How to obtain a copy of the new ASTM E 1527-05 Phase I ESA Standard
A Brief History
In 1980, in response to the growing number or hazardous waste sites requiring cleanup by the EPA, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The act authorized EPA to conduct cost recovery for cleanup costs from "responsible parties" which expressly included the property owner who may have taken no part in contaminating the property. An important limitation to this liability was installed to protect new purchasers "who did not know, and had no reason to know, about existing contamination at the time of purchase". This landowner liability protection (LLP) is known as the "Innocent Landowner Defense" and required purchasers conduct "all appropriate inquiry into the previous ownership and use of the property prior to purchase." Because the law was ambiguous as to what "all appropriate inquiry" required, the definition was shaped over 20 plus years through case law and adoption of industry standards.
In 1993, the American Society for Testing and Materials (ASTM) set the first industry standard (E-1527) for conducting due diligence, commonly known as the Phase I Environmental Site Assessment (Phase I ESA). This standard laid out the inquiry needed in order to claim the Innocent landowner defense or, if contamination was discovered, give the prospective purchaser negotiation options. In 1996 the superfund amendments and reauthorization act (SARA), clarified the original CERCLA language to state that purchasers must conduct "all appropriate inquiry into the previous ownership and use of the property consistent with good and customary practices". This clarification assured parties acquiring an ASTM E-1527 Phase I ESA prior to purchase that the Innocent landowner defense could be assumed if contamination were later found on the property.
In 2002, Congress enacted the Small Business Liability Relief and Brownfields Revitalization Act, which created two new LLPs under CERCLA; the contiguous property owner and the bona fide prospective purchaser liability protections. These protections were designed to reverse the trend of industrial land abandonment, commonly referred to as Brownfields, which were taking place because of real or perceived risk of assuming CERCLA Liability. Along with these new LLPs, the law required that, for the first time, EPA set its own standards for conducting environmental due diligence. On November 1, 2005, after years of negotiation and revision, EPA codified the "Standards and Practices for All Appropriate Inquires" rule, creating the first federally mandated due diligence standards. ASTM International has since revised its own standard (E 1527-05) to meet the requirements of EPA's AAI Rule, which EPA later approved for use to meet the requirements of the AAI rule.
Why should a lender/purchaser care about the rule change?
Prospective purchasers, who do not conduct all appropriate inquiry prior to purchasing a property, risk assuming liability for cleanup should contamination ever be found to have resulted from past practices conducted on the property. CERCLA enables liability to be assigned "jointly" or "severally", meaning the current landowner, regardless of their knowledge of past practices, may assume total liability for the cost of cleanup. The only avenue to avoid this risk, is to conduct AAI prior to purchase and meet "continuing obligations" after purchase if applicable.
The AAI rule has the potential to affect virtually all commercial real estate transactions, and not only dictates who is qualified to perform Phase I Environmental Site Assessments (ESA), but provides guidelines and procedures for performing the assessment. While the new standard requires additional legwork on part of both the environmental professional and the "user" (party requesting the Phase I ESA), there are definitely some added benefits to the new standard. Prospective purchasers are now eligible to receive CERCLA liability protection if a recognized environmental condition (REC) is identified through the course of the Phase I. With the new "bona fide prospective purchaser" and "contiguous property owner" LLPs, a buyer can freely purchase the land and retain liability protection so long as they meet their "continuing obligations." The adoption of AAI was an important change in the way liability protection was previously assigned, as it significantly reduced the risk of liability to buyers and has already spurred the development of otherwise unused brownfields across the country.
What should lenders/purchasers do to adapt to the new rule?
After November 1, 2006, any prospective purchaser seeking CERCLA liability protection and any party receiving an EPA brownfields grant must hire a qualified environmental professional who meets the rule's qualifications to conduct an AAI-compliant Phase I ESA. The federal requirements are also likely to trickle down to the Phase I ESA market in a number of other ways. Lenders and other users of Phase I ESA services may revise their internal environmental due diligence policies to recognize EPA's requirements. Federal agencies (e.g., HUD and SBA) and Wall Street's rating agencies are most likely to adopt the AAI rule into their Phase I ESA protocols. Furthermore, most state governments have already moved toward adopting the EPA's rule into state CERCLA liability legislation. In order to adopt the new rule, all "users" should:
- Be prepared to adjust their own internal environmental due diligence practices to include new "user requirements".
- Ensure that their environmental consulting firm uses professionals who are qualified to perform Phase Is under the AAI rule and who are well versed in the rule's requirements and applicability;
- Watch for changing due diligence policies in response to the AAI rule in the government sector (e.g., SBA, HUD) and the private sector (e.g., Moody's and Standard and Poors); and
- Understand the new requirements that the "user" must follow to comply with any continuing obligations after purchase.
What are the "user" (lenders/prospective purchasers or tenants) new responsibilities?
The following is a short summary of the "user" responsibilities:
- Review Title and Judicial Records for Environmental Liens or Activity and Use Limitations (AULs);
- Provide the environmental professional with specialized knowledge or experience that is material to RECs in connection with a property;
- Provide the environmental professional with knowledge of any environmental lien or AULs encumbering the property or in connection with a property;
- Provide the environmental professional with knowledge regarding the relationship of the purchase price of the property to the fair market value of the property if the property was not affected by hazardous substances or petroleum products;
- Provide the environmental professional with any commonly known or reasonably ascertainable information within the local community about the property that is material to recognized environmental conditions (RECs) in connection with a property; and
- Provide the environmental professional with information regarding the purpose for conducting the Phase I ESA.
These requirements will help the environmental professional in identifying recognized environmental conditions (RECs) in connection with a property.
What are "Continuing Obligations" and how might they affect the big picture?
Conducting AAI prior to purchase is the first step toward meeting AAI obligations; however, it is not necessarily the end of your journey. Should a recognized environmental condition (REC) be found on the property, the property owner may be required to meet certain "continuing obligations", including:
- Comply with land use restrictions and institutional controls,
- Take "reasonable" steps with respect to hazardous substances releases, and
- Comply with other obligations (e.g., release reporting obligations, information requests…).
These continuing obligations come into effect when recognized environmental conditions or activity & use limitations are discovered. For example, if a purchaser buys a property with a gasoline underground storage tank, any release must be reported and "reasonable steps" must be undertaken to respond to the release. Failing to meet a "continuing obligation" identified during the course of a Phase I has the probable effect of essentially negating any LLPs acquired by conducing AAI.
Continuing obligations are now the focus of a new ASTM Task group–Standard Practice for Continuing Obligations. Once developed, this standard will:
- Establish link between the Phase I and continuing obligations
- Outline the requirements and those landowner duties that would satisfy them
According to EPA's designated federal official on the AAI law, "Future CERCLA case law will be made on basis of continuing obligations. The courts will decide if you should have known, or had reason to know, about the need to comply with them."
How has the definition of an Environmental Professional changed?
The AAI rule changes the definition of an environmental professional (EP) from previous standards. In order to be considered "qualified, the EP must:
- Hold a current Professional Engineer (PE) or Professional Geologist (PG) license or registration from a state, tribe, or U.S. territory and have the equivalent of three years of full-time relevant experience;
- Be licensed or certified by the federal government, a state, tribe or U.S. territory to perform environmental inquiries and have the equivalent of three years of full-time relevant experience;
- Have a Baccalaureate or higher degree from an accredited institution of higher education in a discipline of engineering or science and the equivalent of five years of full-time relevant experience; or
- Have the equivalent of ten years of full-time relevant experience.
What are the Environmental Professional's new responsibilities?
Site reconnaissance requirements have been increased to require that EPs or field professionals under the guidance of an EP inspect the property and observe adjacent and surrounding properties to identify any conditions that may be indicative of contamination or potential contamination. If the subject property is identified as "abandoned" and evidence of unauthorized uses or uncontrolled access to the property are identified, then interviews with adjacent property owners are also required. Current and past owners of the subject property must be interviewed.
The AAI rule also makes significant changes in how record review is conducted, including:
- Revisions to search distances for certain government records,
- Mandatory search of federal/state/tribal institutional controls and engineering controls;
- Mandatory review of tribal records; and
- Mandatory review of local records.
Combined, these changes amount to a considerable increase in the workload of the EP. Because the AAI standard practice is expressly tied to liability protection, the importance for User's to make sure their EPs are qualified and knowledgeable about the law is more important than ever.
Where can I find the new AAI Rule?
The new rule (AAI Rule) can be viewed on-line at:
http://www.epa.gov/swerosps/bf/aai/aai_final_rule.pdf
How to obtain a copy of the new ASTM E 1527-05 Phase I ESA Standard
In Section 312.11 (References) of the federal AAI rule, EPA identifies the ASTM E 1527-05 standard as an option for complying with the rule's requirements. The new industry standard was released on Friday, November 18, 2005, and includes a series of revisions necessary to bring the standard in line with the federal AAI rule. Copies of the E 1527-05 standard are available for purchase from ASTM at:
http://www.astm.org/DATABASE.CART/REDLINE_PAGES/E1527.htm
If you have additional questions about AAI and how it might affect you, please call us at 513-353-5900 and ask to speak to an environmental professional.
