Standard and Practices for All Appropriate Inquiries: A Final Rule by the U.S. Environmental Protection Agency
On December 15, 2022, the U.S. Environmental Protection Agency (“USEPA”) took final action to amend the Standards and Practices for All Appropriate Inquiries (the “AAI Rule”) to reference a standard practice recently made available by ASTM International (“ASTM”), a widely recognized standards-developing organization. Specifically, the USEPA’s final AAI Rule, which goes into effect on February 13, 2023, amends prior versions of an AAI Rule to reference “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” (“ASTM 1527-21”) and allow for its use to, among other things, satisfy the requirements for conducting “all appropriate inquiries” under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”).
The new AAI Rule amends the “all appropriate inquiries” requirements found at 40 CFR Part 312, which sets forth standards and practices necessary for fulfilling the requirements of CERCLA §§ 101(35)(B) or (40) to obtain CERCLA liability protection, and for conducting site characterizations and assessments with the use of brownfields grants pursuant to CERCLA § 104(k)(2)(B)(ii).
In short, ASTM 1527-21 sets forth the standards for Phase I environmental site assessments, which are typically required as part of real estate transactions. The previous version of the standard, ASTM 1527-13, was replaced with ASTM 1527-21 in late 2021. However, debates arose as to whether the USEPA should allow compliance with either version of ASTM 1527 to satisfy the “all appropriate inquiries” requirements for defenses to liability under CERCLA. The USEPA ultimately withdrew its late 2021 rulemaking to prepare the final AAI Rule, which it issued on December 15, 2022.
The final AAI Rule recognizes that a transition period is needed for due diligence and Phase I site assessments that may have been ongoing when such rule was issued. As a result, the final AAI Rule provides that ASTM 1527-13 may be used to show compliance with the “all appropriate inquiries” requirements of 40 CFR Part 312 until February 13, 2024 — one year after February 13, 2023, effective date of the final AAI Rule.
Under the final AAI Rule, current versions of ASTM E1527 can be used to satisfy the statutory requirements for conducting “all appropriate inquiries” for purposes of liability protection under CERCLA as an innocent landowner, contiguous property owner, or bona fide prospective purchaser. However, to ensure the quality of Phase I environmental site assessments, the final AAI Rule requires that the person who oversees the Phase I and signs the written report must meet the definition of an “environmental professional,” as defined in the final AAI Rule. In short, an environmental professional is someone who possesses the specific education and relevant experience to develop opinions and conclusions regarding conditions indicative of releases or threatened releases of hazardous substances on, at, in, or to a property.
In addition to using a qualified “environmental professional,” clients are well-served by having an environmental attorney review any Phase I report before it is signed and sealed by the environmental professional. Among the reasons for this is that the Phase I report is not only part of the due diligence process in a real estate transaction but is also generally provided to the purchaser’s lender to obtain financing. Therefore, the contents need to be accurate, consistent with current law and practice (including the final AAI Rule and use of ASTM 1527-21 to ensure “all appropriate inquiries”) and have findings that are presented in a matter-of-fact fashion. Also, because the legal advice an environmental attorney provides is protected by the attorney-client privilege when the attorney retains a qualified environmental professional to provide legal advice to the client, the information exchanged between the attorney and environmental professional is arguably protected from disclosure by extension of the attorney-client privilege.
Please contact Warren Koshofer regarding your needs relating to real property you own, lease, or may be selling or acquiring that might have environmental concerns.
ABOUT WARREN KOSHOFER
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Warren A. Koshofer is a Principal in the firm’s Commercial Litigation practice group. Mr. Koshofer focuses his practice on contract matters, intra-company disputes, insurance coverage and defense, toxic tort defense, real estate disputes, and construction-related matters, as well as due diligence and indemnification relating to company mergers and acquisitions. He represents clients—including Fortune 100 companies, partnerships and high-profile individuals — at the state, federal, trial and appellate court levels. He also handles matters before administrative law courts, regulatory agencies, and alternative dispute resolution forums across the country. Mr. Koshofer’s clients expand across many industries, including insurance, manufacturing, financial and hospitality.
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