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FEDERAL “ALL APPROPRIATE INQUIRY” RULE: A NEW PHASE IN PHASE Is? August 2004

FEDERAL “ALL APPROPRIATE INQUIRY” RULE: A NEW PHASE IN PHASE Is? August 2004. Overview. EPA’s AAI Rule Future of ASTM E 1527-00 Standard What Does AAI Mean?. EPA’s “All Appropriate Inquiry” Rule. Background. Behind- the-Scenes Negotiations . Nuts & Bolts of Draft Rule .

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FEDERAL “ALL APPROPRIATE INQUIRY” RULE: A NEW PHASE IN PHASE Is? August 2004

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  1. FEDERAL “ALL APPROPRIATE INQUIRY” RULE: A NEW PHASE IN PHASE Is?August 2004

  2. Overview • EPA’s AAI Rule • Future of ASTM E 1527-00 Standard • What Does AAI Mean?

  3. EPA’s “All Appropriate Inquiry” Rule Background Behind- the-Scenes Negotiations Nuts & Bolts of Draft Rule

  4. AAI Rule: Background-Brownfields Law • 3 important components • Amended “innocent landowner defense” • Added two new landowner liability protections: • contiguous property owner: protects buyer from contamination caused by migration of hazardous substances from off-site • bona fide prospective purchaser: protects buyer who knowingly purchases contaminated property

  5. AAI Rule: Background-Brownfields Law Now property owners have 3 avenues of protection IF “all appropriate inquiry” conducted before purchase so…. • 3. Congress mandated that EPA “establish standards and practices for the purpose of satisfying requirement to carry out all appropriate inquiries” - Two-year deadline (by January 11, 2004) - Statute lists 10 criteria EPA must include…

  6. AAI Rule: Background-Brownfields Law 10-Point Criteria for All Appropriate Inquiry Rule: 1. Results of inquiry by environmental professional 2. Interviews with past and present owners, operators and occupants • Reviews of historical sources • Searches for recorded environmental clean-up liens • Reviews of federal, state and local government records…

  7. AAI Rule: Background-Brownfields Law 10-Point AAI Criteria (cont’d) 6. Visual inspections of property and adjoining properties 7.  Specialized knowledge or experience 8. Relationship of purchase price to value of property if not contaminated 9. Commonly known or reasonably ascertainable information about property 10. Degree of obviousness of contamination at property

  8. Development of AAI Rule:Regulatory Negotiations

  9. AAI Rule: Negotiations • Under Federal Advisory Committee Act (FACA), EPA chose to write AAI rule by “Regulatory Negotiation” (reg-neg) • Why reg-neg? • Solicit input from stakeholders in the process • Minimize disruption to current real estate market • Facilitate implementation • Reduce significant public comments

  10. AAI Rule: Negotiations (cont’d) • EPA invited representatives of “affected and interested stakeholder” groups including: • Real estate developers • Lenders • Environmental professionals • Federal, state, local and tribal governments • Environmental interest groups • Environmental justice community

  11. AAI Rule: Negotiations (cont’d) • EDR was a “Resource Participant” • Attended all committee meetings • Provided technical expertise and guidance to the committee • EDR’s Phase I ESA market data being used in EPA’s Regulatory Impact Analysis

  12. AAI Rule: Final Consensus Draft • After 8 months and more than 100 hours of debate during 2003 • Reg-neg committee agreed on Final Consensus Draft AAI rule on November 14, 2003: CFR Part 312 – Standards for Conducting All Appropriate Inquiries • Performance-based approach, relies on environmental professionals’ judgment

  13. AAI Rule: Nuts & Bolts of Consensus Draft

  14. Major Areas Impacting Conduct of Phase I • Definition of “environmental professional” • Expanded government records review • Historical research • Data gaps • New interview and site visit requirements • Phase I shelf life

  15. AAI Rule: Professional Qualifications • Who can conduct AAI? • Committee sought to limit conduct of environmental inquiries to those qualified to make necessary judgment calls • Draft rule contains hotly debated, controversial definition of “environmental professional”

  16. AAI Rule: Minimum EP Requirements

  17. AAI Rule: Minimum EP Requirements • AAI rule allows consultants who do not meet EP definition to conduct Phase Is under AAI, provided that: - Inquiry is conducted “under the supervision or responsible charge” of someone who does - But EPA’s preamble will recommend that the site visit be conducted by an EP!

  18. AAI Rule: Minimum EP Requirements • To ensure accountability, EP’s report must state: “[I, We] declare that, to the best of [my, our] professional knowledge and belief, [I, we] meet the definition of Environmental Professional as defined in §312.10 of 40 CFR 312.” “[I, We] have the specific qualifications based on education, training, and experience to assess a property of the nature, history, and setting of the subject property. [I, We] have developed and performed the all appropriate inquiries in conformance with the standards and practices set forth in 40 CFR Part 312.”

  19. Government Records Review KEY AREA OF DEBATE: How extensively do government records of nearby or adjoining properties need to be reviewed? Should E 1527’s search distances be used? Two extremes on committee: • Search out 1 mile for all databases • Adopt ASTM E 1527-00 search distances

  20. Government Records Review(cont’d) For databases listed in E 1527-00, search distances in AAI rule are consistent, except:

  21. Government Records Review (cont’d) INSTITUTIONAL AND ENGINEERING CONTROLS (Activity and Use Limitations) • Controversial issue for EPA committee: • Availability: not all states have records • Inconsistency across states: different database names • Cost/time involved in obtaining such records but….

  22. Government Records: ICs/ECs …More states developing such inventories, so • Consensus: Institutional controls ½ mile Engineering controls ½ mile • Departure from ASTM E 1527-00

  23. Government Records: Local/Tribal “…Federal, tribal, state and local government records or databases of government records of the subject property and adjoining properties must be reviewed…” (AAI consensus draft) • Local records review now mandatory • Under ASTM E 1527-00, local records “may be checked” at EP’s discretion • If local USTs, brownfields available, state records alone are insufficient

  24. Government Records: Local/Tribal • Tribal records MUST be reviewed • New requirement beyond ASTM E 1527-00 • Tribes maintain records of USTs, LUSTs • Some environmental records housed at tribal offices

  25. Review of Historical Sources KEY AREA OF DEBATE: How prescriptive should AAI rule be? How much research is enough? CONSENSUS: • Very general requirements • Leaves decisions about research timeframe, data sources and search intervals up to environmental professional’s judgment

  26. Review of Historical Sources (cont’d) Research timeframe: • AAI: EP must “…cover a period of time as far back in the history of the subject property as it can be shown that the property contained structures or from the time the property was first used for residential, agricultural, commercial, industrial, or governmental purposes.” • versus - ASTM: “…back to property’s obvious first developed use, or back to 1940, whichever is earlier”

  27. Review of Historical Sources (cont’d) • How much historical research is sufficient? • In all areas of AAI, environmental professionals must seek to gather information that is: • “publicly available; • obtainable from its source within reasonable time and cost constraints; and • which can practicably be reviewed…”

  28. Data Gaps Extensive, NEW requirements for data gaps 3. Comment on significance of gaps 1. Identify gaps 2. Identify sources consulted to address them 4. If data gaps prevent EP from reaching opinion about property, gaps must be noted in EP’s opinion in written report

  29. Data Gaps (cont’d) • Data gaps language raises bar for consultants • Emphasizes need to conduct comprehensive research using all “reasonably ascertainable” sources to avoid gaps • Must demonstrate attempt to fill gaps • Sampling may be conducted to address data gaps, but is not required

  30. Interviews “…interviews with past and present owners, operators and occupants” (10-point AAI criteria) KEY AREA OF DEBATE: • Strong arguments for involving community in environmental inquiry versus • Concerns about: • Time • Cost • Confidentiality

  31. Interviews (cont’d) COMPROMISE: • Mandatory interview(s) with one or more (as necessary) owners or occupants of neighboring properties only in cases of abandoned properties • Otherwise, up to EP’s professional judgment (similar to ASTM E 1527-00)

  32. Visual Inspection “…visual inspections of the facility and adjoining properties” (10 point AAI criteria) KEY AREAS OF DEBATE: • Will AAI require visual inspections of adjoining properties? • What if consultant cannot get access to target property?

  33. Visual Inspection (cont’d) CONSENSUS: • visual on-site inspection of the subject property must be conducted; and • visual inspection of “adjoining properties from the subject property line, public rights-of-way, or other vantage point.” Similar to ASTM E 1527-00 except….

  34. Visual Inspection (cont’d) • In “unusual circumstance” of inability to gain site access, EP must: 1. Visually inspect property from “nearest accessible vantage point” 2. Document efforts taken and explain reason for failure 3. Document other sources of information consulted and comment on significance of failure to conduct visual on-site inspection

  35. AAI: Shelf Life • Under AAI, • Phase I valid without updating if not more than 180 days old • 180 days to 1 year, certain components must be updated: • interviews; • reviews of government records; • visual inspections; and • declaration of EP.

  36. AAI: Shelf Life (cont’d) • If more than one year has passed since environmental inquiry was conducted, all information must be “…collected or updated within one year prior to the purchase date of the subject property.” • “Previously collected information must be updated to include relevant changes in the conditions of the property…” • Under ASTM, it is acceptable to update only select components of “old” Phase Is

  37. AAI Rule: Next Step • Ball in EPA’s court: • Prepared draft rule using Final Consensus Document • Wrote preamble with guidance, interpretation • Provided OMB with final Economic Impact Analysis (cost impacts) • Published proposal package in Federal Register on August 26, 2004 • 60-day public comment period expires October 25, 2004 • Final rule by late 2005 (tentative)

  38. Future of ASTM E 1527-00 Standard

  39. ASTM E 1527-00: Current Status • Until EPA finalizes AAI rule, ASTM E 1527-00 (and ASTM E 1527-97) will satisfy AAI requirement • E 1527 (as revised) could be recognized by EPA in AAI rule if standard is “fully compliant” with final AAI rule • Next milestone is “pre-compliance review” of revised E 1527 by EPA • ASTM hopes to publish updated E 1527 as EPA finalizes AAI rule (mid 2005-tentative)

  40. What Does AAI Rule Mean?

  41. AAI Rule: The Bottom Line • What we know: • Environmental due diligence will change • Consultants have to do more, document more • What we don’t know: • How much of an impact? • Who will be required to comply? • More Phase Is? • Fewer providers?

  42. AAI Rule: Consultants’ Expectations • Mixed reactions from consultants: • Significant increase in level of effort • Little effect, already go beyond E 1527 standard • Could increase insurance costs due to flexibility in AAI rule • More Phase IIs conducted to fill data gaps

  43. Predictions About AAI Rule’s Price Impact • More than 60% of EDR’s DDD attendees in 6 cities predict price increase of 11% or more Chicago Dallas Houston Los Angeles Minneapolis Scottsdale

  44. AAI Rule: Market Impact • Impact will extend beyond CERCLA liability concerns • Likely to see trickle down effect in market • Rating agencies (Moody’s, S&P, Fitch) could adopt AAI/ASTM converged standard • Federal agencies could require AAI and… • State governments may adopt AAI rule • Some users still plan to predominantly use E 1527 for detailed guidance, standardization of process

  45. AAI Rule: Market Impact • ASTM E 1527 will be revised to reflect new AAI requirements and remain the “de facto” standard practice for environmental due diligence • AAI could result over time in higher quality Phase Is because of the more stringent EP definition and the price of Phase Is will increase slightly (10-15%)

  46. What Can You Do Now? Read consensus draft for familiarity with possible changes, terminology, new defenses Read EPA’s proposed rule at www.edrnet.com/aai/FR_AAIproposedrule.pdf Prepare for modifying your services as necessary to meet AAI, revised E 1527 Be cautious!

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