In the Spotlight: Final Rule for 'All Appropriate Inquiry' in Environmental Assessments

Significant differences between the final rule and ASTM Standard E 1527-00 include the following:

• The final rule requires interviews with the current owner and operator of the subject property, and requires interviews with past owners, occupants, operators or facility managers to the extent necessary to meet the proposed objectives of the rule. If the property contains multiple occupants, the inquiry must include interviews with the “major occupants” (not defined in the final rule) and those likely to store hazardous materials. If the property is abandoned, the inquiry must include interviews with owners or occupants of adjacent property; compliance with this requirement will impact foreclosures in which the debtor has abandoned the property. The ASTM Standard, on the other hand, requires only a “reasonable effort” to interview “key site manager,” who is a person identified by the owner with “good knowledge of the uses and physical characteristics of the property” (the quoted phrases in this sentence are all defined terms in the ASTM Standard).
• Both the final rule and ASTM Stan-dard E-1527-00 require visual inspections of the subject property. In addition, the final rule also requires a visual inspection of adjoining properties from the boundaries of the subject property, public rights of way, or another vantage point.
• “Data gaps” represent the inability to obtain required information, despite good-faith effort. The person conducting the environmental assessment must identify data gaps that affect his or her ability to identify conditions indicative of a release. For example, the final rule requires that a visual inspection be made of the subject property. If the surface of the property cannot be viewed, because it is covered with snow, that's a data gap. The person performing the assessment would have to determine whether the fact that he or she could not view the surface affects his or her ability to identify conditions indicative of a release.
• The final rule goes beyond ASTM Standard E 1527 in requiring the review of records maintained by tribal and local authorities. The ASTM Standard only requires review of federal and state records.
• The final rule requires the search for institutional and engineering controls in effect at the subject property.
• The final rule requires consideration of “commonly known or reasonably ascertainable information” about the property. Such consideration is suggested but not required by ASTM Standard E 1527-00.
• Lastly, the final rule also defines those who may conduct environmental assessments: an “environmental professional,” who is someone who possesses “sufficient education, training and experience necessary to exercise professional judgment to develop opinions and conclusions regarding the presence of releases or threatened releases.” The environmental professional's duties are to perform the environmental inquiry and prepare a written report. The written report must 1) include an opinion as to whether the inquiry has identified conditions indicative of releases or threatened releases, 2) identify data gaps and comment on their significance, 3) state the environmental professional's qualifications, 4) certify that the person preparing the report meets the requirements of an environmental professional, and 5) certify that the assessment meets the “all appropriate inquiry” standard.

Other aspects of standard environmental site assessments remain the same under the final rule, including the review of historical sources of information, specialized knowledge on the part of the purchaser, the relationship of the purchase price to the value of the property if it were not contaminated and the degree of obviousness of the presence or likely presence of contamination.

Until the final rule goes into effect on Nov. 1, 2006, prospective purchasers using ASTM Standard E 1527-00 will continue to qualify for the Superfund defenses. In response to the final rule, ASTM has revised Standard E 1527. The EPA announced in the final rule that the revised Standard E 1527-05 will also satisfy the requirements of the final rule. Standard E 1527-05 is not yet available on ASTM's Web site. Although it is unclear how lenders will respond to the final rule, compliance with ASTM Standard E 1527 is almost universally required by lenders in loan transactions, and so it is likely that lenders will compel compliance with the new ASTM Standard E 1527-05.

The U.S. Environmental Protection Agency (“EPA”) has issued its final rule defining “all appropriate inquiry” for environmental due diligence necessary to qualify for the defenses to liability contained in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA” or “Super-fund”). This new rule, published in the Federal Register on Nov. 1, 2005, will apply to all property acquisitions that close on or after Nov. 1, 2006. Although the final rule dropped some of the harsher provisions of EPA's proposed standard, the new rule differs from the industry standard ASTM Standard E 1527-00 in several significant respects, which may have a significant effect upon the cost and scope of environmental site assessments conducted as part of property acquisitions. Prospective purchasers failing to follow the requirements of the final rule will not qualify for the “innocent purchaser,” “adjacent landowner” or “bona fide prospective purchaser” defenses to liability under CERCLA in any post-closing litigation.

Like the proposed rule, the final rule adopts “objectives” and “performance standards” that must be met to constitute “all appropriate inquiry.” The objectives of “all appropriate inquiry” include identification of current and past uses and occupancies, current and past uses of hazardous substances, waste management and disposal activities, engineering and institutional controls, and risks from adjoining properties.

Performance factors included in the final rule require the person performing the assessment to 1) gather information required by each standard and practice that is publicly available, obtainable within reasonable time and cost constraints, and that can practically be reviewed; 2) review and evaluate the thoroughness and reliability of the information gathered; and 3) identify “data gaps” (discussed below), the sources consulted to address data gaps and comment on the significance of the data gaps.

Significant differences between the final rule and ASTM Standard E 1527-00 include the following:

• The final rule requires interviews with the current owner and operator of the subject property, and requires interviews with past owners, occupants, operators or facility managers to the extent necessary to meet the proposed objectives of the rule. If the property contains multiple occupants, the inquiry must include interviews with the “major occupants” (not defined in the final rule) and those likely to store hazardous materials. If the property is abandoned, the inquiry must include interviews with owners or occupants of adjacent property; compliance with this requirement will impact foreclosures in which the debtor has abandoned the property. The ASTM Standard, on the other hand, requires only a “reasonable effort” to interview “key site manager,” who is a person identified by the owner with “good knowledge of the uses and physical characteristics of the property” (the quoted phrases in this sentence are all defined terms in the ASTM Standard).
• Both the final rule and ASTM Stan-dard E-1527-00 require visual inspections of the subject property. In addition, the final rule also requires a visual inspection of adjoining properties from the boundaries of the subject property, public rights of way, or another vantage point.
• “Data gaps” represent the inability to obtain required information, despite good-faith effort. The person conducting the environmental assessment must identify data gaps that affect his or her ability to identify conditions indicative of a release. For example, the final rule requires that a visual inspection be made of the subject property. If the surface of the property cannot be viewed, because it is covered with snow, that's a data gap. The person performing the assessment would have to determine whether the fact that he or she could not view the surface affects his or her ability to identify conditions indicative of a release.
• The final rule goes beyond ASTM Standard E 1527 in requiring the review of records maintained by tribal and local authorities. The ASTM Standard only requires review of federal and state records.
• The final rule requires the search for institutional and engineering controls in effect at the subject property.
• The final rule requires consideration of “commonly known or reasonably ascertainable information” about the property. Such consideration is suggested but not required by ASTM Standard E 1527-00.
• Lastly, the final rule also defines those who may conduct environmental assessments: an “environmental professional,” who is someone who possesses “sufficient education, training and experience necessary to exercise professional judgment to develop opinions and conclusions regarding the presence of releases or threatened releases.” The environmental professional's duties are to perform the environmental inquiry and prepare a written report. The written report must 1) include an opinion as to whether the inquiry has identified conditions indicative of releases or threatened releases, 2) identify data gaps and comment on their significance, 3) state the environmental professional's qualifications, 4) certify that the person preparing the report meets the requirements of an environmental professional, and 5) certify that the assessment meets the “all appropriate inquiry” standard.

Other aspects of standard environmental site assessments remain the same under the final rule, including the review of historical sources of information, specialized knowledge on the part of the purchaser, the relationship of the purchase price to the value of the property if it were not contaminated and the degree of obviousness of the presence or likely presence of contamination.

Until the final rule goes into effect on Nov. 1, 2006, prospective purchasers using ASTM Standard E 1527-00 will continue to qualify for the Superfund defenses. In response to the final rule, ASTM has revised Standard E 1527. The EPA announced in the final rule that the revised Standard E 1527-05 will also satisfy the requirements of the final rule. Standard E 1527-05 is not yet available on ASTM's Web site. Although it is unclear how lenders will respond to the final rule, compliance with ASTM Standard E 1527 is almost universally required by lenders in loan transactions, and so it is likely that lenders will compel compliance with the new ASTM Standard E 1527-05.