New EPA rule may encourage brownfield redevelopment
September, 2006
When the Small Business Liability Relief and Brownfields Revitalization Act took effect in 2002, many developers and landowners viewed this "Brownfields Law" as a promising means of restoring the economic value of polluted real property. The Brownfields Law was enacted as an amendment to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as the federal Superfund law. In addition to the "innocent landowner" defense established by CERCLA, the Brownfields Law established two new defenses:
- "Contiguous landowner" defense
- "Bona fide prospective purchaser" defense
In other words, under the Brownfields Law property owners and purchasers can shield themselves from claims of strict environmental liability under CERCLA as long as they follow the steps set out in the statute. One such step is the requirement that "all appropriate inquiry" be made concerning past and present uses of the property and the presence of environmental contamination.
However, the Brownfields Law did not define "all appropriate inquiry." Instead, it directed the Environmental Protection Agency ("EPA") to develop regulations giving guidance to parties seeking the protections afforded by the statute.
Recently the EPA completed a multi-year effort to define "all appropriate inquiry" based upon input solicited from a broad array of interest groups. The rule that came out of this process takes effect November 1, 2006, and offers welcome clarity to parties involved in brownfield redevelopment. Soon a qualifying party - property owners and/or investors - may be able to avoid CERCLA exposure by performing specific steps through the use of an "environmental professional" qualified to assess the property's past uses and evaluate the likelihood of environmental contamination.
Under the new rule, "all appropriate inquiry" must include:
- Interviews of past and present owners, operators, and occupants of the property
- Reviews of historical information about the property such as title records, aerial photos, and land use documents to determine past uses and operations
- Reviews for recorded environmental cleanup liens or deed restrictions, waste disposal records, underground storage tank permits and records
The inquiry must also provide for an investigation into "commonly known or reasonably ascertainable" information, including a visual inspection of the property and adjoining properties, and an assessment of the prospective landowner's own unique knowledge or experience, the extent to which contamination is obvious or susceptible to discovery through appropriate detection methods, and the relationship between the purchase price and the property's value if uncontaminated.
The EPA rule requires a written report from the environmental professional including the professional's opinion whether the inquiry identified conditions indicative of contamination and that the inquiry was performed in accordance with the rule. Other provisions of the rule address when the inquiry must be performed and the circumstances under which it must be updated.
What the cost of performing an "all appropriate inquiry" will be remains to be seen. Certainly environmental consulting firms can be expected to compete for the work, but their services undoubtedly will be more expensive than a Phase 1 audit, since the rule envisions a significantly expanded scope of investigation. In addition, consultants may charge for professional liability risks associated certifying the firm's conclusions. All in all, the rule offers enhanced protection and certainty for owners and investors considering brownfield projects but the protection will come at a price.
Thomas D. Adams chairs the Litigation Department at Bullivant Houser Bailey PC. Mr. Adams has practiced law in the Pacific Northwest for more than 20 years, focusing on the resolution of commercial disputes through mediation, arbitration, and litigation. He has substantial experience in claims associated with environmental contamination. For risk management advice or more information on this important ruling, contact Tom Adams at 206.292.8930 or tom.adams@bullivant.com.