Through due diligence investigations, lenders and purchasers may establish defenses to liability under CERCLA (and potentially under State Superfund laws, including Washington’s Model Toxics Control Act), including the innocent landowner/innocent purchaser defense, contiguous landowner defense and the bona fide prospective purchaser exemption. However, each defense requires a showing that the party has met the “All Appropriate Inquiries” (“AAI”) standard for due diligence, which assesses the current and past environmental conditions at a subject property and evaluates the likelihood of contamination.
On October 6, 2014, the Environmental Protection Agency (“EPA”) issued a final AAI rule that makes reliance on the 2005 ASTM E1527-05 standards inadequate for the purposes of establishing defenses and exceptions to CERCLA liability. Previously, satisfaction of AAI criteria required a Phase I Environmental Site Assessment that followed the ASTM E1527-05 standards. However, these standards were revised and updated in 2013, and EPA initially endorsed the use of both the 2005 and 2013 versions as sufficient for the purpose of AAI investigations. After EPA received significant feedback that allowing the use of both caused too much ambiguity, EPA has now determined that only the 2013 version can be used in order to sufficiently establish an AAI investigation.
EPA’s new determination is consistent with industry best practices for AAI Phase I Environmental Site Assessments. For those who have not yet implemented the 2013 standards, some of the key changes in the update include:
- Revised definitions of key terms such as “recognized environmental condition” and “historically recognized environmental condition,” as well as the addition of “controlled recognized environmental condition.” The new, clarified definitions will likely result in the identification of more recognized environmental conditions in site assessments and provide clarity as to the nature of the historic or controlled recognized environmental condition.
- A stronger imperative for conducting regulatory agency file reviews, which has the potential to increase the time required to prepare a Phase I report.
- Revision to the definition of “migrate/migration” to expressly include vapor migration issues; treating releases that migrate as vapor in the subsurface like all other hazardous substance migration pathways.
- A requirement that property owners must now disclose to environmental professionals all “commonly known or reasonably ascertainable” environmental conditions. This disclosure requirement may require searches for environmental liens, (which requires an understanding of the recording procedures in your jurisdiction), disclosure of activity and use limitations, and documentation of historical knowledge about the site, its uses, and former operators.
In light of EPA’s decision, property owners, purchasers, and lenders must confirm that, when commissioning a Phase I Environmental Site Assessment, the ASTM E1527-13 standards are used to ensure the availability of CERCLA defenses and exceptions. For those who have not already adopted this practice, the new regulations will mean more in-depth investigations, potentially extended investigation periods, additional user responsibilities, and the potential discovery of more environmental conditions and issues.
Parties involved with the potential purchase of property who wish to avail themselves of CERCLA defenses should review their contracts with environmental consultants carefully to ensure that the 2013 ASTM standards will be applied. Additionally, parties involved in current, ongoing transactions should take steps to ensure that existing Phase I reports will satisfy the 2013 standards, either in current form or through an addendum.
For more information on the 2013 ASTM standards for Phase I Environmental Site Assessments and other due diligence questions related to environmental issues in real estate transactions, please contact Ken Lederman.