Appropriate Inquiry
Before
the beginning there was a residential community built on abandoned
toxic waste pits in a place named Love Canal; a neighborhood in the
southeast LaSalle district of the City of Niagara Falls, New York, USA.
And the people became ill.
In
the beginning and forever after, Congress enacted the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) to
identify, assess and remove all such other abandoned toxic pits and
landfills, that the case of Love Canal won’t recur. In so acting,
Congress allocated one billion US dollars to pay for the investigation
and cleanup of the largest and most contaminated sites in the country;
thus “Superfund.” Superfund was born in 1980.
Administration of the Superfund program was assigned to US Environmental Protection Agency (EPA).
Superfund created a liability to land owners; a liability that was strict, retroactive, joint and several.
STRICT LIABILTY,
means that fault is not required for an entity to be held responsible.
Under Superfund, a purchaser is liable for contamination even if the
contamination occurred prior to their ownership and without their
knowledge.
JOINT AND SEVERAL LIABILITY
allows a plaintiff to sue one or more of the parties to such liability
separately, or together with all other such parties, at the plaintiff's
option; all defendants, separately and/or together are wholly liable
for negligence; any responsible party or parties can receive liability
disproportionate from their responsibility; a legal doctrine permitting
recovery from any of several co-defendants based on ability to pay,
rather than the degree of negligence.
The musketeer would say, “All for one – one for all.”
Superfund was onerous:
A person would be held liable for acts that were committed generations
ago, by historic owners, acts that this person never knew about and had
no reason to know about; acts that were legal in their time.
In
1986, Congress amended Superfund (Superfund Amendment and
Reauthorization Act, aka SARA) to add the “Innocent Landowner Defense.”
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SARA provided that an owner of contaminated property can establish a defense to Superfund liability if:
- the property was acquired after the hazardous substance was disposed there; and
- at
the time of acquisition, the owner "did not know and had no reason to
know" that the hazardous substance was disposed on the property.
Further,
an owner can establish that he or she had "no reason to know" only if
he or she has undertaken, at the time of acquisition, all appropriate inquiry
into the previous ownership and uses of the property consistent with
good commercial or customary practice in an effort to minimize
liability.
| Except that SARA did not define what constituted “all appropriate inquiry.” |
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In
an attempt to fill the void, in 1997, the American Society for Testing
and Materials (ASTM) developed the “Standard Practice for Environmental
Site Assessment: Phase I Environmental Site Assessment Process”
(Designation E1527), which became an industry-wide standard for
conducting all appropriate inquiry for commercial real estate
transactions. |
A
theoretical weakness with the ASTM Standard Practice was that there was
no congressional act to back it up; it could be challenged in court by
the EPA if they so deemed fit. Its strength, however, was that it was
formulated by broad consensus of lenders, attorneys, consultants and
regulators. It held the strength of a “voluntary consensus standard.”
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Development
of voluntary consensus standards by private industries is encouraged by
the Executive Office of the President of the United States, Office of
Management and Budget (OMB), whenever practicable and appropriate. It
is intended to achieve goals such as:
- Eliminate the cost to the Government of developing its own standards.
- Provide incentives and opportunities to establish standards that serve national needs.
- Encourage
long-term growth for U.S. enterprises and promote efficiency and
economic competition through harmonization of standards.
- Further the policy of reliance upon the private sector to supply Government needs for goods and services.
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On
January 11, 2002, President Bush signed the Small Business Liability
Relief and Revitalization Act ("the Brownfields Law"). The Brownfields
Law required EPA to develop regulations establishing standards and
practices for how to conduct all appropriate inquiry by January 2004. |
In
2002 the EPA formally endorsed the E 1527 Standard as an interim
measure until the EPA promulgated its own regulations implementing
standards for all appropriate inquiry.
On
August 24, 2004, EPA published a proposed rule, which replaced ASTM
E1527 as the technical standard. The proposed rule provides a
Federal standard for the all appropriate inquiry provision under CERCLA
that clarifies the requirements necessary to establish the innocent
landowner defense.
On
November 1, 2005, EPA finalized the proposed rule (Final Rule, 40 CFR
312). After November 1, 2006, those seeking to limit liability as an
innocent landowner must comply with the requirements of All Appropriate Inquiries Final Rule, or follow the standards set forth in the ASTM E1527-05 Phase I Environmental Site Assessment Process (Phase I ESA), to satisfy the statutory requirements for conducting all appropriate inquiries.
Ten criteria form the AAI process:
- The results of an inquiry by an environmental professional;
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- Interviews
with past and present owners, operators, and occupants of the facility
for the purpose of gathering information regarding the potential for
contamination at the facility;
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- Reviews
of historical sources, such as chain of title documents, aerial
photographs, building department records, and land-use records, to
determine previous uses and occupancies of the real property since the
property was first developed;
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- Searches
for recorded environmental clean-up liens against the facility that are
filed under federal, state, or local law;
- Reviews
of federal, state, and local government records, waste disposal
records, underground storage tank records, and hazardous waste
handling, generation, treatment, disposal, and spill records concerning
contamination at or near the facility;
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- Visual inspections of the facility and adjoining properties;
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- Specialized knowledge or experience on the part of the defendant;
- The relationship of the purchase price to the value of the property if the property was not contaminated;
- Commonly known or reasonably ascertainable information about the property; and
- 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.
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Shelf Life
Under the AAI final rule, a prospective property owner may use a previously conducted Phase I ESA report:
- If
the Phase I ESA report was prepared as part of a previous all
appropriate inquiries investigation for the same property; and
- If the information was collected or updated within one year prior to the date of property acquisition; and
- Interviews,
on-site visual inspections, the historical records review, and the
environmental lien search are conducted or updated within 180 days
prior to the date of property acquisition.
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Summary:
In comparison to pre-2005 ASTM E1527 versions, the AAI final rule
requires more extensive inquiry and offers a strict definition for
“environmental professional”. The EPA describes the AAI final rule as
being “performance based” since findings and conclusions rely heavily
on the environmental professional’s own personal judgment.
Caveat:
This letter is written for general education of readers that posses
rudimentary knowledge of environmental liabilities in transactions
involving industrial or commercial properties. It is not intended
as legal advice; the writer does not practice law, and this letter
includes statements that may be legally incorrect. |
