First Quarter 2004

EPA Moves Forward with Proposed Changes to Environmental Due Diligence Standards

Holland & Knight Newsletter
Amy L. Edwards

EPA Moves Forward with Proposed Changes to Environmental Due Diligence Standards

After more than six months of intense negotiations, an EPA Negotiated Rulemaking Committee has finalized a proposed rule that will govern environmental due diligence investigations in the future. The proposed rule was the product of compromises made by a wide array of stakeholders, including representatives of banking associations; environmental professionals; federal, state and local agencies; home builders; public interest groups; and environmental organizations. Compliance with the proposed “all appropriate inquiry” rule will be the first step toward qualifying for one of the Landowner Liability Protections (LLPs) established under the Small Business Liability Relief and Brownfields Revitalization Act (the Brownfields Amendments).

The proposed “all appropriate inquiry” (AAI) rule will make significant changes in the way that Phase I Environmental Site Assessments (ESAs) – as we know them today – are conducted. These changes are likely to increase the cost of a typical Phase I ESA and to extend the amount of time needed to complete routine environmental due diligence. This article summarizes the primary changes that are likely to occur as a result of the new rule, which is scheduled to be released in early 2004.

User Obligations

The proposed rule puts heightened obligations on the person commissioning the report if that person seeks to qualify for one of the Landowner Liability Protections. Specifically, the user must share with the environmental professional the following types of information:

  • information about environmental cleanup liens that have been filed or recorded
  • any specialized knowledge or experience
  • the relationship of the purchase price to the fair market value of the property, if the property is not contaminated
  • commonly known or reasonably ascertainable information about the property

The environmental professional is then required to consider the significance of this information in their report. If the user has not provided this information, all appropriate inquiry will not be deemed completed.


The proposed rule states that “all appropriate inquiry” is intended to search for conditions “indicative of releases or threatened releases” of hazardous substances. Note that the proposed rule does not use the American Society for Testing and Materials (ASTM) terminology, Recognized Environmental Conditions (RECs), which is a different standard from “releases or threatened releases.” The term REC is defined as a condition that, if brought to the attention of a regulatory agency, would be likely to give rise to an enforcement action or a cleanup obligation.

Both the environmental professional and the user have obligations to achieve this new objective. Together, they must try to identify the following:

  • current and past property uses and occupancies
  • current and past uses of hazardous substances
  • waste management and disposal activities that could have caused releases
  • current and past corrective action activities undertaken to address past and ongoing releases
  • engineering controls
  • institutional controls
  • properties adjoining the property that have environmental conditions that could result in conditions indicating a release on the property

Performance Criteria

The Committee wanted to change the “checklist” mentality that governs some current Phase I ESAs. For this reason, they added a performance factor section to the proposed rule. Either the environmental professional or the person seeking to qualify for an LLP must do the following:

  • gather information that is publicly available, obtainable within a reasonable time and cost, and practicably reviewable
  • review the thoroughness and reliability of the information gathered, taking into consideration any information gathered in complying with other portions of the “all appropriate inquiry” rule
  • identify any data gaps and comment upon the significance of those gaps
  • identify in the report any releases or threatened releases (except for those releases that would not pose a threat to human health or the environment)

For the user, it will no longer be acceptable to play “ostrich” and ignore significant data gaps or clearly erroneous information in a Phase I report.

Definition of an Environmental Professional

As a result of concerns about the poor quality of certain Phase I ESAs being performed today, the Committee established minimal criteria for anyone conducting “all appropriate inquiry.” The environmental professional (EP) must possess “sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding the presence of a release or threatened release to the surface or subsurface of a property, sufficient to meet the objectives and performance factors.” The EP must hold certain degrees or be practicing within this field for a certain number of years.

Specifically, an EP must have the following qualifications:

  • a Professional Engineer’s (PE) or Professional Geologist’s (PG) license or registration plus three year’s of full-time relevant experience, or
  • a license or certification to perform environmental inquiries plus have three years of full-time relevant experience, or
  • a Baccalaureate or higher degree in engineering, environmental science or earth science, plus five years of full-time relevant experience, or
  • a Baccalaureate or higher degree plus 10 years of full-time relevant experience

Each report must include a statement that the environmental professional meets this definition and that he or she has prepared the report in accordance with the standards and practices of the proposed rule. Deference is given throughout the proposed rule to the professional judgment of the EP. It will be important to verify, in advance, the qualifications of the person who will be preparing the AAI report.

Data Gaps and Sampling

A “data gap” is defined as “a lack of or inability to obtain information required by the standards and practices ... despite good faith efforts by the environmental professional or [user] . . . to gather such information.” The EP is required to identify data gaps in the report and to comment on the significance of that gap on his or her ability to provide an opinion regarding the likelihood of releases or threatened releases. Sampling is not required to fill such gaps, but the proposed rule acknowledges that it could be conducted for this purpose. While some on the Committee felt strongly that sampling should be required as part of AAI, Committee members ultimately agreed that sampling was optional.

Institutional and Engineering Controls

The proposed rule acknowledges the importance of identifying institutional and engineering controls as part of “all appropriate inquiry” by:

  • stating that the EP and the user must try to identify them as one of the objectives of the inquiry
  • requiring the EP to search for institutional and engineering controls that exist on or within one-half mile of the Property
  • requiring the user to share with the EP any specialized knowledge that he or she may have

Phase I ESAs traditionally have not looked for, or identified, institutional or engineering controls as part of routine environmental due diligence. This is an important change toward making “all appropriate inquiry” consistent with the objectives of the Brownfields Amendments.

Shelf Life

A Phase I ESA is considered “valid” under the proposed rule if all of the information in the report has been collected within one year of closing, and if the following types of activities have been conducted or updated within 180 days of closing:

  • interviews with past and present owners, operators and occupants of the property
  • searches for environmental cleanup liens
  • review of government records
  • visual inspection of the property and adjoining properties
  • declaration by the environmental professional
  • noting of any relevant changes in the condition of the property and any specialized knowledge of the environmental professional or the user

As a practical matter, any Phase I ESA that is more than six months old will need to be updated under the new EPA rule.


The proposed rule makes several significant changes in the content of the information that must be gathered as part of “all appropriate inquiry.” First, the EP must now interview past owners, operators and occupants of the property, not just the current owner, operator and occupant. If the property is considered to be “abandoned,” the EP must also interview one or more owners or occupants of neighboring or nearby properties. Similarly, the EP must visually inspect adjoining properties from the property line, public right-of-way or similar vantage point, not just the subject property. In addition, the EP must identify data gaps and comment upon their significance and must declare that he or she qualifies as an EP and that the inquiry was conducted in accordance with the standards and practices of the proposed rule.

The proposed rule contains expanded search distances and obligations, including the requirement to look for registries or lists of institutional and engineering controls on or within one-half mile of the property. Only in extremely rare circumstances will a Phase I ESA be considered to constitute “all appropriate inquiry” where there has not been an on-site visual inspection, and the EP will need to fully document those circumstances and efforts made to obtain comparable information. The EP’s report must contain an opinion (not a recommendation) regarding any additional investigation that might be appropriate.


Until the new EPA rule is finalized, Phase I ESAs conducted pursuant to ASTM 1527-97 or E 1527-00 will be deemed to satisfy “all appropriate inquiry.” At the same time, ASTM is diligently working on modifications to E 1527-00 to make it consistent with EPA’s proposed rule. The EPA rule is not likely to be issued in final form for several months. In the meantime, you can expect that the cost of conducting environmental due diligence will increase to meet the parties’ heightened obligations under the draft EPA “all appropriate inquiry” rule.

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