July 14, 2014
The former standard for conducting "all appropriate inquiry" (ASTM 1527-05) will finally officially be replaced under the recent rule proposed by U.S. EPA. All appropriate inquiry (AAI) has been recommended for a number of years for parties wanting to conduct due diligence in business and real estate transactions and seek certain liability protections for environmental remediation obligations. Performing AAI allows a potential buyer of real estate to evaluate a property's environmental condition and to assess potential liability that could arise with the purchase of such property. In order to be eligible for certain liability protections under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), such as the innocent purchaser defense, the bona fide prospective purchaser defense and the contiguous property owner defense, a party must perform AAI prior to purchasing the property. Although EPA has rules that set forth steps to satisfy AAI, those rules also incorporate the use of ASTM 1527 requirements.
The ASTM 1527 standard is revisited every eight years, with the most recent update in 2013. EPA's rules, however, continued to reference use of the prior ASTM 1527-05 version for conducting AAI. In December 2013, EPA informally acknowledged it preferred users to follow the most recent ASTM 1527-13 standard in conducting AAI, but until its rules were revised, a party could satisfy AAI using either the 2005 or 2013 set of standards. Now the wait is over. On June 17, 2014 U.S. EPA finally published a proposed rule requiring parties to use the ASTM 1527-13 standard to satisfy AAI for due diligence purposes. Public comment concerning this change is open until July 17, 2013, although significant comments are not anticipated. Once the public comment period closes, EPA will evaluate any comments received and issue a final rule incorporating the new standard.
So what has changed from 2005 to 2013 for the ASTM 1527 standard? The primary changes involve revising what will be considered a "recognized environmental condition," a "historical recognized environmental condition" and adding a new definition for a "controlled recognizable environmental condition." In the 2005 version there was a common interpretation that vapor intrusion was an indoor air quality issue that was not required to be included in the due diligence analysis. Now the 2013 standard contains an express requirement that an analysis be performed as to whether there is a reasonable basis that vapor intrusion issues could be a concern. If so, further investigation of this contamination pathway may be necessary. Another major change concerns the scope of record review that must be performed. In the 2013 standard, records need to be reviewed not only for the subject property, but also adjoining properties.
These changes will likely result in an increase in both time and cost to obtain the final Phase I report. It should be noted that ASTM 1527-13 still does not generally cover indoor air quality issues such as mold, asbestos, lead and radon, a wetland assessment or a compliance review for environmental permits and regulatory requirements from an operations perspective. These items must all be specifically requested if the buyer wants to expand the scope of the due diligence review. In order to evaluate the potential environmental liability under CERCLA and other environmental statutes, AAI must be performed prior to a party purchasing real property. We encourage you to contact Jennifer Andres or any of the Ice Miller LLP environmental attorneys to discuss potential liability risks when purchasing property.