This post was also written by Todd Maiden.
The All Appropriate Inquiries Rule (the “AAI Rule”), set forth at 40 CFR Part 312, serves as a benchmark protocol for inspecting a property’s environmental condition. If the benchmark is met, a prospective purchaser can be insulated from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). In order to satisfy the requirements of the AAI Rule, a prospective purchaser must be able to demonstrate satisfaction of certain industry standards promulgated by the American Society for Testing and Materials (“ASTM”). On December 20, 2013, the Environmental Protection Agency approved ASTM Standard 1527-13 (the “Revised ASTM”), relating to Phase I Environmental Site Assessments (“Phase I Assessments”), as sufficient to satisfy the AAI Rule for protection under CERCLA. The EPA approval goes into effect on October 6, 2015. After this date, prospective purchasers of property must verify that all Phase I Assessments and related due diligence are performed in accordance with the Revised ASTM. The changes, discussed below, could impact the time and costs associated with due diligence, and prospective purchasers should start planning now.
Changes in Recognized Environmental Conditions
A subtle but significant change relates to how the term “recognized environmental condition” (or “REC”) is now differentiated. As background, a REC means the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment. Further, a Historical REC (“HREC”) is defined as an environmental condition that in the past would have been considered a REC but has been satisfactorily remediated or addressed in such a manner that it is no longer considered to be a REC, i.e. the environmental conditions have been fully remediated with no restrictions.
The Revised ASTM breaks down this differentiation further by defining a “controlled REC” or “CREC”) as a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority, with hazardous substances or petroleum products allowed to remain in place subject to the implementation of required controls (e.g., a land use control or deed restriction, limiting a property to commercial or industrial while prohibiting residential use or certain specific uses such as crop growing, etc.
The above distinctions will require additional due diligence on the part of environmental consultants who must verify what remedial measures were taken, which could increase costs, including title searches and review of land use controls. The new distinction could attract additional scrutiny from lenders and insurance carriers as well.
Vapor Intrusion as a Recognized Environmental Condition
The changes also broaden the scope of an acceptable Phase I Assessment to include vapor intrusion and clarified that releases of contaminants that migrate via vapor in subsurface or in soils constitute a REC, heighten due diligence standards with respect to adjoining properties, and add new title search requirements. All this will inevitably add time and delay to the due diligence process, and could necessitate additional due diligence, including a Phase II Site Assessment, which could stop some deals in their tracks.
Most consultants and lenders already work to the Revised ASTM, but prospective purchasers should carefully evaluate a consultant’s scope of work going forward, as the Phase I Assessment is typically obtained to support a statutory defense to strict liability for environmental contamination caused by prior owners and the Revised ASTM must be satisfied in order to support such a defense.