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In the market for real estate? If you buy property that may be contaminated, you should know about some new rules coming from the Environmental Protection Agency. These rules have the potential to be both a blessing and a curse. In essence, the rules, which take effect Nov. 1, establish new standards and practices that purchasers must follow in order to claim that they are not liable under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 — or CERCLA, also known as the Superfund Act — for cleaning up pre-existing contamination on their property. The blessing comes in the form of clear standards by which purchasers of real property can escape this liability. The potential curse is that unless purchasers strictly follow the more stringent requirements established by the rules — in researching the prior ownership, uses, and environmental conditions of the property — they may still have the burden of cleaning up the property, rather than the seller or the owner of adjacent property that is the source of the contamination. The rules, initially published on Nov. 1, 2005, established new minimum due-diligence standards for innocent landowners (those who can demonstrate that they didn’t know and had no reason to know prior to purchasing a property that any hazardous substance was disposed of on, in, or at the property), bona fide prospective purchasers (those who entered into a contract to purchase known contaminated property with intent to redevelop), and contiguous property owners (those who purchase property that is or may be contaminated by hazardous substances located on contiguous or nearby property) to make “all appropriate inquiry” into the property’s environmental condition. The rules are the outgrowth of a provision in the Small Business Liability Relief and Brownfields Revitalization Act (known as the Brownfields Amendments) that amended CERCLA, in part, to create two new protections from CERCLA liability: the bona fide prospective purchaser defense and the contiguous property owner defense. These defenses protect bona fide prospective purchasers and contiguous property owners from liability for cleaning up their properties if, before purchase, they have made “all appropriate inquiry” to determine whether the property was contaminated and are companion defenses to the “innocent landowner” defense that has existed since the enactment of the Superfund and Reauthorization Act amendments to CERCLA in 1986. Before enactment of the Brownfields Amendments and the new rules, the innocent landowner defense was of limited use because of ambiguities about how much inquiry the purchaser had to make in order to invoke this defense. The due-diligence standards for conducting “all appropriate inquiry” were contained in the American Society for Testing and Materials‘ (ASTM) “Standard Practice for Environmental Site Assessments: Phase 1 Environmental Site Assessment Process,” issued in 1997 and updated in 2000. Under these standards, however, it was possible that an innocent landowner could still be held liable for contamination if the landowner’s due diligence did not turn up a reasonable basis for determining that the property was contaminated. Thus, the defense was of limited value. Now, however, the EPA rules remove these ambiguities by providing greater certainty and specificity. At the same time, they also make more stringent the standards and practices by which purchasers and prospective purchasers must conduct “all appropriate inquiry” into the previous ownership, uses, and environmental conditions of a property in order to qualify for the CERCLA defenses and escape liability for pre-existing environmental conditions on the property. For example, the new rules now require that any uncertainty as to the environmental status of the property and any significant gaps in available information concerning the property be stated in the environmental assessment. As long as the purchaser follows the new rules’ due-diligence requirements, the purchaser should be able to successfully invoke the CERCLA defenses. Alternatively, the new rules allow prospective purchasers to follow new ASTM standards, which mirror the rules. Under the EPA rules, an “environmental professional” must make or supervise many of the inquiries to determine whether the property is or is likely to be contaminated. The rules, unlike the previous ASTM standards, impose certain educational, experience, licensing, and training requirements on those who call themselves environmental professionals. At a minimum, the environmental professional must interview past and present owners, operators, and occupants of the property (or if the property is abandoned and there is evidence of potential unauthorized use or uncontrolled access to the property, owners or occupants of adjacent properties); review historical sources of information; review federal, state, tribal, and local government records; conduct visual inspections of the property and adjoining properties, including improvements located on the property; obtain commonly known or reasonably ascertainable information; and take into account the prospective purchaser’s specialized knowledge of the property, the surrounding property, and other relevant experience of the prospective purchaser. Under the prior ASTM standards, the environmental professional was only required to make a reasonable attempt to interview a current property owner and was not required to interview owners of properties adjacent to abandoned properties. In addition, the prospective purchaser or the environmental professional is required to search property records for environmental cleanup liens; consider, if the purchase price does not reflect fair market value, whether the discount is due to the presence or threatened release of hazardous substances; and consider commonly known or reasonably ascertainable information within the local community about the property and whether that information indicates releases or threatened releases of hazardous materials on the property. Unlike the previous standards, the environmental professional must now include in his or her environmental assessment an opinion as to whether his or her research has identified conditions indicating releases or threatened releases of hazardous substances on the property, or, if not, what additional investigation may be necessary, because of gaps in available data or uncertainty, to determine the presence or likely presence of hazardous material. The assessment must be signed by the environmental professional, who must represent that he or she meets the requirements of an environmental professional and that he or she has conducted all appropriate inquiries in full compliance with the EPA rules. Finally, the environmental assessment must be conducted or updated within one year of settlement on the property. Prior Phase 1 environmental assessments may be used, provided that they are consistent with the requirements in the new rules, were conducted by an environmental professional meeting the qualifications set forth in the new rules, and have been updated within one year of settlement on the property. Certain information in the assessment, such as interviews and record searches, must be updated within 180 days of settlement. While the new EPA rules afford purchasers of real estate much broader protection against responsibility for cleanup of pre-existing environmental conditions and resolve ambiguities that have made escape from CERCLA liability difficult, they also make clear that purchasers will be expected to thoroughly examine the state of the property in order to escape such responsibility. In short, those interested in purchasing property, particularly when there is a likelihood that it is contaminated, must do their homework. They need to understand the rules’ requirements and make sure that, in hiring professionals to research and document the environmental status of the property, these professionals are well versed in the “all appropriate inquiry” requirements and contractually agree to strictly comply with them. Purchasers who don’t follow those requirements could find themselves with an expensive investment on their hands.
Edward J. Rich is an associate in the project finance and real estate development practice in the Washington, D.C., office of Robins, Kaplan, Miller & Ciresi.

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