ARTICLE

California Real Property Journal, Volume 23 Number 3 -- June 2, 2006

Recent Developments Relating to Pre-Acquisition Environmental Due Diligence

 

I.  INTRODUCTION

Over the past two years, several developments have occurred affecting due diligence in real property transactions designed to evaluate liability risks associated with potential soil and groundwater contamination at a site being acquired or leased. This article summarizes several of these developments and addresses the manner in which they may affect environmental due diligence.

Fundamental standards for Phase I Environmental Site Assessments are undergoing. revision, as the United States Environmental Protection Agency (“EPA”) prepares to adopt final regulations defining the level of inquiry necessary for a purchaser or tenant to qualify for “innocent landowner” and related defenses under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). [1]

Although EPA's statutory mandate required the regulations defining “all appropriate inquiry” to be issued no later than 2004, the Proposed Rule was issued last August, and the Final Rule is now expected towards the end of 2005. [2] In the interim, it is important to understand the direction in which these regulations are headed, and how that may affect due diligence practices.

The second legal development relevant to the purchase of. properties potentially burdened with hazardous materials is California's passage in 2004 of Assembly Bill. 389 (“AB 389”), the rather disappointing result of the latest legislative efforts to address “brownfields” in California. [3] This legislation represents the state's decision not to match federal CERCLA defenses for bona fide prospective purchasers and contiguous landowners adopted in 2002. Instead, it requires purchasers to complete a new agency-supervised cleanup procedure in exchange for qualified immunities.

Given the limited benefits of AB 389 and the many risks associated with contaminated sites, potential purchasers of property should continue to assume that they are acquiring liability associated with any hazardous materials remaining on or under the property after acquisition. Therefore, it remains critical to perform thorough due diligence to fully define conditions before purchase, and to make financial and contractual provision for addressing environmental risks in a transaction.

On another front, developments in three technical areas also warrant increased attention during due diligence: naturally occurring asbestos, volatile organic compound vapor intrusion into indoor air, and newly published and updated state “screening level” reference values for common contaminants - potentially useful in the site assessment process. Finally, discovery of deed restrictions relating to the presence and management of residual hazardous substances at a site will be facilitated by the creation of the California Department of Toxic Substances Control (“DTSC”) web-accessible database with lists and copies of such deed restrictions. [4]

II.  PENDING EPA REGULATIONS ON THE “ALL APPROPRIATE INQUIRY” STANDARD SUPPORTING CERCLA DEFENSES

The law does not require that environmental due diligence be performed in conjunction with private purchase or lease transactions. Pre-acquisition due diligence, however, is performed as the “ounce of prevention” to minimize unwelcome post-acquisition surprises and as a foundation for “innocent landowner” defenses under CERCLA. Regardless of the potential availability of defenses under CERCLA, it is critical to understand conditions on the property due to obligations imposed under other laws and the impact any contamination may have on the use, occupation and development of property. However, purchasers are well-advised to attempt to qualify for CERCLA defenses whenever possible.

A.  The Legal Significance of All Appropriate Inquiry Standard

Until 2002, the innocent landowner defense was available only to purchasers who, before acquiring the property, “did not know and had no reason to know” that any hazardous substances were on the property, after undertaking “all appropriate inquiry” into the past uses and history of the property “consistent with good commercial or customary practice.” [5] To qualify for the defense, the purchaser also had to have used due care with respect to the hazardous substances concerned, once discovered. [6]

Since 1993, the most widely accepted approach to defining the activities which would be seen to constitute “all appropriate inquiry” consistent with good commercial or customary practice has been to use protocols adopted by the American Society for Testing and Materials (“ASTM”), known as standards ASTM E 1527 (Standard Practice for Environmental Site Assessment: Phase I Environmental Site Assessment Process) and, in limited circumstances, ASTM E 1528 (Standard Practice for Environmental Site Assessments: Transaction Screen Process). However, these standards were not expressly recognized in statute or regulation as constituting “all appropriate inquiry.”

With the 2002 passage of the federal Small Business Liability Relief and Brownfields Revitalization Act (“Brownfields Amendments”), [7] CERCLA expressly incorporated the ASTM B 1527-97 protocol as an interim regulatory standard for “all appropriate inquiry” and required EPA to issue regulations describing standards and practices that will define “all appropriate inquiry” for future transactions. [8] The Brownfields Amendments describe ten criteria that must be addressed in the new regulations.

Separate provision is made for property acquired for residential use or similar use by a nongovernmental or noncommercial entity. The Brownfields Amendments provide that, in such transactions, the “all appropriate inquiry” standard is satisfied by a facility inspection and title search which reveals no basis for further investigation. [9] Therefore, EPA'S rule is not intended to address such transactions.

EPA's rule is intended, however, to apply to two new categories of landowner protections included in the Brownfields Amendments, in addition to the pre-existing innocent landowner defense. The Brownfields Amendments added qualified liability protections for “bona fide prospective purchasers” and “contiguous property owners,” who must also demonstrate that they conducted “all appropriate inquiry” to qualify for protection, in addition to satisfying other significant obligations. [10]

These new categories of liability protection are designed to apply, under prescribed conditions, even when hazardous substance contamination is identified before a purchase. Therefore, the objective of the environmental site assessment report has changed, from merely identifying whether any release of hazardous substances is recognized on or adjacent to the site, to providing more extensive information as the basis for actions required to satisfy requirements for due care or appropriate care in managing activities at the site, cooperating with the relevant regulators, and providing legally required agency notifications.

B.  EPA's Interim and Proposed Rules

As noted earlier in this section, the Brownfields Amendments incorporated ASTM protocol E 1527-97 by reference as an interim standard for “all appropriate inquiry,” until adoption of a new EPA rule. A year later, to address confusion created by the fact that the referenced protocol was not the latest ASTM standard, EPA published a brief rule expanding the interim standards to include the latest ASTM standard, ASTM protocol E 1527-2000, as an acceptable alternative.[11] Both the 1997 and 2000 standards therefore are acceptable to use until EPA'S comprehensive final rule is adopted.

EPA has not yet adopted a final rule mandated by the Brownfields Amendments, but EPA'S proposal has been issued for public comment in a form likely to be adopted with relatively little change. Using consensus regulatory language developed as part of a negotiated rulemaking process, on August 26, 2004, EPA issued its Proposed Rule (the “Proposed Rule”) describing standards and practices that would define “all appropriate inquiry.” [12] EPA has reportedly received more than 400 comments on the Proposed Rule an d predicts that the Final Rule will not be adopted until the end of 2005. [13]

The standards and practices described in the Proposed Rule are “intended to result in the identification of conditions indicative of releases and threatened releases of hazardous substances on, at, in, or to the subject property.” [14] The preamble to the Proposed Rule explains that through the negotiated rulemaking process, EPA determined that existing ASTM standards did not frilly satisfy the criteria for the rule described in the Brownflelds Amendments. [15] It follows that the Proposed Rule expands the scope of the required inquiry in a number of areas and adjusts the objectives and opinions required in the report documenting the inquiry.

The Proposed Rule relies extensively on the professional judgment of the environmental professional conducting the inquiry, requiring that the environmental professional review and evaluate the thoroughness and reliability of the information gathered. It also requires his or her written opinion concerning the impact of any data gaps on the ability to identify potential releases of hazardous substances, as well as an opinion regarding additional appropriate investigation, if any. [16] The key. conclusions called for under ASTM protocols regarding the existence of “recognized environmental conditions” are not cited in the Proposed Rule.

Other significant variations from the ASTM standard include: [17]

  1. A description of minimum qualifications for the “environmental professional” who must perform the inquiry and ‘prepare the report, with certain input required from the prospective purchaser concerning his or her specialized knowledge and the purchase price of the property in relation to its fair market value if it were uncontaminated;
  2. Requirements that inquiries identify institutional controls in effect for a property to support prior remedial actions and recorded environmental cleanup liens imposed by a governmental agency or third-party;
  3. Expanded requirements for visual inspections of adjoining properties and for interviews of past and current owners and occupants of the subject property, as well as other interviews of facility managers and community members as necessary to meet the proposed objectives and performance factors outlined in the Proposed Rule;
  4. An exception from the requirement to interview or identify current or past owners and occupants of property defined as an abandoned property under the Proposed Rule;
  5. For the review of historical records, elimination of the “default” calendar date ASTM had allowed as the earliest date for which records must be searched, thereby requiring records to be searched for information covering a period as far back as the time the property was first developed;
  6. Consideration of whether or not the purchase price for the property reflects the fair market value ‘of the property, assuming it is not contaminated;
  7. Consideration of information “commonly known or reasonably ascertainable” in the community or by transaction participants about the property;
  8. Documentation of the specialized knowledge or experience of relevant representatives of the purchaser as well as the environmental professional conducting the assessment; and
  9. Requirement that the inquiry be performed within one year prior to the purchase of the property with several components updated within 180 days prior to the date of acquisition, and that specific updates be provided if a purchaser uses the results of inquiries conducted by another party.

EPA. compared the burden of the Proposed Rule to the ASTM standard (identifying as increased burdens only the effort required to review environmental liens) to document any reduction in purchase price and to include certain areas of discussion in the document. [18] EPA'S comparison fails to recognize other increased burdens under the new standard in light of expanded requirements for interviews and historical record review as well as the more stringent qualifications required for environmental professionals conducting the review. It should be recognized, however, that in most cases the additional inquiries should improve the quality and accuracy of the assessment.

Given the negotiated rulemaking process employed by EPA in developing the Proposed Rule, it seems unlikely EPA will substantially revise the rule before finalizing it. Apparently, the greatest controversy has surrounded the requirements as to the qualifications of environmental professionals and the requirement for an analysis of the property's purchase price. These specific areas are likely to be closely examined in connection with the Final Rule, hut their revision would not change the scope of the work for the assessment or the key opinions required in the final report.

Until EPA'S Final Rule is adopted use of the ASTM protocols E 1527-97 and E-1527-00 satisfies applicable standards for appropriate inquiry. Nevertheless, it may be wise to add substantive elements to site assessments for transactions that may take a number of months to conclude. Although the Brownfields Amendments are not entirely clear on the subject, it appears that the new standards will have to be met for all purchases completed after the effective date of the Final Rule. [19]

C.  State Law References to All Appropriate Inquiry

California's statute paralleling the provisions of CERCLA is known as the Carpenter-Presley-Tanner Hazardous Substance Account Act (the “HSAA”). [20] EPA's new rule will affect innocent landowner protections under the HSAA, because the HSAA incorporates by reference the CERCLA definitions that encompass the definition of “all appropriate inquiry,” as well as CERCLA'S innocent purchaser defense. [21] Although other California statutes imposing cleanup liability do not incorporate the same defenses, appropriate due diligence may assist in establishing due care that can have some impact on liability and allow mitigation of risks.

In addition, AB 389 has recognized and incorporated by reference EPA's existing and future all appropriate inquiry rules. [22] It uses the definition of “all appropriate inquiry” as part of a new program designed to encourage brownflelds development. [23] In addition, AB 389 requires that any portion of the inquiry that includes the practice of engineering or geology shall be carried out in conformance with applicable state statutes, to assure that any federal description or assessor qualifications is not interpreted to revise existing requirements. [24]

III.  AB 389 - CALIFORNIA'S LATEST BROWNFIELDS LEGISLATION

As noted in Section 11 above, the HSAA parallels many of CERCLA's provisions. The HSAA defines persons liable under the act by incorporating by reference the categories of responsible party described in CERCLA section 107(a) (42 U.S.C. § 9607(a)). [25] However, although the references in the HSAA incorporate the innocent landowner defense found in CERCLA, they were nor broad enough to include automatically the new bona fide purchaser or contiguous property owner defenses defined in the Brownfields Amendments.

In addition, California has a host of other state and local laws that may impose cleanup liability, which generally have no landowner protection provisions paralleling CERCLA and are not subject to the defenses in the HSAA. This has dramatically limited the value of CERCLA and HSAA innocent landowner defenses in California.

A.  AB 389's Provisions

AB 389 created a unique state program providing qualified' immunity from cleanup liability for new categories of “innocent landowners,” “bona fide prospective purchasers,” as well as “contiguous owners” of property contaminated by migrating materials from neighboring sites. The new provision extended immunity under a number of specifically listed state laws, including the cleanup and abatement provisions of the Porter-Cologne Water Quality Control Act, section 5650 of the Fish and Came Code, and state laws of nuisance and trespass. AB 389 also extends to impacts of any hazardous material as defined under state law, which includes petroleum products and pesticides not subject to CERCLA.

The law fell short of providing meaningful protection for most prospective purchasers, disappointing those interested in accelerating the cleanup and development of “brownfields” in California. While a thorough discussion of AB 389 is beyond the scope of this article, following is a list of some of its key limitations:

  1. Only properties qualifying as “infill area sites” within urban areas are eligible. Such sites only include vacant or underutilized lots that previously have been developed or are surrounded by parcels that have been developed. [26] Properties listed on the National Priorities List of superfund sites or listed by DTSC as priority hazardous release sites cannot qualify for AB 389 immunities. [27]
    To obtain the benefits of AB 389, a purchaser must commit in writing to complete a cleanup of the property, even if the defense sought is that of a “contiguous owner neighboring an offsite source of hazardous substances. [28]
  2. Immunity attaches upon purchase but will be lost if cleanup is not completed or in other listed events.
    Immunity does not extend to cleanup requirements under some local laws or as conditions to obtaining land use or other discretionary local agency approvals, nor does it extend to corrective action requirements applicable to hazardous waste sites. [29]
  3. The authority of redevelopment agencies to order cleanup under the California Polanco Act is preserved. [30]

B.  Relevance of AB 389 to Transactions

AB 389 will offer significant benefits only under narrow circumstances. Its applicability only to “infill” development in urban areas, and its exclusion of federal superfund sites and DTSC priority hazardous substance release sites, eliminates most properties, while the preservation of cleanup authority of redevelopment authorities under the Polanco Act and other local government prerogatives limits the value of its immunities. Where the risk of cleanup liability appears relatively low, and where the size and value of the property are modest, clearly, the statute provides no benefit.

The time and costs required for the detailed cleanup process involving multiple agencies and public review will be affordable only where the value of the property far exceeds the cost of the cleanup. Even in the latter cases, purchasers will generally find it more economical to follow more traditional approaches based on contractual agreements with the seller or other responsible party and to use a simpler cleanup process involving a single agency. In short, most purchasers will not find AB 389 a useful mechanism to manage liability risk in a transaction.

IV.  TECHNICAL ISSUES OF INCREASING INTEREST IN ENVIRONMENTAL DUE DILIGENCE

A.  Potential Risks of Liability Associated with Naturally Occurring Asbestos

1)  Liability Risks

Increasing attention is being given to naturally occurring asbestos (“NOA”) by developers, regulators, and concerned adjacent property owners in foothill communities. Ultramafic rock, commonly found near earthquake faults in the lower foothills of the Sierra and Coast ranges, typically hosts the serpentine type of asbestos, specifically chrysotile asbestos. The presence of NOA gives rise to complex regulatory requirements and concerns regarding liability to government agencies, third parties, employees, and contractors. In addition to the large number of local, state, and federal regulations pertaining to development requirements in areas with potential NOA, because asbestos is classified as a hazardous substance under CERCLA and the HSAA, EPA takes the position that “disturbed” NOA is so classified. On this basis, for example, EPA has taken response actions at Oak Ridge High School in El Dorado County, California. [31]

Classification of NOA as a hazardous substance would allow regulatory agencies to require response actions and could subject responsible parties to joint and several liability for response costs incurred to investigate and remediate disturbed NOA. Further, under various regulatory schemes, notices may need to be provided to potentially exposed parties, including employees, contractors, and prospective purchasers or tenants. Developers in the affected areas are likely to experience significant increases in their per unit costs to cover mitigation of asbestos through dust control measures, air monitoring on the perimeter of job sites, soil sampling, and having registered geologists on site.

2)  Due Diligence Considerations

In light of the significant additional costs and the risk of liability associated with the development of areas with NOA, due diligence activities for projects in regions with NOA should include measures to evaluate the presence of NOA and its influence on the proposed project. Although the appropriate level of due diligence will differ based upon the type, size, and location of project, a few general due diligence suggestions are noted below:

  1. Maps of the Geologic Atlas of California and Regional Geologic Map Series published by the California Geologic Survey (formerly Division of Mines and Geology) provide general locations of ultramafic rock and serpentinite around the state. These maps may be referenced to indicate the likelihood of NOA occurrence at a proposed development site. Because of their small scale, however, these geologic maps may not note small occurrences of ultramafic rock or serpentinite. The Phase I scope of work should be augmented to include review of these maps by a knowledgeable registered geologist with' experience in the project region.
  2. Stringent on-site air monitoring, dust control measures, and notice requirements to employees, invitees, other impacted parties, future buyers and contractors may be required. Consult NOA in general asbestos regulations, including those issued by the EPA, DTSC, the Federal and State Occupational Safety and Health Administrations, and the local Air Quality Management District, as well as Proposition 65 requirements. [32]
  3. Consider whether deed restrictions should be placed on the property to regulate future activities ( e.g ., earth moving activities such as excavation for swimming pools).
  4. Evaluate whether special provisions will need to be added to agreements with contractors to address potential liabilities arising out of grading and construction work.
  5. Consult with an environmental insurance broker to determine whether an environmental insurance policy would be appropriate for your project.

Both DTSC and the California Air Resources Board have published information on NOA, accessible through their respective websites. [33] This topic is the subject of controversy and further developments can be expected.

B.  Increasing Attention to Volatile Organic Compound Vapor Intrusion to Indoor Air

New DTSC Guidance on Subsurface Vapor Intrusion to Indoor Air

On December 15, 2004, DTSC issued Guidance for the Evaluation and Mitigation of Subsurface Vapor Intrusion to Indoor Air (Interim Final Dec. 15, 2004, revised Feb. 7, 2005) (“Guidance Document”). [34] The Guidance Document is one of the country's first state-issued documents on vapor intrusion to indoor air from contaminated sites. [35] DTSC notes that the Guidance Document does nor impose any requirements or obligations on the regulated community and that it is not a regulation, but instead provides a technical framework for evaluating vapor intrusion for reference by regulators, responsible parties, environmental consultants, community groups, and property developers. [36]

The Guidance Document provides a step-wise approach to evaluating vapor intrusion at sites contaminated with volatile organic compounds (“VOCs”). For locations where buildings currently exist, steps 1 through 11 (summarized below) apply. For sites where buildings do not currently exist but are proposed for the site, only steps 1 through 3, 5 through 7, and step 11(b) and 11(c) apply. The eleven steps are described by DTSC as follows: [37]

Step 1: Site History and Identification of Spills and/or Releases : Evaluate current and historical operations and identify any spills or releases at the site.

Step 2: Site Characterization : DTSC requires that a conceptual site model (“CSM”) be submitted, showing lateral and vertical dimensions of contamination. The Guidance Document outlines the elements of a CSM, and guidance on the collection of soil gas, soil, and groundwater data.

Step 3: Is the Site a Candidate for Vapor Intrusion? : Identify whether chemicals in the subsurface are volatile and toxic and how close existing or future buildings are or will be to subsurface contamination.

Step 4: Site Evaluation of Acute Hazard in an Existing Building : Identify whether an imminent hazard exists from vapors migrating into indoor air at existing buildings. If an imminent hazard does not exist, proceed to step 5.

Step 5: Preliminary Screening Evaluation : Assess potential risk based on evaluation using default vapor attenuation factors. If so, or under some conditions even if the factors are not exceeded, proceed to step 6.

Step 6: Collection of Additional Site Data : For sites with existing buildings, soil gas may be sampled directly under a slab foundation or by sampling the air in the area of a crawl space.

Step 7: Site-Specific Screening Evaluations : Model risk using site-specific physical parameters and building parameters. If the calculated risk is still significant, proceed to step 8.

Step 8: Indoor Air Sampling Assessment : For an existing building, prepare an indoor air sampling workplan, which includes an assessment of the utility corridors and the development of a contingency plan for appropriate response actions. Conduct appropriate public outreach with the affected community. Compilation of a workplan should be preceded by a site visit, and the workplan should contain the following information: (2) site history, results of the site visit, including an inventory of onsite and offsite buildings, (3) a CSM, (4) a utility corridor assessment, (5) number and type of air samples to be collected, (6) duration of the air sample collection, (7) laboratory analytical methods, and (8) a contingency plan.

Step 9: Indoor Air Sampling: For an existing building, conduct indoor air sampling. Screen for preferential pathways and evaluate the possibility of influences from airborne contaminants from consumer products and outside air conditions that might bias indoor air sample results.

Step 10: Evaluation of Indoor Air Sampling Results : Evaluate data to determine if indoor air concentrations are acceptable. If they are not, proceed to step 11. DTSC recommends a minimum of two indoor air sampling events before making a final risk determination.

Step 11: Mitigation of Indoor Air Exposure, Monitoring, and Implementation of Engineering Control: (a) For an existing building, mitigate indoor air exposure, imp lement engineering controls, and remediate VOC contamination n as appropriate; (b) if no building exists on the site and the calculated risk is significant, remediate subsurface VOC contamination or implement institutional measures to assure that ,engineering controls are installed in any future buildings; (c) under both circumstances, institute long-term monitoring at the site.

Although the Guidance Document is nor binding, various state agencies, including Regional Water Quality Control Boards, can be expected to rely upon the Guidance Document to address indoor air impacts associated with VOC contamination, at many of the hundreds of sites affected by VOCs. Although such an evaluation is not mandated to be performed by law or regulation, the Guidance Document crystallizes indoor air issues relevant in due diligence at sites where VOC contamination of the soil or groundwater may exist. Where DTSC is supervising a cleanup, it requires that human health risk be evaluated. If VOCs are found at a site, exposure from vapor intrusion must be included in a human health risk evaluation of the site.

DTSC acknowledges that the field of vapor intrusion is still developing, and thus labeled the Guidance Document “Interim Final” to allow DTSC to update its procedures and practices as future refinements occur. Therefore, the Guidance Document should be referred to regularly to ensure use of the most current version.

C.  California Human Health Screening Levels Guidance

It has always been difficult in California to predict whether remediation will be required by a state agency based on sampling data at a property. Recognizing this fact, in 2001 the state legislature directed that the California Environmental Protection Agency (“Cal EPA”) issue screening numbers to provide reference values to the public and interested agencies to estimate the degree of effort that may be necessary to remediate a contaminated property. and directed Cal EPA to issue a guidance document describing their appropriate use. [38] The 2001 California Environmental Restoration and Reuse Act (“SB 32:) [39] directed that Cal EPA first publish a list of screening numbers for specified contaminants for the protection of human health and safety and to report on the feasibility of establishing screening numbers to protect water quality and ecological resources. [40]

In January, 2005, Cal EPA issued the mandated guidance document, entitled “Use of California Human Health Screening Levels (CHHSLs) in Evaluation of Contaminated Properties” (“CHHSLs Guidance”), following publication of the California Human Health Screening Levels in 2004 by Cal EPA'S toxicology unit, the Office of Environmental Health Hazard Assessment (“OEHHA”).” [41]

As mandated by the statute, screening levels are listed for two types of land use—sensitive land uses, such as residential use, and commercial/industrial uses, The screening levels for commercial/industrial use are relevant primarily in predicting human health-based cleanup levels that may be imposed in conjunction with deed restrictions as part of an agency-supervised cleanup.

The CHHSLs and CHHSLs Guidance are advisory documents and do not describe final cleanup or action levels to be applied at contaminated sites or criteria for site closure. Most notably, the screening levels address only human ‘health impacts and do not address levels necessary to protect water quality, fish, or wildlife. They do not include screening levels for groundwater, which are of principal importance to California's Regional Water Quality Control Boards. Before referring to the documents, one should consult DTSC's web site for recent updates, as periodic updates are anticipated.

The CHHSLs Guidance contains useful explanations of a number of topics. These include a section recognizing the importance of comparing sampling results to natural background for a number of metals, including arsenic, beryllium, cadmium, and chromium, each of which may naturally exceed the listed screening levels. [42] The text also explains when the screening levels may be used as cleanup levels and in deciding upon land use restrictions. [43] An appendix to the document compares the screening levels to existing screening levels and standards issued by other authorities, including EPA Region IX's “Preliminary Remediation Goals (PRGs)” for soil, drinking water and ambient air focusing on risks to human health, and the Environmental Screening Levels published by the San Francisco Bay Area Regional Water Quality Control Board for soil, groundwater, surface water, and air, which consider other common and environmental concerns, as well. [44]

The significance of these documents to a developer or real estate attorney evaluating environmental risk at a site should not be overstated. It remains critical to use the services of qualified technical experts to use these references, together with other references addressing water quality and wildlife, and to interpret a number of different regulatory references within the context of the often convoluted process used by many different agencies within the state to resolve issues at contaminated sites. [45]

V.  CONCLUSION

The collection and evaluation of information on environmental conditions at a site intended for acquisition or lease remain crucial elements of real property transaction due diligence. As discussed in this article, the legislative and regulatory contexts concerning such matters have recently changed and will change further in the future. Therefore, it is critical to retain qualified and well-informed consultants in order to satisfy all appropriate inquiry standards and to ensure that clients are alerted to technical conditions of emerging concern. Counsel involved in real property transactions should be equipped with an understanding of the legal and governmental context in which information should be interpreted in order to properly scope environmental review and ensure that site assessments are properly documented and interpreted. This will allow real property and environmental counsel to translate the information into a meaningful assessment of risk and options for allocation of the risks.

Katharine E. Wagner is a partner at Downey Brand LLP in Sacramento, where she chairs the firm's Environmental Law Practice Group. She advises industrial, commercial, agricultural and public entity clients allocating environmental risks in transactions and site cleanups, and environmental permitting and compliance, with an emphasis in water quality and toxics regulation.

 

ENDNOTES

[1] 42 U.S.C. §§ 9601 (35), 9607(b)(3).

[2] Since this article was drafted, on November 1, 2005, the U.S. EPA issued the final All Appropriate Inquiries Rule (70 Fed. Reg. 66069), with only minor changes. Importantly, the compliance date for use of the new standard was established as November 1, 2006; in the interim, either the new standard or the prior standard may be used.

[3] See generally , DTSC's Brownfields website at www.dtsc.ca.gov/SiteCleanup/Brownfields/index.html and SWRCB's Brownfields website at www.waterboards.ca.gov/plnspols/oplans/bfield.html).

[4] See http://dtsc.ca.gov/SiteCleanup/ (links to deed restrictions sorted by name, location and contaminants).

[5] 42 U.S.C. §§ 9601(35), 9607(b) (3) (emphasis added).

[6] Id. § 9607(b)(3)

[7] Pub. L. 107-118, 115 stat. 2356.

[8] 42 U.S.C. §§ 9601 (35)(B)(ii) through (iv). The new statute confused matters somewhat by referring to the 1997 version of ASTM E 1527 (E 1527-97) as the ongoing interim standard rather than the most recent 2000 standard, and by omitting reference to applicability of ASTM standards for transactions involving properties acquired before May 31, 1997. In addition, the new law added the requirements that when the owner or operator has taken reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit any human, environmental, or natural resource exposure to any previously released hazardous substance, and that he or she provided full cooperation, assistance and facility access to those authorized to conduct response actions, and complied with land-use restrictions relied on in connection with the response action and acted consistent with the institutional controls established in connection with a response action.

[9] 42 U.S.C. § 9601(35)(B)(v).

[10] Id. § 96O7(q), § 9607(r). A full discussion of the provisions of these protections is contained in an article in the Fall 2002 issue of the California Real Property Journal . Catherine W. Johnson and Carolyn Johnson Stein, “Recent Superfund Amendments: New Defenses to CERCLA Liability and New Standards for Pre-Acquisition Environ mental Due Diligence,” Vol. 20, No. 4, p. 18. See also EPA, “Interim Guidance regarding Criteria Landowners Must Meet in Order. to Qualify for Bona Fide Prospective Purchase, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability,”(2003).

[11] 68 Fed. Reg. 24,888 (May 9,2003) (proposing a new Part 312 to Title 40 CFR).

[12] 69 Fed. Reg. 52,541 (August 26, 2004).

[13] Telephone communication with Sven Kaiser, EPA, August 2, 2005.

[14] 69 Fed. Reg. at 52,577 (proposed 40 CFR §312.20(d)).

[15] Id. at 52,575-76.

[16] Id. at 52,578 (proposed 40 CFR §§ 312.20(e), 312.21(c), 313.31).

[17] Id . at 52,559-68, 52,576-81.

[18] Id. at 52,570.

[19] 42 U.S.C. § 9601(35)(B)(iv)(11) (“with respect to property purchased on or after May 31,1997. and until the Administrator promulgates the regulations. . . [the ASTM standard] shall satisfy [the requirement to conduct all appropriate inquiry on or before the date of acquisition]”(emphasis added)); see also 69 Fed. Reg. 52,541, 52545 (implying that the interim standards may not govern purchases made after the Final Rule's effective date, as interim standards “remain in effect until EPA promulgates federal regulations establishing standards and practices for conducting all appropriate inquiries”).

[20] Chapter 6.8 of the Health & Safety Code, § 25300 et seq.

[21] Id .§ 25323.5.

[22] Id. § 25395.65.

[23] Chapter 705, Statutes of 2004, adding new Chapter 6.83 to the California Health and Safety Code, commencing with § 25395.110, and repealing Chapter 6.82, commencing with § 25395.60.

[24] Id.

[25] Id. § 25323.5.

[26] Id. § 25395.79.2.

[27] Id.

[28] Id. § 25395.80.

[29] Id. §§ 25395.86, 25395.81.

[30] Id. § 25395.86.

[31] See, e.g., EPA's website at http://permanent.access.gpo.gov/ websiteslepagovlwww.epa.gov/region09/toxic/noa. The key issue in most cases involving asbestos under CERCLA is whether friable asbestos in buildings constitutes a “release” for which “response costs” may be recovered. While case law generally finds that releases affecting' only the interior of buildings cannot trigger CERCLA liability, the result may differ if a purchase or sale is for the purpose of disposing of the building.

[32] 29 C.F.R. § 1910.1001 (United States Occupational Safety and Health Administration (“OSHA”) General Industry Standard for Asbestos); 29 C.F.R. § 1926.1101 (OSHA Construction Standard for Asbestos); 42 U.S.C. §§ 740 1-7671 (Federal Clean Air Act); 40 C.F.R. Part 61, Subpart M (National Emission Standards for Hazardous Air Pollutants, standards for asbestos); 17 C.F.R. § 93105-93106 (Asbestos Airborne Toxic Control Measures addressing NOA exposure); Cal. Lab. Code, § 6501.5 (registration requirements for employers and contractors engaged ‘in asbestos-related work); 8 C.C.R. § 1529 (California Occupational Safety and Health Administration (“Cal OSHA”) Construction Standard for Asbestos); 8 C.C.R. § 5208 (Cal OSHA General Industry Standard for Asbestos); Cal. Health & Safety Code §§ 25249.5-25249.12 (Proposition 65); 22 C.C.R. § 12000 et seq . (Proposition 65 regulations); Cal. Health & Safety Code § 25359.7(a)(notice to prospective buyer or tenant required of owner of nonresidential real property with reasonable cause to believe release of hazardous substance is located on r beneath property; notice o owner required of tenant wit such knowledge); see also El Dorado County Ordinance No. 4548, Chapter 8.44 (Naturally Occurring Asbestos and Dust Protection Ordinance).

[33] See DTSC, Interim Guidance Document on Naturally Occurring Asbestos at School Sites , http://www.dtsc.ca. gov/PolicyAndProcedureslSchoolsl~SMBRP POL_Guidance Schools_NOA.pdf; http://www.arb.ca.gov/toxics/Asbestos/generaLhtm (California's Air Resources Board website on NOA); http://permanentaccess.gpo.gov/websites/epagov/www.epa.gov/regiono9/toxic/noa (EPA's NOA website).

[34] Almost two months after the original publication date of the Guidance Document, the DTSC made the Guidance Document available to the public on its website. The DTSC's website is accessible at http://www.dtsc.ca.gov. The Guidance Document can be found at http://www.dtsc.ca. gov/ScienceTechnology/HERD POL_Eval_Subsurface_Vapor_Intrusion_interim_final.pdf.

[35] EPA issued similar guidance in November, 2002. See 67 Fed. Reg. 71169 (Nov. 29, 2002); see also http://www.epa.gov¬correctiveaction/eis/vapor/complete.pdf (Guidance); http://www.epa.gov/correctiveaction/eis/vapor/f02052.pdf (Fact Sheet). To date, the EPA Draft Guidance has not been published in any form other than as “Draft Guidance.”

[36] See Guidance Document at p. 1.

[37] See Guidance Document at pp. iii-iv; see generally Guidance Document at pp. 2-4 1.

[38] Cal. Health & Safety Code § 57008(e).

[39] Chapter 764, Statutes of 2001, codified at Cal. Health & Safety Code §§ 25401 et seq . and 57008-57010.

[40] Cal. Health & Safety Code § 57008.

[41] See www.calepa.ca.gov/Brownfields/documents/2005/CHHSLsGuide.pdf; “Human-Exposure-Based Screening Numbers Developed to Aid Estimation of Cleanup Costs for Contaminated Soil,” OEHHA, November 2004, rev. January 2005.

[42] CHHSLs Guidance, section 2.7, p. 2-10.

[43] Id. , at section 2.10, p. 2-12.

[44] Id. , at Appendix 2; see “Preliminary Remediation Goals,” U.S. Environmental Protection Agency, Region IX, October 2004, ww.epa.gov/region09/wasre/sfund/prg/index;htin; “Screening for Environmental Concerns at Sites with Contaminated Soil and Groundwater (4th ed., February 2005): California Regional Water Quality Control Board, San Francisco Bay Region, www.waterboards.ca.gov/sanfranciscobay/esl.htm (updated to address the state CHHSLs).

[45] Cal EPA was also required under SB 32 to publish an informational document describing the cleanup process implemented by its boards and departments. See “Site Investigation and Remediation Processes,” www.calepa.ca. gov/brownfields/documents/2003/SB32Info.pdf.