Consultation with White Shield environmental professionals is recommended before closing on a real estate transaction. Today, it is customary to perform due diligence by conducting a Phase I Environmental Site Assessment (ESA) for commercial and industrial properties. Buyers or sellers are usually not aware of the requirement unless the lending financial institution informs the parties to the transaction. Practical risk management dictates that lenders conduct environmental due diligence to avoid environmental liability.
Those unfamiliar with the practice often assume that the requirement is another expensive and useless exercise in paperwork and delays. Contrary to this belief, experience demonstrates that the provision provides a real benefit to the property buyer. In the 1970s, several high-profile cases spurred the creation of significant federal environmental laws to hold polluters accountable for contamination and cleanup costs. The Superfund law, known as the Comprehensive Environmental Response and Compensation and Liability Act (CERCLA), was enacted in 1980 to empower the federal government to respond to releases of hazardous wastes and to pursue polluters “potentially liable parties” (PLP) for cleanup of contaminated properties. Under the law, the environmental liabilities associated with a property are transferred when property exchanges hands, even though they are not the original polluters. However, CERCLA provides that purchases of property that conduct “all appropriate inquiry” (AAI) prior to the transaction are exempt from CERCLA liability for any cleanup costs discovered after closing. Since 1980, the AAI obligation underwent multiple refinements. The most recent 2005 ruling was the EPA’s Final Rule on All Appropriate Inquiry.
The final rule became effective November 1, 2006, one year after publication in the Federal Register. The final rule requires that all appropriate inquiry investigations be documented in a written report. However, the final regulations did not specify an exact format, length, or structure of the written report. ASTM International developed a prescriptive solution with Standard E1527-13, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process. The ASTM E1527-13 standard is consistent with the final rule requirements and became the industry standard for AAI. Meeting the AAI requirements secures protection from CERCLA liability either as an innocent landowner, a contiguous property owner, or a bona fide prospective purchaser.
The AAI final rule requires that an Environmental Professional (EP) conduct the AAI and garner opinions. AAI activities must be performed by, or under the supervision of, an individual who meets the definition of an “environmental professional.” The AAI final rule defines an environmental professional as someone who possesses the specific education, training, and relevant experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases of hazardous substances on, at, in, or to a property, sufficient to meet the objectives and performance factors of the rule. To qualify as an EP, an individual usually has certification and licensure as a professional engineer or professional geologist with at least three years of relevant experience. Without licensure, you can qualify with a combination of education and experience, either a bachelor’s degree or higher in science or engineering and five years of relevant, full-time work experience; or without the education requirement, ten years of relevant, full-time work experience.
ASTM International. Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process. https://www.astm.org/Standards/E1527.htm
U.S. Environmental Protection Agency. All Appropriate Inquiries Final Rule. EPA-560-F-19-179. https://www.epa.gov/sites/default/files/2017-07/documents/aai_factsheet_final_rule_epa_560_f_17_195_508.pdf
U.S. Environmental Protection Agency. All Appropriate Inquiries: Environmental Professional. EPA-560-F-17-191. https://www.epa.gov/sites/default/files/2017-07/documents/aai_factsheet_environmental_professional_epa_560_f_17_191_508.pdf