Environmental Advisory Bulletin
New EPA Rules Define When Buyers are Responsible for Unexpected, Old Contamination
By Lawrence B. Burke
[September 2006]
Starting Nov. 1, 2006, property purchasers seeking the protection of having performed environmental due diligence will need to comply with an Environmental Protection Agency (EPA) final rule setting federal standards for the conduct of “all appropriate inquiry.”
The rule establishes specific requirements for conducting all appropriate inquiries into the previous ownership and uses, and environmental conditions of a property to qualify for landowner liability protections under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) (including the innocent purchaser defense, contiguous property owner defense, and the defense provided by Brownfield agreements). The rule replaces reliance of an ASTM due diligence standard (E1527-00) which was updated to ASTM Standard E1527-05 to reflect the requirements of the new rule. To comply:
- The inquiries must have been conducted or updated within 180 days of the property purchase; and
- The inquiry must have been conducted or supervised by an “Environmental Professional” who possesses sufficient specific education, training, and experience to exercise professional judgment to develop opinions and conclusions regarding the property, and possesses: (1) a state or tribal issued certification or license and 3 years of relevant full-time experience; (2) a B.S. or higher degree and five years of relevant full-time work experience; or (3) ten years of such experience.
Whether “all appropriate inquiry” has been done depends on the degree of obviousness of the presence or likely presence of contamination and the ability to detect it. The inquiry must include:
- Interviews with past and present owners, operators and occupants (or adjoining owner/occupants if the property is abandoned);
- Reviews of historical sources of information;
- Reviews of federal, state, tribal, and local government records;
- Visual inspections of the property and adjoining properties – preferably by the Environmental Professional himself or herself (or certain specific documentation if the property cannot be inspected);
- Searches for environmental cleanup liens;
- Assessments of any specialized knowledge or experience of the prospective buyer;
- An assessment of the relationship of the purchase price to the fair market value of uncontaminated property; and
- Commonly known or reasonably ascertainable information.
It takes an Environmental Professional’s recent inquiry into all these areas to protect a new buyer from the nightmare of unknown contamination causing liability beyond even the value of the property. A property and records review must be done prior to purchase in order to qualify for the protection so buyers are well advised to seek assistance early on in the purchase process.
The primary benefit of compliance with the standard will be the avoidance of poor purchase decisions. Working with a well-qualified Environmental Professional, should also help buyers sleep better at night. But remember, due diligence does not help the purchaser avoid liability if disposal of hazardous substances occurs after the purchase or if the buyer does not:
- Take reasonable steps to prevent future releases and prevent or limit exposures to prior releases;
- Fully cooperate with regulators; and
- Comply with any land use restrictions or institutional controls.
Please direct questions about this Advisory to:
Mr. Burke is a partner in the Portland office of Davis Wright Tremaine and a California Registered Environmental Assessor.
This advisory is a publication of the Environmental Law Department of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent developments in environmental law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
Copyright © 2006, Davis Wright Tremaine LLP.
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