December
2, 2003 Unanimous
Decision Reached in 'All
Appropriate Inquiry' Real
Property Assessment MBA (11/20/2003)
Schwarting, Katie; Seckman,
Cristina
The Environmental
Protection Agency (EPA)
conducted the final in
a series of meetings from
November 12 to 14, aimed
at crafting new regulation
regarding environmental
property inspections.
The new proposed regulation
provides an “all
appropriate inquiry,”
(AAI) standard that would
replace the American Society
for Testing Materials
(ASTM) Phase I assessment.
The new
EPA regulations would
require borrowers to conduct
a more involved assessment
than the ASTM Phase I
in order to avoid liability
for hazardous substance
releases when acquiring
real property.
Currently,
a potential property purchaser
uses the ASTM Phase I
standard assessment to
conduct the property review,
which meets the burden
of establishing "all
appropriate inquiry"
for the innocent landowner,
the bonafide purchaser
or contiguous landowner
defenses under the federal
Comprehensive Environmental
Response, Compensation
and Liability Act of 1980,
the so-called Superfund
law.
Congress,
however, directed the
EPA to develop AAI, a
real estate environmental
assessment standard, which
would provide a purchaser
of real property a defense
from liability for any
releases of hazardous
substances caused by an
earlier owner or third
party on the property.
It is expected
that ASTM will make changes
to their Phase I to reflect
the requirements set forth
by AAI. The new regulation
would require compliance
training and education
of both the lenders and
their borrowers and could
increase borrower costs
to complete the work.
Similar
to the ASTM Phase I, however,
the AAI review demonstrates
that the purchaser actively
investigated any potential
threatened or actual hazardous
substance releases existing
on the property.
If no releases
are discovered during
the assessment, the purchaser
is deemed an "innocent
landowner."
However, if releases are
found, the purchaser could
still buy the property
as a "bonafide purchaser"
and take the necessary
steps toward remediation,
which are required by
state and federal laws.
A purchaser
seeking a grant from EPA
to develop the property,
under Superfund, is also
required to conduct AAI
in order to qualify for
the grant.
The new
regulation would impose
both more and less stringent
requirements for borrowers
and lenders than set forth
by the ASTM Phase I guidelines.
Specifically,
the regulation is broader,
leaving several aspects
of the environmental inspection
to the environmental professional's
judgment. But under the
new regulation, the qualifications
to work in the field as
an “environmental
professional” are
more strictly defined,
requiring such professionals
to have a more enhanced
educational background
and greater field experience.
However, there is consideration
in the new proposal for
environmental workers
who have many years of
experience in the industry
and for anyone qualifying
to do environmental site
assessments under state
licensing programs.
While the
ASTM Phase I assessment
provided detailed guidelines
for assessment, AAI is
a performance-based standard
that allows for more discretion
on the part of the environmental
professional so long as
the detection of existing
and threatened releases
of hazardous substances
is still successfully
achieved, based upon information
relating to the uses of
the property, hazardous
substance management,
disposal and other similar
types of data.
The meetings
were part of a negotiated
rulemaking process in
which MBA staff and members
participated, representing
the interests and concerns
of the commercial real
estate industry.
The EPA
chose to promulgate the
regulation for AAI through
the establishment of a
Federal Advisory Committee
Act group (FACA), which
consists of interested
parties participating
in the negotiated rulemaking
process. Abbi Cohen,
partner at the Philadelphia
, Pa. law offices of Dechert
LLP, represents the interests
of MBA members on FACA.
The FACA
committee represented
many diverse trade associations,
including: Trust for Public
Land , Environmental Bankers
Association, Maryland
Department of the Environment,
US Public Interest Research
Group, Cherokee Nation/ITEC,
American Society of Civil
Engineers, and National
Association of Industrial
and Office Properties.
But the FACA group also
worked together to establish
balances between the issues,
including health and safety,
revitalization, real estate
transactions, local government
involvement and a defined
liability standard.
As part
of the ground rules for
negotiated rulemaking,
FACA agreed that unanimous
consent was required on
each section of the regulation
to complete the new proposal.
With the
negotiated rulemaking
process now completed,
the next step in the establishment
of new regulation is a
cost analysis. Once the
cost analysis is completed,
the regulation will be
circulated to other government
agencies and then published
in the Federal Register,
a process MBA expects
will be completed by March.
Once published, there
is a 90-day period during
which the regulation is
open for comments.
For more
on the current status
of the EPA and FACA meetings,
visit the EPA website
at .
