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Legal Alert: Has U.S. EPA Put The Cart Before The Horse?

Probably the most widely used environmental standard to emerge in the last ten years is the “All Appropriate Inquiry” (AAI) Rules which dictate the level of scrutiny a prospective real property purchaser must undertake to protect itself from environmental liability due to pre-existing contamination on the property.  Since 2005, U.S. EPA had made it perfectly clear how the AAI Rules could be satisfied.  However, in a recent and somewhat bizarre rulemaking action, EPA has left purchasers wondering what really constitutes “all appropriate inquiry.”  The problem stems from EPA’s attempt to finalize changes to its AAI Rules which ties AAI compliance to another standard that has yet to be issued by a separate non-governmental entity.

On August 15, 2013, U.S. EPA issued a proposed and a direct, final revised rule, 40 CFR Part 312, commonly referred to as the “All Appropriate Inquiry Rules,” that allowed for a Phase I Environmental Site Assessment (ESA) to be performed consistent with the new ASTM E1527-13 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” (ASTM E1527-13) to satisfy the AAI requirements under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).  The final rule would have been effective on November 13, 2013.  However, since U.S. EPA has received adverse comments on the final rule, it will be withdrawn.  U.S. EPA will now evaluate comments and determine which, if any, revisions to make to the proposed AAI Rules.

Background
Many transactions involving the purchase or lease of potentially contaminated commercial or industrial property are preceded by the performance of environmental due diligence in the form of a Phase I ESA to evaluate potential business risks and establish a statutory defense to environmental liability under CERCLA.  The performance of a Phase I ESA serves to establish that the purchaser or tenant undertook AAI of the previous ownership, use and environmental condition prior to the purchase or lease of the property for the purpose of establishing the innocent landowner, bona fide purchaser, or contiguous property owner defenses to environmental liability under CERCLA.  Under the existing AAI Rules, a Phase I ESA performed consistent with the 2005 version of ASTM E1527-05 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” (ASTM E1527-05), satisfies the AAI rule requirements.

Rule Changes
Curiously, while EPA issued a proposed and final new rule accepting the ASTM E1527-13 Standard as satisfying the AAI requirements, ASTM has not yet issued the ASTM E1527-13 Standard, and ASTM does not expect to issue the Standard until late this year.  Aside from following the requirements of the AAI Rules to satisfy the AAI requirements, also of interest and controversy is that the AAI requirements can be satisfied by complying with either the existing ASTM E1527-05 Standard or the new, yet to be issued, ASTM E1527-13 Standard.  The nature of the adverse comments that led to the withdrawal of the final rule was that allowing the use of ASTM E1527-05 or the ASTM E1527-13 Standards could create confusion on what actions are needed to meet the AAI requirements. 

Until U.S. EPA issues the revised, final rule, Phase I ESAs are likely to continue to be prepared under the ASTM E1527-05 Standard to satisfy the AAI requirements under the AAI Rules, although some consultants are using the ASTM E1527-13 Standard.  The existing AAI Rules do not recognize the ASTM E1527-13 Standard as satisfying the AAI requirements.  From a business perspective, when engaging consultants to perform a Phase I ESA it will be important to define the scope of services being provided and to specify the existing applicable AAI standard for the services being provided. 

The most significant differences between the 2005 and 2013 ASTM Standards is the latter may require a more extensive search of public records and for vapor intrusion to be considered like any other contaminant pathway. 

Should you have any questions or need guidance about EPA’s All Appropriate Inquiry Rules, environmental due diligence, engaging consultants to perform such due diligence, or with respect to the purchase or lease of potentially contaminated property, please contact Brian Babb at (513) 579-6963 or at bbabb@kmklaw.com.  

CONTACT: Brian M. Babb

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