january 2006

EPA Issues Final “All Appropriate Inquiry” Rule Effective November 2006

BACKGROUND

When Congress amended the federal Superfund law in 2002, it required that EPA establish specific pre-acquisition due diligence standards and procedures constituting the “all appropriate inquiry” test for determining whether buyers qualify for the CERCLA liability defense commonly known as the “innocent purchaser” or “innocent landowner” defense. New Jersey has its own strict set of rules that must be followed to qualify for New Jersey's liability defenses.

On November 1, 2005, EPA issues its final rule, effective November 1, 2006. Until then, compliance with either the final rule or the interim standards established by Congress will satisfy the “all appropriate inquiry” requirements.

HIGHLIGHTS OF THE RULE ARE:

It applies to the innocent landowner defense, as well as to the bona fide prospective purchasers and contiguous property owner exemptions of CERCLA.

Certain of the due diligence tasks must be undertaken by an “environmental professional” with specific experience in the field. The rule details the requisite qualifications.

The inquiry may include certain information previously collected, but only where the prior inquiry was done for a party similarly seeking to establish a defense or exemption under the new rules, and only where the information was collected or updated within a certain time period (one year for certain information, six months for other information).

Information that has to be collected within six months of acquisition include interviews with past and present owners and operators, searches for recorded cleanup liens, visual inspections of the target property and adjoining properties, and a certification by the environmental professional.

Results of the professional's inquiry must be memorialized in a written report with an opinion as to whether conditions have been identified indicative of releases or contaminants.

The report must include a specific declaration as to the qualifications of the professional to issue the report.

The party commissioning the report, and seeking liability protection, has its own responsibilities to provide certain information to the professional.

Interviews by the environmental professional must include current and former owners of the target site. Where target properties are abandoned, interviews must include neighbors.

Compliance with ASTM standard E1527-05 is considered by EPA to be consistent with the EPA rule.

WE RECOMMEND

Prospective purchasers should now comply with the new rule in their due diligence activities, notwithstanding whether due diligence and/or acquisition occurs before or after the November 1, 2006 effective date.

Environmental services agreements should include language confirming the environmental professional's qualifications under the rule and requiring the use of the new report certifications.

Purchasers should consider requiring that sellers cause current owner and operator representatives to submit to interviews as required by the rule.

If you have any questions concerning the new rule, please contact David B. Farer.