The Small Business Liability Relief and Brownfields Revitalization Act (Brownfields Amendments) was signed into law in January 2002. It revised the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) to provide liability exemptions for landowners that qualify as “bona fide prospective purchasers” and certain contiguous property owners. In order to qualify for these exemptions, or CERCLA’s innocent landowner defense, a landowner must have “made all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices” before taking title to the property.
The exemption is available even if the all appropriate inquiries find or strongly indicate the presence of contamination. However, the landowner must comply with certain continuing obligations with respect to containing and managing any contamination present on the property.
On Nov. 1, 2005, after receiving comments from 430 interested parties, EPA published a final rule detailing standards and practices for conducting all appropriate inquiries. Standards and Practices for All Appropriate Inquiries, 70 Fed. Reg. 66070 (Nov. 1, 2005). The rule took effect on Nov. 1, 2006. The standards apply to all property transactions that close after that date if the buyer wishes to take advantage of the bona fide prospective purchaser or contiguous property owner exemptions, the innocent landowner defense, or if the buyer will be applying for a Brownfield Grant.
Rule Requirements
The All Appropriate Inquiries Rule is potentially applicable to any prospective purchaser of contaminated property or property contiguous to contaminated property. The inquiries must be performed by an “environmental professional,” who is required to have minimum levels of education or years of relevant experience, and may include: Interviews with past and present owners, operators and occupants of the facility to gather information concerning potential contamination; reviews of historical sources, including chain of title documents, aerial photographs, building department records and land use records, to determine previous uses and occupants since the property was first developed; searches for recorded environmental cleanup liens; reviews of governmental records, including waste disposal records, underground-storage tank records and hazardous-waste handling, generation, treatment, disposal and spill records; visual inspections of the facility and adjoining properties; assessments of any specialized knowledge on the part of the purchaser; assessments of the relationship of the purchase price to the value of the property, if the property was not contaminated; assessments of commonly known or reasonably ascertainable information about the property, including information from newspapers, local libraries, and historical societies; and assessments of the degree of obviousness of the presence or likely presence of contamination at the property, and the ability to detect the contamination by appropriate investigation.
Assessments conducted in accordance with ASTM International Standard E1527-05 (Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process) fulfill the rule’s requirements.
An environmental professional must document the results of the inquiries in a written report but the rule does not impose any new reporting or disclosure obligations. The landowner is not required to submit the report to EPA or to retain the report at the facility but the report must be available in the event that the landowner needs to support an assertion that it is exempted from CERCLA liability.
The report must include the environmental professional’s opinion as to whether the inquiries conducted identified conditions indicative of releases or threatened releases of hazardous substances on, at or in the facility. The report also must identify data gaps in the information collected that affect the ability of the environmental professional to render such an opinion, and determine the significance of any data gaps.
Generally, the inquiries must be conducted within one year prior to taking title to the property. Information from previous inquiries, for example, by another prospective purchase or the seller, may be used, but must be completed or updated within one year prior to taking title. Certain information, including interviews, searches for cleanup liens, reviews of governmental records, visual inspections and the declaration of the environmental professional, must be updated within 180 days prior to taking title.
If EPA or a private party seeks cost recovery against the landowner, the landowner must prove that it performed all appropriate inquiries to qualify for a liability exemption. Therefore, the landowner should verify that its environmental site assessment report strictly conforms to the rule’s requirements and that its environmental consultant has the education or training necessary to meet the definition of “environmental professional.” The landowner also should ensure that its consultant notes any data gaps resulting from the inquiries and documents when and how each required inquiry is conducted.
The landowner also should be aware that simply noting data gaps may not be sufficient in the event the purchaser plans to place the property in a state Voluntary Cleanup Program. Thus, if the data gaps are significant, the landowner may want to consider conducting additional sampling and analysis in order to qualify for protections under state programs.
Compliance with the All Appropriate Inquiries Rule is not suitable for all real estate transactions involving potentially contaminated properties. For example, it does not protect a buyer in a merger in which the purchaser assumes the liability of the seller. All appropriate inquiries may add expense and time that the transaction cannot bear, and the buyer may conclude that the risk of significant problems is not present.
Moreover, performing all appropriate inquiries does not mean the buyer has no obligations. EPA still may impose a windfall lien against the property regardless of whether the buyer qualifies for a liability exemption. The contamination can pose health risks which could affect a buyer’s use of the property and, potentially, its tort liability.
While acquiring the property after conducting all appropriate inquiries may exempt the purchaser from federal CERCLA liability for known contamination, it does not protect against liability under state law. Thus, performing subsurface investigation before closing a property transaction may still be necessary in order to obtain liability protection under a state law program.
Finally, the All Appropriate Inquiries Rule does not address all real estate-related environmental issues or requirements. It does not resolve development constraints like wetlands or endangered species. It also does not address potential hazards such as asbestos-containing material, mold, radon, lead paint, or lead in drinking water. Moreover, the rule doesn’t cover permits and regulatory compliance matters. Regulatory requirements and due diligence issues should be carefully considered in addition to fulfilling the All Appropriate Inquiries Rule.
