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New EPA Regulations Require Updated Environmental Phase I Reports

Purchasers of commercial or industrial properties beware. You can no longer rely on old Phase I reports to shield yourself from environmental liability. New EPA regulations effective November 1, 2006 require Phase I Environmental Assessments to be performed or updated 180 days before purchasers buy property. This is a general background of the new rules and why they are important to real estate transactions.

 

The 2002 CERCLA Amendments

Under the federal CERCLA or Superfund law, with few exceptions, owners of contaminated property are jointly and severally liable for contamination even if they did not dispose of the hazardous substances. Recognizing the chilling effect this law had on real estate transactions, in 2002 Congress amended CERCLA to provide a "bona fide prospective purchaser" defense. This defense protects purchasers of contaminated property as long as they, among other things, make "All Appropriate Inquiries" into the property's previous ownership, uses and environmental conditions. Though the Act requires EPA to issue regulations defining "All Appropriate Inquiries," prior to issuance of these new rules, prospective purchasers could meet the standard by performing ASTM-approved Phase I Environmental Assessments. See Federal Amendments to Superfund Law Offer Protection - Purchasers Can Shield Themselves at http://lp.productiveedge.com/jdb_superfund_feb2002/.

 

EPA's New Regulations Require Updated Phase I’s

EPA's new regulations defining “All Appropriate Inquiries” become effective on November 1, 2006. Most importantly, the new rules require that the Phase I be conducted or fully updated within one year of the date of acquisition of property. Additionally, unless the Phase I is conducted within 180 days of the acquisition date, certain aspects of the inquiries must be updated.

 

Recommendations

Often real estate purchasers buy property relying on old Phase I's performed long ago for third parties, such as banks or the sellers. In order to protect purchasers from CERCLA liability, we recommend that:

  1. A purchaser hire its own Environmental Professional (as defined in the regulations) to perform a Phase I Environmental Assessment which is either dated one year before it purchases the property (with an update), or is dated six months before the acquisition date; or
  2. If a third party has had a Phase I performed by a reputable Environmental Professional, the purchaser should first, contact the Environmental Professional and have the Environmental Professional certify that the purchaser may rely on the Phase I report. Second, once again, the purchaser must make sure that the Phase I is either dated one year before it purchases the property (with an update) or is dated six months before the acquisition date. If this time frame has not been met, the purchaser should retain the Environmental Professional to perform the appropriate update.

 

More Information

The regulations provide more details as to "All Appropriate Inquiries," and purchasers should make sure that the Environmental Professional is familiar with the new regulations. EPA published the regulations at 70 Fed. Reg. 66070 (November 1, 2005) and EPA's Fact Sheet can be found at http://www.epa.gov/brownfields/aai/aai_final_factsheet.htm.

For more information, please contact James D. Brusslan, 312-476-7570, or by email,

jbrusslan@lplegal.com with any questions.