Environmental Law Update

November 2005

New Environmental Due Diligence Standard (All Appropriate Inquiry)

On November 1, 2005, the U.S. EPA issued its long awaited final rule describing a new due diligence standard that must be met by any party who seeks protection from environmental liability under the federal Superfund law (CERCLA), by asserting statutory defenses for innocent landowners, bona fide prospective purchasers, or as contiguous property owners. Referred to as the “ All Appropriate Inquiries ” standard, the standard identifies the process for evaluating a property's environmental conditions and assessing potential liability for any contamination prior to acquisition of the property. In the past, this process was satisfied by obtaining a Phase I Environmental Assessment that met the ASTM E1527-00 or E1527-97 standards. Effective November 1, 2006, parties must follow the new All Appropriate Inquiries rule. Until November 1, 2006, either the new All Appropriate Inquiries rule or the old ASTM E1527 standard will satisfy CERCLA's requirements.

The new standard for environmental assessments may increase the cost of environmental due diligence for those who previously performed only the minimum required under the old ASTM standards, or whose consultants do not meet the new professional qualifications. However, the new standard should increase the quality of information in environmental reports. It also provides further information useful in "brownfields" acquisitions of property with known environmental conditions which may require continuing cleanup or land use controls after purchase.

The most significant differences between the new All Appropriate Inquiries rule and the ASTM E1527-00 standard are in the following areas:

  • Significant data gaps or uncertainties must now be documented, along with the environmental professional's opinion of the impact of those gaps on the ability to identify potential releases of hazardous substances, and recommendations for any additional investigation.
  • Interviewing the subject property's current owner or occupants is now mandatory with narrow exceptions.
  • The new All Appropriate Inquiries rule includes provisions for interviewing past owners and occupants of the subject property to collect information on past uses and ownerships of the property, to identify potential conditions that may indicate the presence of releases or threatened releases of hazardous substances at the subject property. Additional inquiries are required as necessary to obtain information commonly known or reasonably ascertainable within the community.
  • An interview with an owner of a neighboring property is now required if the subject property is abandoned.
  • The new All Appropriate Inquiries rule requires that historical documents be reviewed as far back in time as the property contained structures or the property was used for agricultural, residential, commercial, industrial, or governmental purposes.
  • The new All Appropriate Inquiries rule requires the examination of tribal and local government records and more extensive documentation of data gaps;
  • The new All Appropriate Inquiries rule includes specific documentation requirements if the subject property cannot be visually inspected
  • The new All Appropriate Inquiries rule requires that the prospective property owner consider whether the purchase price reasonably reflects the fair market value of the property, and consider whether any difference is due to the presence of releases or threatened releases of hazardous substances. If the prospective property owner does not provide information regarding the relationship of the purchase price of the subject property to its fair market value, the environmental professional must comment on the impact that the absence of such information has on his or her conclusions.
  • The new All Appropriate Inquiries rule imposes new qualification requirements for environmental professionals supervising All Appropriate Inquiries.
  • If all appropriate inquiries are conducted more than 180 days prior to the acquisition date, certain aspects of the inquiries must be updated. In addition, the new rule places more conditions on the use of previous reports on the property prepared for other parties.  

Environmental professionals and others carrying out due diligence must not only be aware of the changes in the rule but also be capable of articulating the appropriate conclusions that the rule requires.

For more information on effective environmental due diligence or the new All Appropriate Inquiries rule, contact Katharine Wagner, Nicole Gleason, Steve Goldberg or Bob Soran. Additional information concerning Downey Brand's Environmental Law Practice Group is available by clicking the link below.

Environmental Law Practice Description

Please note that the information contained in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.