USEPA Amends the "All Appropriate Inquiry" Rule
The United States Environmental Protection Agency (“EPA”) recently completed a rulemaking to update its standard that must be applied in order for a prospective buyer of real property to avoid the strict, joint and several remedial liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)1 to the current owner of contaminated property.
Under the newly promulgated EPA rule announced October 6, 2014, a prospective purchaser of property will have to meet the updated standard for conducting pre-acquisition environmental due diligence to qualify for the landowner liability protections under CERCLA. Conducting “all appropriate inquiries” (“AAI”) in a manner that meets statutory requirements under 40 C.F.R. §312 is critical for current landowners to avoid CERCLA liability should there be a post-purchase discovery of pre-existing pollution. AAI is required to qualify for the landowner liability protections afforded under CERCLA, including “bona fide prospective purchasers”, the “innocent landowner” and “contiguous landowner” defenses.
Parties seeking to conduct AAI can use any one of several methods for Phase I environmental site assessments as long as they comply with 40 C.F.R. §312. However, the Standard Practice for “Environmental Site Assessments: Phase I Environmental Site Assessment Process” of ASTM International2 is the most widely accepted and was referenced in EPA’s AAI rule. ASTM International is globally recognized as a leader in the development and delivery of international voluntary consensus standards. The organization updated and issued a revised standard for conducting AAI, ASTM E1527-13, in November 2013.
At that time, ASTM International termed the 2005 standard (ASTM E1527-05) a “historic” standard that was no longer the best standard for good customary business practice. EPA’s October 6, 2014 action to amend the AAI rule at 40 C.F.R. §312 is meant to remove any further reference to the “historic” ASTM E1527-05 standard to avoid confusion for parties conducting AAI using ASTM International standards. Although potential purchasers may continue to utilize the 2005 standard (ASTM E1527-05) for conducting AAI until the new standard (ASTM E1527-13) takes full effect on October 6, 2015, we recommend that, going forward, all Phase I environmental site assessments be conducted to satisfy the requirements of ASTM E1527-13 so there is no question that the AAI meets the applicable standard.
There are four major differences between ASTM E1527-05 and ASTM E1527-13. The new standard includes:
- a new defined term – “controlled recognized environmental condition” – for cases where the remediation is done and meets some risk-based standard although contaminants are still present;
- a definition of “migrate” was added to require consideration of whether soil vapor has migrated onto the property from an off-site source, independent of which direction the groundwater is assumed to be flowing;
- the "indoor air exclusion" found in ASTM E1527-05 was modified to clarify that it is meant to exclude only non-CERCLA indoor air issues, like mold or industry exposures from on-going operations that are subject to OSHA, from consideration of whether hazardous substance vapors (usually volatile organic compound vapors) are entering a building; and
- a “historically recognized environmental condition," although not now a "recognized environmental condition" because there has been a past complete remediation of the property to achieve conditions protective of unrestricted use, will nevertheless be noted since there is always potential that it could once again become a REC under a future change of the cleanup standards that must be met.
Other notable changes include a requirement to file for agency review of an adjoining property if that property appears on a federal, state or tribal record. This requirement may create timing and additional cost burdens on the Phase I environmental site assessments.
CERCLA §107(b) which is codified in 42 U.S.C. §9607(b) provides three defenses to strict, joint and several liability under CERCLA §107(a): (1) act of God, (2) act of war, and (3) act of “a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant.” A prospective buyer must conduct a proper AAI during the acquisition of the property to establish that there was not a “contractual relationship” between the buyer and the polluter through the chain of title in order to qualify for CERCLA protections. Under CERCLA §107(b)(3)(a) codified in 42 U.S.C. §9607(b)(3)(a), the definition of “Contractual Relationship” includes, but is not limited, to, land contracts, deeds, easements, leases or other instruments transferring title. EPA and the courts recognize that completing AAI according to ASTM E1527-13 establishes that the buyer had no reason to know of any hazardous substances.
After October 6, 2015, should a purchaser choose to conduct AAI using ASTM International’s standards, adherence to the new ASTM E1527-13 standard will be a necessity. The EPA rulemaking does not affect properties purchased between November 1, 2005 and October 6, 2015.
If you or your company would like more information on the implications of this EPA rulemaking or would like to discuss how the new ASTM E1527-13 standard or the 2005 standard (ASTM E1527-05) relates to your specific situation, please do not hesitate to contact the author of this Alert and chair of Hiscock and Barclay’s Land Use Practice Area and Member of its Environmental Practice Area, Thomas F. Walsh, at (585) 295-4414 or email@example.com.
1 CERCLA, commonly referred to as the federal “Superfund” law, was adopted in 1980 and imposes strict liability on property owners for the cost of remediation of hazardous substances. The United States Congress has amended CERCLA over the years to provide defenses for innocent or contiguous landowners.
2 The organization was formerly known as the American Society for Testing and Materials (“ASTM”).