Understanding the New ASTM E 1527-05 standard.
Although an innocent landowner defense was added to CERCLA when it was amended in 1986, that defense was only available to property owners with no knowledge of the presence of hazardous substances when they bought the land. Also, the EPA could always argue that even if the owner did not know of the contamination, ignorance was not an excuse if commercially reasonable efforts could have uncovered the contamination. These factors led to the inadvertent creation of barren urban landscapes, called “brownfields,” where no lender or investor would dare to get involved because of the possibility of federal liability. The desire for reform created the need for major amendments to the Superfund law. On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act. Title II of that Act amends 107 of CERCLA (42 U.S.C. 9607) by providing immunity from liability for three classes of landowners who could qualify for liability limitations: (1) bona fide prospective purchasers, (2) contiguous property owners, and (3) innocent landowners. In order to qualify, these landowners needed to demonstrate that they had taken all appropriate inquiry regarding the environmental condition of the real estate prior to a purchase.
1. Background of the New All Appropriate Inquiry Rule
This article does not address the specific requirements for properties to qualify for the All Appropriate Inquiry Rule, but it can generally be stated that the rule does not apply to properties that are already the subject of many EPA removal or remediation actions.
The EPA was charged under the law to establish by rule the “generally accepted good commercial and customary standards and practices” that had to be followed by a party seeking immunity. After much debate and review by interested groups, those rules went into effect on November 1, 2006. After November 1, 2006, buyers and seller of real estate must comply with the requirements of the Environmental Protection Agency’s “All Appropriate Inquiry Rule,” or follow the standards set forth in the ASTM E1527-05 Phase I Environmental Site Assessment Process, to satisfy the statutory requirements for conducting all appropriate inquiries. All appropriate inquiries must be conducted in compliance with either of these standards to obtain protection from potential liability under CERCLA as an innocent landowner, a contiguous property owner, or a bona fide prospective purchaser. The rule differs from the old Phase I standard in such areas as the definition of environmental professional, certain interviewing requirements, and the documentation of data gaps that may affect an environmental professional’s ability to render an opinion regarding the environmental conditions of a property.
2. Summary of Important Changes under New AAI Rule.
The new All Appropriate Inquiry Rules makes Phase I investigations more important because they expand the universe of potential purchasers of contaminated properties.
The new standard makes several changes to the familiar Phase I process that has been in place for several decades.
â€¢ A new definition for the â€œenvironmental professionalâ€ that must conduct and oversee the Phase I process.
â€¢ An interview with someone with knowledge of the real estate is now mandatory.
– Past owners, operators and occupant [or major occupants and those using hazmat]and others as necessary;
– Neighbors must be interviewed if the property has been abandoned.
â€¢ The standard requires a review of historical sources and sets out specific requirements.
â€¢ The Phase I must consider â€œcommonly knownâ€ information.â€
â€¢ The standard has new requirements regarding the review of government records.
â€¢ Site Inspection Requirements are tightened.
â€¢ The environmental professional must consider the â€œdegree of obviousness of contamination.â€
â€¢ The landowner must be aware of the relationship of price to fair market value given any known environmental issues.
â€¢ The environmental professional must describe and account for any data gaps.
â€¢ The environmental professional must sign a “declaration” at the conclusion of the report.
Who can be an “Environmental Professional” under the new rules?
â€¢ Professional engineer or geologist with 3 years experience;
â€¢ A person with a federal or state license to perform environmental inquiries with 3 years experience;
â€¢ A person with a B.A./B.S. degree in science or engineering with 5 years experience; or
â€¢ a person without a college degree in science or engineering with 10 years experience.
What does the Environmental Professional have to do to comply with AAI?
â€¢ Search historical documents as far back as property contained structures or was first used (subject to EP discretion)
â€¢ Commonly Known Information. Some sources are â€œknownâ€ and you risk liability if you ignore those sources.
â€¢ Historical maps and other mapping resources, such as Sanborn maps
â€¢ USGS maps and government maps such as the Iowa Geologic Map Server
â€¢ Tribal records are required.
â€¢ Local government records are required.
â€¢ Engineering and Institutional Controls.
â€¢ â€œDegree of obviousness of contamination.â€ Even though a Phase II is not required for AAI compliance, if contamination is obvious, then failure to recommend a Phase II may trigger liability if the site was â€œobviously contaminatedâ€ and the nature and extent of the contamination was not established.
â€¢ Data gaps must be documented. The Environmental Professional must explain the steps taken to get around the data gap.
â€¢ An actual site Inspection is required.
â€¢ Must make good faith effort to access, and document efforts. Look from property boundary, air, etc.
â€¢ Document physical limitations (obstructions, weather).
â€¢ Adjoining properties – review from property or public access point.
Environmental Professional Opinion is required in the AAI report.
â€¢ Opinion as to whether the AAI identified conditions indicative of releases or threatened releases of hazardous substances on, at, in or to the subject property.
The Environmental Professional is also required to sign the following declaration
I declare that, to the best of my professional knowledge and belief, I meet the definition of Environmental Professional as defined in Â§312.10 of 40 CFR Part 312.
I have the specific qualifications based on education, training, and experience to assess a property of the nature, history, and setting of the subject property. I have developed and performed the all appropriate inquiries in conformance with the standards and practices set forth in 40 CFR Part 312.
Burden of Proof. A party claiming to be a bona fide prospective purchaser, contiguous property owner, or an innocent landowner bears the burden of proving that it meets the conditions set out by the statute. Ultimately, courts will have to determine whether landowners in specific cases have met the conditions of the landowner liability protections and may provide interpretations of the statutory conditions.
Affiliation Rule. Before the Brownfields Act, having a “contractual relationship” with an “owner or operator” was enough to disqualify that party from raising a defense to a liability claim under Â§ 107 of CERCLA. The Brownfields Act provides an additional exclusion: the party must not be “affiliated with” a PRP. The new exclusion is as follows:
NO AFFILIATIONâ€”The person is notâ€”(i) potentially liable, or affiliated with any other person that is potentially liable, for response costs at a facility throughâ€” (I) any direct or indirect familial relationship; or (II) any contractual, corporate, or financial relationship (other than a contractual, corporate, or financial relationship that is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services); or (ii) the result of a reorganization of a business entity that was potentially liable.
CERCLA Â§ 101(40)(H). The structure of this definition appears to exclude from the application of affiliated parties a contractual, corporate or financial relationship that “is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods and services.” The EPA has issued non-binding guidance that it will apply this exclusion to all three classes, including the bona fide purchaser and that it will not apply the term in its broadest sense:
To meet the statutory criteria of a bona fide prospective purchaser or contiguous property owner, a party must not be potentially liable or affiliated with any other person who is potentially liable for response costs. Neither the bona fide prospective purchaser/contiguous property owner provisions nor the legislative history define the phrase â€œaffiliated with,â€ but on its face the phrase has a broad definition, covering direct and indirect familial relationships, as well as many contractual, corporate, and financial relationships. It appears that Congress intended the affiliation language to prevent a potentially responsible party from contracting away its CERCLA liability through a transaction to a family member or related corporate entity. EPA recognizes that the potential breadth of the term â€œaffiliationâ€ could be taken to an extreme, and in exercising its enforcement discretion, EPA intends to be guided by Congressâ€™ intent of preventing transactions structured to avoid liability.
Interim Guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability (“common elements”), Susan E. Bromm, Director, Office of Site Remediation Enforcement, March 6, 2003.