional search for agency records regarding dry cleaners or leaking underground storage tanks that are 1/8, 1/4, 1/2 or 1 mile away from the property?  The final rule is likely to defer to the judgment of the environmental professional.

At the same time, the ASTM E 50 committee is working on changes to the ASTM Phase I ESA Standard (E 1527) to make that standard more consistent with the Brownfields Amendments of 2001.  Principal changes are elimination of references to the "transaction screen" (ASTM E 1528), acknowledgement that the Brownfields Amendments have now introduced three potential defenses to CERCLA liability (referred to as the "landowner liability protections" or "LLPs"), and discussion of the need to search for institutional controls.  With regard to the latter issue, the user will have the obligation to check recorded land records, and the environmental consultant will have the obligation to search agency records and registries.

What does this mean for future environmental due diligence?  Phase I ESAs that comply with the EPA rule are likely to be much more expensive than they are today.  Recipients of a brownfields grant will be required to follow the final EPA rule.  The jury is still out whether prospective purchasers and their lenders will feel the need to follow the more stringent requirements of the EPA rule in order to qualify for one of the defenses against CERCLA liability, or whether they will continue to follow the ASTM E 1527 Phase I ESA standard.  Stay tuned.