FEATURE ARTICLE

 

Rules for Conducting Environmental Due Diligence

On November 1, 2005, the United States Environmental Protection Agency (“U.S. EPA”) issued a Final Rule entitled “Standards and Practices for All Appropriate Inquiries.”  The U.S. EPA has for the first time adopted rules regarding environmental due diligence.  The Final Rule impacts all purchasers of real property who desire to claim one of the defenses to liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”).  The purpose of this Article is to alert the reader to the Final Rule, and its anticipated consequences.

 

CERCLA imposes strict, and joint and several liability.  An unsuspecting purchaser of contaminated real property can be held liable under CERCLA for the entire cost of cleanup even though the purchaser did not contribute to the contamination.  To avoid such a harsh result, Congress established a limited number of defenses to CERCLA liability, namely: 1) the innocent landowner defense; 2) the bone fide prospective purchaser defense; and 3) the contiguous property owner defense.  However, a party intending to claim the benefits of any of these defenses must have, among other things, conducted “all appropriate inquiries” into the condition of the property immediately prior to acquiring it.  The Final Rule sets forth the standards and practices necessary to satisfy the “all appropriate inquiry” requirement.

 

Generally stated, under the new Rule, the “all appropriate inquiry” requirement will be satisfied if the following activities are timely conducted by, or under the direct supervision of, an individual who qualifies as an “environmental professional”:

 

• Interviews with past and present owners, operators and occupants to determine, among other things, current and past property uses, and current and past uses of hazardous substances, pollutants, contaminants, petroleum and petroleum products, and controlled substances on the property and/or adjacent properties;

• Review of historical sources of information;

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

• Visual inspections of the facility and adjoining properties;

• Commonly known or reasonably ascertainable information about the property or adjacent properties; and

• Degree of obviousness of the presence or likely presence of contamination at the property and the ability to detect the contamination.

 

The Final Rule also requires that the following inquiries be conducted by or for the party desiring to claim the benefit of the defense:

• Searches for environmental cleanup liens;

• Assessments of any specialized knowledge or experience of the prospective landowner (or grantee); and

• As assessment of the relationship of the purchase price to the fair market value of the property, if the property was not contaminated.

The Final Rule does not take effect until November 1, 2006.  However, a similar interim standard is currently in effect.  Because the environmental rules and regulations present unique challenges to all prospective purchasers of real property that may have been environmentally impacted, as well as to owners of adjacent real property, it is important that these parties consult with their legal representative prior to making a purchase.  Buckingham, Doolittle and Burroughs, LLP has a host of environmental and real estate attorneys that can assist with these and other environmentally sensitive issues.  

 

---

William L. Caplan is a Shareholder and a member of the Real Estate & Construction and Business Practice Groups.  He can be reached at bcaplan@bdblaw.com or 330.258.6458.  David J. Hrina is an Associate member of the Business and Litigation Practice Groups.  He can be reached at dhrina@bdblaw.com or 330.643.0212.