The environmental due diligence industry
is in an unprecedented period of transi-
tion. The market barely had time to read
EPA’s final “All Appropriate Inquiries”
rule (40 CFR Part 312) released on
November 1, 2005, when they were hit
with another significant development two
weeks later: a revised ASTM Phase I
E 1527 standard. The federal rule, which
recognizes the E 1527-05 standard as an
acceptable guidance document for satis-
fying AAI and took effect
on November 1, 2006, gave
Phase I consultants less than
one year to familiarize
themselves with the new
requirements. The following
Executive Summary, based
on EDR’s 2005/2006 Due
Diligence at Dawn work-
shop series, covers the fun-
damentals of meeting the
new federal pre-transaction
requirements,
and
the
details of CERCLA’s post-
transaction continuing obli-
gations.
AAI & ASTM E 1527
The 2002 Small Business Liability Relief
and Brownfield Revitalization Act (the
Brownfields Law) set the wheels in
motion for the first federal environmental
due diligence rule. Under the Brownfields
Law, any property purchasers seeking to
qualify for CERCLA liability protection
must conduct AAI prior to taking title in
order to raise a defense as any of the fol-
lowing:
• Innocent landowner;
• Contiguous property owner; or
• Bona fide prospective purchaser.
After a four-year development period,
including a fall 2004 public comment
period, U.S. Environmental Protection
1
Agency Administrator Stephen L.
Johnson unveiled the long-awaited rule
with much fanfare in his keynote address
at the National Brownfields Conference
in Denver, Colorado on November 2,
2005, tipping his hat to the 25 stakehold-
ers who participated in the regulatory
negotiation process throughout 2003.
The rule’s development period also
included close collaboration between
EPA and ASTM. It was to
the mutual benefit of both
parties
for
the ASTM
E 1527 standard to receive
EPA’s blessing in the federal
rule as sufficient protocol
for meeting AAI. In order to
satisfy EPA that the ASTM
E 1527 standard was “at
least as stringent” as the
AAI rule, the 2000 version
needed to go through a
series of revisions. This
process required that certain
elements of the AAI rule
(e.g., EPA’s “environmental profession-
al” qualifications) be incorporated verba-
tim into ASTM E 1527-05. In their final
forms, some key differences between the
two documents remain, but a property
purchaser may follow either E 1527-05 or
the AAI rule in order to meet the first step
necessary to qualify for CERCLA liabili-
ty protection. The following sections
document the key areas of change to the
ASTM standard that were necessary to
bring the process in sync with an envi-
ronmental inquiry under the AAI rule.
Purpose
The first obvious change to the ASTM
E 1527 standard necessary to make the
practice consistent with the scope of the
AAI rule pertains to Section 1.1,
Purpose. The Phase I Task Group
expanded the applicability of the stan-
Executive Summary
Preparing for Parallel Changes: AAI & ASTM E 1527
1. To qualify for any of the CER-
CLA liability protections, ten
components of AAI must be sat-
isfied, including "an inquiry by
an environmental professional."
2. Certain components must be
conducted by a qualified EP, but
other steps may be the responsi-
bility of the "user."
3. The AAI rule does not require
the user to provide information
to the EP, but it is the EP who
bears responsibility for develop-
ing opinions and documenting
findings.
4. The EP’s report should docu-
ment what was/was not provid-
ed, which ten steps were not
addressed in the inquiry, if any.
5. The AAI rule assigns a one- year
shelf life from the date of prop-
erty purchase for the environ-
mental inquiry, with a 180-day
shelf life for certain compo-
nents.
6. "Environmental professionals"
have new qualifications to meet
in terms of licensing, education
and relevant experience.
7. AAI is only the first step to
establishing the ability to quali-
fy for CERCLA liability protec-
tion - "continuing obligations"
apply after purchase.
8. Sampling is not required under
AAI, but is suggested as an
option for filling data gaps.
9. The effective date of the AAI
rule was November 1, 2006.
10. Corporations, lenders, devel-
opers,
investors and other
affected sectors are evaluating
their environmental due dili-
gence policies to determine
whether to adopt AAI.
TEN F
TEN F
ACTS
ACTS
ABOUT
ABOUT
AAI • TEN F
AAI • TEN F
ACTS
ACTS
ABOUT
ABOUT
AAI • TEN F
AAI • TEN F
ACTS
ACTS
ABOUT
ABOUT
AAI
AAI
November 2006
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Executive Summary
dard from its original purpose as a tool for
permitting a user to qualify for the tradi-
tional innocent landowner defense. Now,
E 1527’s scope also encompasses the two
new landowner liability protections under
the 2002 Brownfields Law:
• the bona fide prospective purchaser, and
• the contiguous property owner protec-
tions.
The E 1527-05 standard
includes
Appendix X1, a 10-page legal appendix
(Legal Background to Federal Law and
the
Practices
on
Environmental
Assessments in Commercial Real Estate
Transactions) that reflects updates made
in response to CERCLA’s amendments
under the 2002 Brownfields Law. Within
the appendix is current information on
CERCLA’s requirement for AAI; the
statutory definition of hazardous sub-
stances; a background on CERCLA’s
exclusion for petroleum products and
petroleum; and an updated case law inter-
pretation of AAI in commercial real estate
transactions.
Another key change to the scope of
E 1527 is the deletion of references to the
Executive Summary CONT’D
ASTM E 1528 Transaction Screen stan-
dard. Previously, the standard indicated
upfront in Section 1.1 that the purpose of
the E 1527 practice, “as well as Practice
E 1528,” was to allow a user to satisfy one
of the requirements needed to qualify for
the innocent landowner defense to CER-
CLA liability. Now, under the provisions
of the 2002 Brownfields Law, a property
purchaser can no longer follow E 1528
and hope to qualify for CERCLA liability
protection. As a result, the ASTM Task
Group divorced the two practices, and on
March 6, 2006, ASTM issued a revised
E 1528 standard that reflects its new pur-
pose as a transactional environmental
screening tool outside the scope of CER-
CLA-related concerns (E 1528-06).
An important element of the E 1527 stan-
dard that did not change, however, is the
definition of “recognized environmental
condition (or REC).” The goal of the
Phase I ESA is still to identify “the pres-
ence or likely presence of any hazardous
substances or petroleum products on a
property…” The corresponding terminol-
ogy under the AAI rule is that the purpose
of the investigation is to identify “condi-
tions indicative of releases or threatened
releases of hazardous substances, as
defined in CERCLA section 101(22)…”
Distribution of Responsibilities
The conduct of AAI is a ten step, two-
party process, to be completed not just by
the environmental professional, but also
by the person seeking to qualify for CER-
CLA liability protection (i.e., the “user”).
The ten steps date back to the 2002
Brownfields Law (see shaded text box).
Although the user’s responsibilities under
AAI were always part of a Phase I ESA
under the E 1527 standard, they were rou-
tinely overlooked. The EPA rule is now
clearly stating that the user is uniquely
responsible for bringing certain informa-
tion to the table; namely, a search for
environmental cleanup liens, specialized
knowledge about the property, and a con-
sideration of the purchase price to the fair
market value of the property, if not con-
taminated. The EP, on the other hand,
shoulders responsibility for the core com-
ponents of a Phase I: the environmental
inquiry, the site visit, interviews, and a
review of current and historical sources
about the property and surrounding area.
In addition, both the EP and the user share
responsibility for considering two other
elements of AAI: any “commonly known”
information about the property and the
“degree of obviousness of contamina-
tion.”
Although the rule does not require the
user to share information with the EP, it is
the EP who ultimately bears responsibili-
ty for developing opinions and document-
ing findings about “releases or threatened
releases of hazardous substances” at the
target property. As such, the EP’s report
should expressly state which required
information from the user was provided,
as well as what was not. Property pur-
chasers must be aware of the types of
information that need to be provided to
the EP upfront, and perhaps more impor-
tantly, understand that a failure to do so
could jeopardize the ability to qualify for
CERCLA liability protection down the
2
Congress' Statutory Language for Mandatory Components of
"All Appropriate Inquiry"
1. The results of an inquiry by an environmental professional.
2. Interviews with past and present owners, operators, and occupants of the facility for the purpose of
gathering information regarding the potential for contamination at the facility.
3. Reviews of historical sources, such as chain of title documents, aerial photographs, building department
records and land use records, to determine previous uses and occupancies of the real property since
the property was first developed.
4. Searches for recorded environmental cleanup liens against the facility that are filed under federal, state
or local law.
5. Reviews of federal, state and local government records, waste disposal records, underground storage
tank records, and hazardous waste handling, generation, treatment, disposal and spill records concern-
ing contamination at or near the facility.
6. Visual inspections of the facility and of adjoining properties.
7. Specialized knowledge or experience on the part of the defendant.
8. The relationship of the purchase price to the value of the property, if the property was not contaminated.
9. Commonly known or reasonably ascertainable information about the property.
10. The degree of obviousness of the presence or likely presence of contamination at the property, and the
ability to detect the contamination by appropriate investigation.
Source: Federal Small Business Liability Relief and Brownfields Revitalization Act, signed into law on
January 11, 2002.
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Executive Summary
road. To assist in educating clients about
the emphasis on user’s responsibilities, E
1527-05 includes a new appendix (X3)
containing a questionnaire to be complet-
ed by the user, expressly stating that:
“Failure to provide this information
could result in a determination that ‘all
appropriate inquiry’ is not complete.”
The User Questionnaire specifically out-
lines a property purchaser’s obligations
under AAI for providing the following
information to the environmental profes-
sional:
a. environmental cleanup liens filed or
recorded against the site;
b. activity and use limitations in place on
the site;
c. specialized knowledge or experience
related to the property or nearby prop-
erty;
d. relationship of the purchase price
being paid for the property to its value
if not contaminated;
e. commonly known or reasonable ascer-
tainable information about the proper-
ty; and
f. any obvious indications pointing to the
presence or likely presence of contam-
ination at the property.
If a property owner is forced to prove in
court that AAI was met, the environmen-
tal professional’s Phase I report must
demonstrate that the federal rule was fol-
lowed and all ten AAI elements were
conducted. To avoid liability, environ-
mental professionals should get in the
habit of discussing with their clients
whether these user responsibilities will
be satisfied—and by whom—as well as
adjusting the scope of work accordingly.
The scope should make it clear, for exam-
ple, whether the responsibility for finding
environmental cleanup liens under (a)
above will fall on the user’s shoulders or
whether this responsibility is being trans-
ferred to the environmental professional.
As always, the language in the scope of
work is a valuable tool for managing
exposure to liability by spelling out
exactly what the client’s expectations are
for the Phase I.
Emphasis on AULs
One significant focus of the pre-transac-
tion environmental inquiry outlined
under the AAI rule is on activity and use
limitations (or AULs). Encompassing
engineering and institutional controls
(ECs and ICs) that are placed on sites
with residual contamination, AULs play
a significant role in a property purchas-
er’s ability to qualify for CERCLA liabil-
ity protection under the 2002 Brownfield
Amendments. If an AUL exists on a prop-
erty, the owner will be held responsible
for being aware of these restrictions, as
well as complying with them over time.
EPA is steering significant efforts now
toward ensuring that AULs in place at
contaminated properties are enforced.
The new Phase I standard (E 1527-05)
includes an entirely new section, entitled
Significance of Activity and Use
Limitations (Section 5) to emphasize the
importance to property owners of com-
plying with any AULs that may exist on
their properties. It is important for con-
sultants to note that under the AAI rule
and E 1527-05, the responsibility for
identifying AULs during the environmen-
tal investigation is shared by the environ-
mental professional and the user. Section
6.2 of E 1527-05 expressly states that:
“Unless added by a change in the scope
of work to be performed by the environ-
mental professional, this practice does
not impose on the environmental profes-
sional the responsibility to undertake a
review of recorded land title records and
judicial records for environmental liens
or activity and use limitations.”
Many environmental professionals, how-
ever, are expecting that under the AAI
rule, their clients will transfer the user
responsibility for liens searches to them,
and will adjust their scope of work and
Phase I rate upwards accordingly. In
addition, the environmental professional
is also responsible for determining
whether the Phase I is being conducted in
a state that maintains a publicly available
list or registry of engineering or institu-
tional controls. If so, the responsibility
for searching such records falls to the
environmental professional (per Section
312.26 of the final AAI rule and Section
8.2.1 of E 1527-05).
Professional Qualifications
One of the most significant changes to
come about as the result of the AAI rule’s
consensus-based negotiations is a specif-
ic definition of “environmental profes-
sional.” Prior to the release of the new
3
Executive Summary CONT’D
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Executive Summary
Distribution of Responsibilities for AAI
Components
Duties of EP
1. Environmental inquiry
2. Visual inspections of the facility and adjoin-
ing properties
3. Interviews with past and present owners,
operators and occupants
4. Reviews of historical sources
5. Reviews of federal, state, tribal and local
government records
Duties of "User"
6. Searches for recorded environmental
cleanup liens
7. Consideration of "specialized knowledge” of
the subject property and adjoining proper-
ties
8. Consideration of the relationship of the pur-
chase price to the value of the property, if
not contaminated
Duties Shared by EP and "User"
9. Consideration of commonly known informa-
tion about the property
10. Consideration of the ”degree of obvious-
ness of contamination”
Source: 40 CFR Part 312, Nov. 1, 2005.
4
Executive Summary CONT’D
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Executive Summary
standard, ASTM’s traditional definition
of an environmental professional was: “a
person possessing sufficient training and
experience necessary to conduct site
reconnaissance, interviews, and other
activities in accordance with this prac-
tice...” Now, ASTM has changed this sec-
tion of the standard to mirror EPA’s reg-
ulatory language, stating that an EP is “a
person meeting the education, training
and experience requirements as set forth
in 40 CFR Part 312.10(b).” The federal
definition, which gives consultants four
avenues for meeting the new profession-
al qualifications, has been pulled into
E 1527-05 in its entirety as Appendix X2.
To qualify, a person must satisfy one of
the following:
1. hold a current PE or PG license or reg-
istration from a state, tribe, or U.S. ter-
ritory and the equivalent of three years
of full-time relevant experience;
2. be licensed or certified by the federal
government, a state, tribe or U.S. terri-
tory
to perform environmental
inquiries and the equivalent of three
years of full-time relevant experience;
3. have a Baccalaureate or higher degree
from an accredited institution of high-
er education in a discipline of engi-
neering or science and the equivalent
of five years of full-time relevant
experience; and
4. have the equivalent of ten years of full-
time relevant experience.
Under the new language in the AAI rule
and E 1527-05, junior level staff may still
participate in the conduct of AAI-compli-
ant Phase I ESAs, provided their work is
being conducted “under supervision or
responsible charge” of a qualified envi-
ronmental professional. On each project,
there must be at least one individual who
does satisfy the new professional qualifi-
cations, and is responsible for complet-
ing the following steps of the compliant
Phase I:
• conducting the site visit and interviews,
or, at a minimum, being involved in
planning these steps of the analysis;
• reviewing and interpreting the informa-
tion on which the report is based;
• overseeing the report writing;
• developing opinions of the impact on
the property of conditions identified in
the Findings section of the report;
• developing an opinion regarding addi-
tional appropriate investigation, if any,
to detect the presence of hazardous sub-
stances or petroleum products; and
• signing off on a report that declares
he/she meets the definition of environ-
mental professional as defined in
§312.10 of 40 CFR Part 312, possesses
specific qualifications appropriate to
conduct a Phase I at the subject proper-
ty, and that he/she developed and per-
formed AAI in accordance with the
standards and practices set forth in
40 CFR Part 312.
Records Review
To bring the E 1527-00 standard in line
with the federal AAI rule, the following
four changes were necessary:
• Revisions to search distances for cer-
tain federal government records;
• Mandatory search of federal/state/tribal
IC and EC registries;
• Mandatory review of tribal records; and
• Transition from the discretionary to
mandatory review of local records.
The revisions to search distances for cer-
tain government records are generally
viewed as relatively minor compared to
the other three categories. Specific AAI-
related search distances for the following
were incorporated into E 1527-05:
• Delisted NPL sites list (1/2 mile); and
• Federal CERCLIS NFRAP site list
modified from property/adjoining to
1/2-mile search radius
The mandatory search for ICs and ECs is
reflective of the new focus on AULs dis-
cussed earlier
in
this Executive
Summary. If the Phase I is conducted in a
state that maintains a publicly available
list or registry of ICs or ECs, the envi-
ronmental professional must search these
records.
Another key change in the government
records review process is the addition of
a mandatory search of tribal records.
Although tribal records may be hard to
come by in many areas of the country, the
AAI rule and now ASTM E 1527-05
have both expanded all state records
searches to also include any available
tribal records. EPs are now required to
assess whether any tribal sources of the
following types of records exist for the
subject property or surrounding area:
• hazardous waste sites,
• landfills and solid waste disposal site
lists,
• LUST and UST sites,
• voluntary cleanup sites, and
• brownfield sites.
EPA’s preamble to the AAI rule states
that tribal records need only be searched
and reviewed, however, in instances
where the subject property is located on
or near tribal-owned lands.
Perhaps one of the most significant
changes in the scope of the government
records review is the mandatory search
for local government records. The 2000
text of the E 1527 standard required that
“one or more additional state sources or
local sources of environmental records
may be checked…” To satisfy the AAI
rule, this language has been tightened to
5
state that: “local records and/or addition-
al state or tribal records shall be
checked…” The transition from “may” to
“shall” reflects the AAI rule’s strict lan-
guage that “federal, tribal, state, and
local government records or data bases of
government records of the subject prop-
erty and adjoining properties must be
reviewed.” As a result, to the extent that
reasonably ascertainable local records
are available, it will be difficult for con-
sultants to defend a charge of overlook-
ing them in their research based on the
language in 40 CFR Part 312—and now,
E 1527-05.
Historical Use Information
The new E 1527 standard reflects only
minor changes to the historical research
section. It is still up to the consultant’s
professional judgment to decide which
historical sources should be used.
Although the eight standard historical
sources remain unchanged from E 1527-
00, the term “other historical sources”
was broadened to include:
• internet sites,
• community organizations,
• local libraries,
• historical societies, and
• current owners/occupants of neighbor-
ing properties.
This language was added to reflect the
AAI rule’s emphasis on considering
“commonly known” information about
the property at the local level (see AAI
Criterion 9 in table on p. 3).
In addition to the standard documenta-
tion of data failure during historical
Executive Summary CONT’D
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Executive Summary
HISTORICAL RESEARCH UNDER 40 CFR PART 312 -
STANDARDS FOR CONDUCTING ALL APPROPRIATE INQUIRIES
Identify historical sources with subject and
adjoining/nearby property coverage.
Section 312.24(a)
Gather what is “reasonably ascertainable,” i.e., (a) publicly available,
(b) obtainable within reasonable time/cost constraints and
(c) can be practicably reviewed.
Section 312.20(e)(1)
Review and evaluate the thoroughness and
reliability of the information gathered.
Section 312.20(e)(2)
Note conditions indicative of releases or threatened
releases in the report.
Section 312.20(g)
Are there data gaps?
Section 312.21(c)(2)
• Identify data gaps
• Identify sources consulted
• Comment on the significance of such data gaps with regard to the
ability to identify conditions indicative of releases or threatened
releases Section 312.20 (f)
• If the data gaps are such that the EP cannot reach an opinion regard-
ing the identification of conditions indicative of releases and threat-
ened releases, such data gaps must be noted in the EP’s opinion
(section 312.21 (c)(2)
Yes
Historical Research complete in accordance with
All Appropriate Inquiries
No
6
risk that may be associated with using
junior staff or local subcontractors who
do not meet the new professional qualifi-
cations to conduct site visits.
Another key area of change to the site
visit in E 1527-05 involves a new empha-
sis in the AAI rule on the area surround-
ing the target property. The 2000 lan-
guage stated: “To the extent that current
uses of adjoining properties are visually
and/or physically observed…”. The word
“observed” has been replaced with
“observable” in E 1527-05 to emphasize
that the environmental professional must
examine any conditions over the proper-
ty’s boundary that may be indicative of
“releases or threatened releases of haz-
ardous substances.” It was EPA’s opinion
during the revisions to the E 1527-00
standard that
the phrase “to
the
extent…observed” did not adequately
convey that the EP is responsible for
observing conditions at adjoining proper-
ties during the site visit. It is now critical
that the professional being sent to inspect
the target property pay attention to any
conditions over the property line that
would be considered “observable” and
may be indicative of RECs at the target
property.
Interviews
To reflect the same level of stringency as
the AAI rule, the interviews section of
ASTM E 1527-00 had to be revised in
two areas. First, a mandatory requirement
Executive Summary CONT’D
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Executive Summary
research, the E 1527-05 standard adds a
new level of scrutiny. In any area of the
Phase I, a failure to meet the require-
ments of the AAI rule triggers “data
gaps” documentation requirements. An
environmental professional must now
consider whether a data failure exists that
significantly affects the ability to identify
RECs and, if so, the EP must meet new
the AAI rule’s requirements for consider-
ing and documenting such gaps in the
analysis. Although the environmental
professional is granted a great deal of lee-
way in determining which historical
sources to use and how far back in time to
go, the language in the AAI rule empha-
sizes an iterative process of conducting
full research, attempting to fill gaps and
then opining on the effect any gaps may
have on the EP’s ability to reach conclu-
sions about the property.
For purchasers, it is critical to hire a qual-
ified EP with proven knowledge of local
historical sources. Attempting to com-
plete a continuous record of past land
uses based on all reasonably ascertaina-
ble historical sources will be more criti-
cal than ever to avoid having to document
data gaps and form opinions about the
effect a gap may have on the Phase I’s
findings. To aid in the process of deter-
mining whether a particular data gap is
significant, the revised ASTM standard
provides several specific examples for
EPs to follow. For a schematic on the
thought process involved in conducting
historical research under the AAI rule,
see the accompanying figure on p. 5.
Site Reconnaissance
As far as visiting the property, the AAI
rule requires that a visual inspection of
the subject property and adjoining prop-
erties be conducted, preferably by some-
one who meets the rule’s stringent EP
definition. EPA’s language about who
conducts the site visit, however, is a rec-
ommendation in the preamble rather than
a requirement in the AAI rule itself.
Consultants are now asking themselves
whether it is necessary to change their
practices if they rely on staff members to
walk the property who do not meet the
EP definition. Those who contract with
EPs are also starting to ask questions
about the qualifications of the profession-
al assigned responsibility for site visits.
Regardless of how EPs respond to EPA’s
recommendation, it appears certain that if
a Phase I comes under the scrutiny of a
court, one of the elements that will be
judged is whether the site visit was con-
ducted by a qualified EP. It is therefore
critical during this period of transition
that Phase I firms recognize any added
7
to interview “past and present owners,
operators, and occupants” of the subject
property was added. The 2005 standard
now states that:
“Interviews with past owners, operators,
and occupants of the property who are
likely to have material information
regarding the potential for contamination
at the property shall be conducted to the
extent that they have been identified and
that the information likely to be obtained
is not duplicative of information already
obtained from other sources.”
How far the EP goes in interviewing past
owners, operators and occupants, howev-
er, will be up to the EP to decide based on
professional experience, and other infor-
mation uncovered during the Phase I.
Second, the standard was revised to mir-
ror the AAI rule’s mandatory requirement
that, in certain special cases, neighboring
property owners must be interviewed.
This is one area where the AAI rule
begins to extend beyond the scope of the
old E 1527-00 standard. Now, if a Phase
I is being conducted on an abandoned
property, and if there is “evidence of the
unauthorized uses or uncontrolled access
to the property,” then interviews with one
or more neighboring property owners or
occupants
must
be
conducted.
Previously, interviews with neighbors
were discretionary. This is still the case
for Phase Is on properties that do not
meet the EPA’s definition of abandoned:
“Property that can be presumed to be
deserted, or an intent to relinquish pos-
session can be inferred from the general
disrepair or lack of activity thereon…”
To Sample or Not to Sample?
Sampling is suggested in the rule as one
option that can be taken when an EP is
attempting to fill data gaps. EPA clearly
states, however, that sampling is not
required to satisfy AAI. As such, the
E 1527-05 standard maintains the previ-
ous language that: “This practice does
not include any testing or sampling of
materials.”
The rule leaves the burden on the EP to
determine the significance of data gaps,
and recommend additional investigation,
if necessary, when considering the “obvi-
ousness of contamination”
at the property under AAI
criterion 10, (see table on
p. 3). When contemplat-
ing whether or not to sam-
ple, it is therefore critical
for the property purchaser
to know that he or she will
be held responsible for
managing any contamina-
tion responsibly, and that
CERCLA liability protec-
tion could be forfeited if sampling is not
conducted—either before or after pur-
chase. Certainly, as always, there is a
business advantage to conducting sam-
pling prior to the purchase of the proper-
ty to identify all potential environmental
concerns upfront (see the “Appropriate
Care” section begining on p. 8 of this
Executive Summary for
additional information on
sampling decisions).
Report Preparation
Under the AAI rule, a report pre-
pared in compliance with 40 CFR Part
312 will contain three components:
1. declarations that the EP definition was
met and the Phase I was conducted in
compliance with the federal rule;
2. documentation of data gaps and a dis-
cussion of their significance; and
3. an opinion on whether the inquiry has
identified conditions indicative of
releases or threatened releases of haz-
ardous substances at the property.
The E 1527-05 standard now includes the
declaration language lifted directly from
the AAI rule, as well as the federal defi-
nition for data gaps:
“a lack of or inability to obtain informa-
tion required by the standards and prac-
tices listed in the regulation despite good
faith efforts by the EP or prospective
landowner to gather such information.”
The EP’s report must identify data gaps
and document any steps taken to fill
them. Also, the EP
must comment on
the significance of
the data gaps, and
on whether or not
the gaps affect the
EP’s ability
to
form an opinion
about the environ-
mental condition
of the target prop-
erty. Data gaps
may pertain to any component of AAI
that was not satisfied, such as a 40-year
gap in the property’s history (see p. 6),
failure of the user to provide information
(see p. 2), an inability to interview the
current owner, or any other element of
AAI that, for some reason, could not be
satisfied.
Phase I Shelf Life
The AAI rule also made a notable change
to the shelf life of a Phase I ESA. The
final rule allows for information in prior
Phase I reports to be used, but all infor-
mation must be collected or updated to
within one year of the date that the owner
takes title. In addition, the following
components must be current to within
180 days of the property’s acquisition
date:
• Interviews with past and present
owners;
• Searches for recorded environmental
cleanup liens;
• Reviews of government records;
• Visual inspections of the facility and
adjoining properties; and
• The declaration by the EP that AAI was
followed.
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Although information from past reports
can be used, EPA makes it clear that con-
siderations of the following components
must be updated to reflect the current
transaction: “specialized knowledge”
about the property,
the relationship
between the current purchase price and
the value of the property if it was not con-
taminated, and any commonly known
information about the property. To reflect
the AAI rule, E 1527-00’s Section 4.7.2,
which contained language about using a
prior Phase I ESA in its entirety under
certain conditions (e.g., no material
changes to the property), has been elimi-
nated. For reports older than one year, the
information cannot be used without cur-
rent investigation. For property pur-
chasers and their EPs, this revision likely
means fewer updates of old reports.
EPA’s language in the AAI rule and its
preamble will make it difficult for
prospective purchasers to rely on older
reports for their due diligence and hope
to qualify for CERCLA liability protec-
tion.
Transition to AAI and E 1527-05
The transition to the new requirements is
already underway, and will continue to
gain momentum after
the
rule’s
November 1, 2006 effective date as the
market gets more comfortable with the
AAI rule and E 1527-05. During this crit-
ical period, it is essential for EPs to make
the necessary changes to staffing, report
templates, contract language, and their
Phase I processes to minimize any expo-
sure to professional liability. In addition,
property purchasers need to be aware of
the new liability protections, the new
emphasis on user obligations, the provi-
sions regarding the Phase I ESA report
shelf life, and any added level of effort
associated with Phase I work. While an
AAI-compliant Phase I may not be
appropriate for every transaction, if CER-
CLA liability protection is being sought,
the purchaser has some new elements of
the environmental investigation to satisfy.
Beyond Due Diligence:
AAI & Appropriate Care
In addition to defining a new standard of
care for pre-transaction environmental
due diligence, another critical element of
the AAI rule is the emphasis on “contin-
uing obligations” over the course of prop-
erty ownership. In the preamble to the
AAI rule, EPA is adamant that AAI is the
first, but not the only, step to CERCLA
liability protection:
“Conducting all appropriate inquiries
alone does not provide a landowner with
protection against CERCLA liability.”
The AAI rule’s preamble further states
that the ability to qualify for liability pro-
tection must be maintained…and can, in
fact, be lost:
“persons conducting AAI…are not enti-
tled to the CERCLA liability protections
provided for innocent landowners, bona
fide prospective purchasers and contigu-
ous property owners, unless they also com-
ply with all of the continuing obligations…”
Even if a property purchaser hires a qual-
ified EP and has an AAI-compliant Phase
I conducted prior to taking title, CER-
CLA liability protection can be lost at
any time during ownership of the proper-
ty if continuing obligations are not main-
tained.
What Are They?
Continuing obligations, as defined in the
2002 Brownfield Amendements, consist
of the following:
• complying with land use restrictions
and institutional controls;
• taking “reasonable steps” with respect
to hazardous substances releases;
• providing full cooperation, assistance,
and access to persons that are author-
ized to conduct response action or natu-
ral resource restoration;
• complying with information requests
and administrative subpoenas; and
• providing all legally required notices.
Under the continuing obligations lan-
guage of the law, a property owner must
act responsibly with respect to any onsite
contamination, as well as complying with
any restrictions on the property’s use
(e.g., ICs or ECs) due to contamination.
The Phase I report takes on new signifi-
cance under the AAI rule for uncovering
the information needed to determine an
owner’s obligations over time.
Land Use Restrictions and ICs
One of the most significant components
of complying with continuing obligations
involves not violating any land use
restrictions. Institutional controls are the
mechanism often used to enforce land
use restrictions that limit a property’s use
due to contamination left onsite. Under
the new CERCLA liability law, a proper-
ty owner must be able to demonstrate that
he/she did not interfere with the integrity
or effectiveness of any controls placed on
the property. These controls may include
zoning restrictions, covenants, ease-
ments, deed notices, or restrictions
recorded on title. Regardless of what they
are called, land use restrictions commu-
nicate to the landowner that due to some
amount of contamination still on the
property, its use is limited. This may
mean there is a section of the property
that cannot be developed or that use of
the groundwater is restricted or prohibit-
ed. If the owner ignores these types of
restrictions, his/her CERCLA liability
protection will be jeopardized.
8
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9
Reasonable Steps
The property owner must also exercise
“appropriate care” with respect to haz-
ardous substances on the property by tak-
ing “reasonable steps” to:
• Stop any continuing release,
• Prevent any threatened future release,
and
• Prevent or limit human, environmental
or natural resource exposure to haz-
ardous substances.
If there has been a release at the site, the
owner cannot do anything to make con-
tamination worse at the property over the
course of ownership. One critical point to
remember is that these obligations per-
tain to contamination that may be known
at the time of purchase, as well as to any
release that might be discovered after
taking title, including the migration of
contamination from a contiguous proper-
ty. If, for example, contaminated soil or
groundwater is present at the property
and the owner breaks ground and the
release spreads, it could have serious
impacts on his/her liability protection.
New Role of the Phase I ESA
Phase I ESAs, if done properly, will pro-
vide the purchaser with the basic infor-
mation for identifying any continuing
obligations that must be met. For
instance, did the Phase I identify a REC
at the property, uncover an institutional
control or detect that contamination is
present? Are there any material data gaps
that need to be filled post-purchase (e.g.,
by sampling) to determine the potential
for continuing obligations? Does the
client have enough information in the
Phase I to satisfy the requirement to stop
continuing releases,
prevent future
releases and limit human, environmental
or natural resource exposure?
The types of Phase I findings that may
trigger continuing obligations include:
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EPA’s Language on AAI and Continuing Obligations1
“None of the other statutory requirements for the liability protections is satisfied by the
results of the all appropriate inquiries...”
“Landowners must comply with all the statutory requirements to obtain protection from
liability...”
“Conducting all appropriate inquiries alone does not provide a landowner with protec-
tion against CERCLA liability...”
“...the conduct of all appropriate inquiries prior to purchasing a property is only one
requirement to which a purchaser must comply to claim protection from CERCLA lia-
bility once the purchase has taken place. The statute requires that persons, after acquir-
ing a property, comply with continuing obligations to take reasonable steps to stop on-
going releases at the property, prevent any threatened future releases, and prevent or
limit any human, environmental, or natural resource exposure to any previously
released hazardous substances...”
“...a fulfillment of the all appropriate inquiries requirements does not, by itself, provide
a person with a protection from or defense to CERCLA liability...”
“An inability to identify a release or threatened release during the conduct of all appro-
priate inquiries does not negate the landowner’s ongoing or continuing responsibilities
under the statute, including the requirements to take reasonable steps to stop the
release, prevent a threatened release, and prevent exposure to the release once the
landowner has acquired a property...”
“Failure to identify an environmental condition or identify a release or threatened
release of a hazardous substance on, at, in or to a property during the conduct of all
appropriate inquiries, does not relieve a landowner from complying with other post-
acquisition statutory requirements for obtaining the landowner liability protections...”
“The failure to detect a release during the conduct of all appropriate inquiries does not
exempt a landowner from his or her post-acquisition continuing obligations under other
provisions of the statute...”
“A person’s inability to obtain information regarding a property’s ownership or use
prior to acquiring a property can affect the landowner’s ability to claim a protection
from CERCLA liability after acquiring the property, if a lack of information results in
the landowner’s inability to comply with any other post-acquisition statutory obliga-
tions that are necessary to assert protection from CERCLA liability...”
1Source: 40 CFR Part 312 Standards and Practices for All Appropriate Inquiries and Notice of Public Meeting To
Discuss Standards and Practices for All Appropriate Inquiries; Proposed Rules (Federal Register/Vol.69, No.
165/Thursday, August 26, 2004).
• institutional controls/land use restric-
tions;
• engineering controls;
• continuing releases;
• recognized environmental conditions;
and
• data gaps.
In light of the need to meet continuing
obligations, the Phase I findings could
affect what is done
on the property—or
not done. Or where
a new structure is
placed. Or the type
of development that
can be built there.
If there is any con-
tamination on site,
under
CERCLA,
nothing the owner
does at the property
over time can make
things worse or
cause human, environmental or natural
resource exposure to the contamination.
As such, it is more critical than ever to
have a quality Phase I conducted that will
arm the owner with the information nec-
essary to comply with any continuing
obligations.
Data Gaps and Sampling
Continuing obligations have important
implications with respect to data gaps
and decisions about sampling. Although
an owner can meet AAI even if the Phase
I report has data gaps that were docu-
mented and scrutinized, it is important
for the owner and his/her consultant to
consider any data gaps after purchase to
determine whether more work should be
conducted to fill them. If there is any
chance of contamination on the property,
the courts will hold the owner responsi-
ble for knowing about it. Planned land
use will play a role in decisions about
sampling. If, for example, the owner
intends to lease the property and not
make any major changes to the site, then
filling data gaps or even conducting sam-
pling may not be as critical. If there is
visibly stained soil on the property, but
the owner did not want to sample before
the transaction, it may be a good idea
after purchase to get a solid handle on the
area of contamination as a proactive
means for preserving CERCLA liability
protection. Any data gaps that are materi-
al to the fulfillment of continuing obliga-
tions should be
closed
post-
acquisition
to
preserve
the
owner’s ability to
qualify for CER-
CLA
liability
p r o t e c t i o n .
Environmental
consultants are
already writing
scopes of work to
help clients plan
for
complying
with continuing obligations, using the
Phase I as a starting point.
Why Landowners Should Care About
Continuing Obligations
There are six important reasons why
every property owner should be aware of
continuing obligations, particularly own-
ers of properties with environmental
issues—and why consultants should start
educating their clients about these obliga-
tions:
• 80% of CERCLA cleanups now have
some form of IC or EC;
• Many states have Superfund-equivalent
programs with a continuing obligations
component;
• Compliance with continuing obliga-
tions is tied with a broader trend toward
public corporations being pressured to
exercise good environmental steward-
ship and manage their environmental
liabilities responsibly;
• EPA’s position is that future CERCLA
case law will be made on the basis of
continuing obligations, and whether
property owners should have known
about the need to comply with them;
• EPA has already committed resources to
ensuring that continuing obligations are
met, including IC compliance; and
• Attention by regulators translates into
liability for owners.
Based on the attention being placed on
continuing obligations, the growing use
of risk-based cleanups, EPA’s commit-
ment to ensuring that land use restrictions
are tracked and enforced, and the recent
emphasis on responsible corporate behav-
ior, it will be risky for property owners to
ignore what the law requires over the
course of property ownership. Having a
plan in place for complying with continu-
ing obligations can be a prudent tool for
property owners to demonstrate that they
were not negligent in behaving responsi-
bly with respect to contamination at a
property, and environmental consultants
have a valuable role to play in developing
such a plan.
ASTM’s New Task Group
The recent attention being placed on con-
tinuing obligations under the 2002
Brownfields Law gave rise to a new task
group at ASTM, which is now developing
a standard practice for continuing obliga-
tions. Formed in October 2005, the Task
Group is writing a document that will
establish a clear link between the Phase I
ESA and continuing obligations, as well
as outline the requirements that must be
met by landowners in specific circum-
stances. Notably, EPA has already
pledged active involvement in the devel-
opment of this new standard, and may
eventually require any brownfields
grantees to establish that they have full
information about a property from the
Phase I ESA, as well as demonstrate that
they are following the ASTM continuing
obligations standard over the course of
ownership.
1 0
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11
Both consultants and property owners are
being held to a higher standard after AAI
is conducted, particularly at sites with
residual contamination. For public com-
panies, today’s new era of corporate
transparency adds another level of
urgency for acting responsibly in terms of
contamination and land use controls at
their properties. Ignoring these obliga-
tions could lead to bad publicity, law-
suits, inaccurate financial reporting, loss
of confidence by stakeholders, and signif-
icant cleanup costs. As the ASTM stan-
dard takes shape, consultants will have a
structure to work with in framing what
property owners should be doing in spe-
cific cases.
The Bottom Line
The transition over to EPA’s AAI rule has
environmental consultants as well as
lenders and property purchasers con-
cerned about
their own
liability.
Environmental consultants across the
country are now turning a critical eye to
the language in their service contracts
and reports in preparation for clients who
are—or soon will be—demanding AAI-
compliant Phase Is.
Preparing Phase I reports that are com-
plete and accurate has always been criti-
cal for preventing exposure to litigation.
This is now even more important. Signing
off on a Phase I ESA report that is miss-
ing documentation or contains careless
errors can come back to haunt an envi-
ronmental consultant and a property
owner down the road.
It is understandable that given the higher
level of research and documentation,
added exposure to liability and the
prospect of higher insurance rates, Phase
I pricing will likely increase. The price
impact estimates range from EPA’s low-
ball estimate of $52-$58 per Phase I to as
much as $2,000-$4,000 more on every
transaction. The majority of consultants,
however, based on EDR’s own research,
put the incremental price impact in the
$400-$500 range. Consultants are educat-
ing clients now about any expected
increase in Phase I prices, coupled with
the added benefits of maintaining CER-
CLA liability protection.
One impact the AAI rule may have on the
Phase I market is that there will be fewer
places for clients to shop for qualified
consultants,
given that
low-quality
providers are less appealing. Many ana-
lysts and stakeholders are already pre-
dicting that the AAI rule will make it dif-
ficult for the “fly-by-night firms” to com-
pete effectively, giving high-quality firms
a competitive edge.
Although an AAI-compliant Phase I may
not be appropriate for every commercial
real estate transaction, lenders and prop-
erty purchasers must make educated
decisions about whether and when to
adopt the new Phase I ESA protocol. For
users of Phase Is who have not yet craft-
ed an AAI response strategy, now is the
time to start thinking about it. Questions
to be asked are:
• How old is our environmental due dili-
gence policy? Does it warrant updat-
ing?
• What level of environmental due dili-
gence will satisfy our risk tolerance on
different types of transactions?
• How important is it to qualify for CER-
CLA liability protection?
• Do our pre-approved consultants meet
the new federal EP definition?
• Will we adopt AAI universally? And, if
not AAI, then what?
• If we require AAI, will it be required on
all Phase Is? Or only in certain cases?
• If our environmental due diligence pol-
icy references the 2000 version of the
Phase I standard (E 1527-00), do we
wish to adopt the updated 2005 ver-
sion?
The only certainty about AAI in the mar-
ket right now is uncertainty. Each bank
and property purchaser has its own
unique risk tolerance against which to
measure
the
new
requirements.
Confusion about who must do what when
is now widespread, and clearly much
remains to be clarified in the coming
months as the market gets more comfort-
able with the rule and how it is interpret-
ed and applied in the marketplace. ■
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For More Information on AAI & ASTM E 1527-05. .
. .
www.edrnet.com/aai for:
-
Links to final AAI rule, including preamble
-
Links to ASTM's page on E 1527-05 for information on
purchasing the standard
www.epa.gov/brownfields/regneg.htm for:
-
fact sheets on the rule
-
Comparison of the AAI rule to E 1527-00