EPA PUBLISHES FINAL RULE ON "ALL APPROPRIATE INQUIRIES"

On November 1, 2005, the U.S. Environmental Protection Agency ("EPA") published a final rule setting federal standards for the conduct of "All Appropriate Inquiries" ("AAI") prior to the acquisition of real property ("Final Rule"). AAI requirements are applicable to parties who may potentially claim protection from liability under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq., as "innocent landowners," "bona fide prospective purchasers," or "contiguous property owners."

AAI is the process of evaluating the potential for contamination of a property with hazardous substances prior to acquisition, through visual inspections and inquiries into its use history and regulatory status. A person who conducts AAI prior to acquisition may be able to avoid CERCLA liability for investigation and remediation that would otherwise arise on account of the mere ownership of a property where there has been a release of a hazardous substance. The AAI Final Rule establishes specific regulatory requirements for conducting inquiries into the previous ownership, uses, and environmental conditions of a property.

Under the Final Rule, many AAI activities must be conducted or supervised by an individual who qualifies as an "Environmental Professional." The rule includes detailed qualifications criteria for an Environmental Professional. The inquiry of the Environmental Professional must include the following:

•  interviews with past and present owners, operators, and occupants;

•  reviews of historical sources of information;

•  reviews of federal, state, tribal, and local government records;

•  visual inspections of the facility and adjoining properties; and

•  commonly known or reasonably ascertainable information.

The question of whether the inquiry meets the AAI standard will depend in part on the degree of obviousness of the presence or likely presence of contamination at the property and the ability to detect the contamination. Generally speaking, subsurface or invasive testing is not required to meet the AAI standard.

Additional inquiries that must be conducted by or for the prospective landowner (but not necessarily by the Environmental Professional) include:

• searches for environmental cleanup liens;

• assessments of any specialized knowledge or experience of the prospective landowner;

• an assessment of the relationship of the purchase price to the fair market value of the property, if the property was not contaminated; and

• commonly known or reasonably ascertainable information.

The AAI Final Rule does not depart significantly from the standards published by the American Society for Testing and Materials ("ASTM") under designation E1527-00, which Congress incorporated by reference in its 2002 amendments to CERCLA for satisfying AAI pending the effective date of a final adopted rule. The AAI Final Rule includes all the principal activities mandated by the ASTM E1527-00 standard ("Interim Standard"), such as site reconnaissance, records review, interviews, and documentation of recognized environmental conditions. However, the Final Rule does expand the scope of environmental due diligence activities and requires that significant data gaps or uncertainties be documented. Changes of note include:

• Under the Final Rule, interviewing the subject property’s current owner or occupants is mandatory. The Interim Standard only required that the Environmental Professional make a reasonable attempt to conduct such interviews.

• The Final Rule includes provisions for interviewing past owners and occupants of the subject property. Under the Interim Standard, the Environmental Professional only had to inquire about past uses of the subject property when interviewing the current property owner.

• The Final Rule requires an interview with an owner of a neighboring property if the subject property is abandoned. The Interim Standard included such interviews at the Environmental Professional’s discretion.

• The Final Rule does not specify who is responsible for performing record searches, including searches for use limitations and environmental cleanup liens. The Interim Standard specified that these record searches are the responsibility of the "user" and required that the results be reported to the Environmental Professional.

• Unlike the Interim Standard, the Final Rule requires the examination of tribal and local government records and more extensive documentation of data gaps.

• The Final Rule includes specific documentation requirements if the subject property cannot be visually inspected. The Interim Standard did not include such requirements.

Under the Final Rule, inquiries must be documented in a written report and must be completed within a certain period of time before acquisition. The rule includes standards for updating earlier inquiries and for use of environmental inquiry reports prepared by or for others.

The Final Rule will be effective on November 1, 2006, one year following the date of publication. Until then, a party can satisfy the AAI standard by complying with either the Final Rule, the recently revised ASTM Standard E1527-05, or the Interim Standard. After November 1, 2006, parties must comply with the requirements of the Final Rule, or follow the standards set forth in ASTM E1527-05, to satisfy the statutory requirements for conducting AAI.

The Final Rule is to be codified as Part 312 of Title 40 of the Code of Federal Regulations, and is published at 70 Fed. Reg. 66070. To review the Federal Register notice containing the Final Rule, please see the following link:

http://epa.gov/brownfields/aai/aai_final_rule.pdf

If you have questions about the AAI Final Rule, contact your attorney at Allen Matkins, who can direct you to the appropriate environmental specialist, or you can call Environmental Group members David Cooke (415-273-7459) or Emily Kennedy (415-273-7466) at Allen Matkins' office in San Francisco directly.