South Carolina Lawyer
SC Lawyer, January 2007, #4.
Purchasing Contaminated Property - Without the Liability: The EPA's new standard for a Phase I environmental site assessment
South Carolina LawyerJanuary 2007Purchasing Contaminated Property - Without the Liability: The EPA's new standard for a Phase I environmental site assessmentBy Wendy L. WilkieThe Environmental Protection Agency's (EPA's) new standard for a Phase I Environmental Site Assessment (Phase I) became effective on November 1, 2006. On November 1, 2005, the EPA promulgated the final regulation regarding the standard for "all appropriate inquiry" (the "All Appropriate Inquiry" or "AAI" Rule). 70 Fed. Reg. 66070 (codified at 40 C.F.R. 312)). The regulation essentially provides the standard for a Phase I. A Phase I is most commonly used to identify environmental issues at property prior to purchase. The Phase I is also a key step in protecting against environmental liability prior to purchase of property under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA). For all purchases of property on or after November 1, 2006, the Phase I must meet the EPA's new standard in order to qualify the purchaser for liability defenses.
CERCLA - landowner liability and defenses
The AAI Rule provides a prospective purchaser with guidance on the steps necessary to satisfy the all appropriate inquiry element of the defenses to CERCLA liability. While CERCLA creates strict liability for the current owner of contaminated property for previous environmental contamination at the property, it also provides certain defenses to a new purchaser. Three of these defenses include the bona fide prospective purchaser exception, the contiguous property owner exception and the innocent landowner defense. See 42 U.S.C. § 9601(35), (40); § 9607(b)(3), (q). For more information on the three defenses, see the March 6, 2003, EPA Interim Guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Property Owner or Innocent Landowner Limitations on CERCLA Liability (Common Elements). Each of these three defenses has a common element - the current owner must conduct "all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices" (known as "all appropriate inquiry") prior to purchase. For a prospective purchaser, "all appropriate inquiry" now requires a Phase I that meets EPA's specifications as set forth in the AAI Rule.
The Federal Small Business Liability Relief and Brownfields Revitalization Act
The AAI Rule began with the Federal Small Business Liability Relief and Brownfields Revitalization Act, which was enacted on January 11, 2002. The Act created the new bona fide prospective purchaser defense to CERCLA liability and began to better define "all appropriate inquiry." For more information on the Federal Small Business Liability Relief and Brownfields Revitalization Act, see The New Prospective Purchaser Exception to Environmental Liability by Ben A. Hagood Jr., South Carolina Lawyer, May/June 2002, at 34. The Act gave EPA two years from January 11, 2002, to promulgate regulations setting forth standards and practices for the purpose of carrying out "all appropriate inquiry." 42 U.S.C. § 9601(35)(B). The Act also provided interim standards to be used until EPA promulgated the required standards. For the interim standards, the Act separated the standards by date and provided a standard for property purchased before May 31, 1997, and a standard for property purchased after May 31...