FEDERAL “ALL APPROPRIATE FEDERAL “ALL APPROPRIATE INQUIRY” RULE: INQUIRY” RULE:

A NEW PHASE IN PHASE Is?A NEW PHASE IN PHASE Is?

August 2004August 2004

OverviewOverview

• EPA’s AAI RuleEPA’s AAI Rule• Future of ASTM E 1527-00 StandardFuture of ASTM E 1527-00 Standard• What Does AAI Mean?What Does AAI Mean?

EPA’s EPA’s ““All Appropriate Inquiry” All Appropriate Inquiry”

RuleRuleBackground

Behind-the-Scenes

Negotiations

Nuts & Bolts of Draft Rule

AAI Rule: Background-Brownfields LawAAI Rule: Background-Brownfields Law

• 3 important components3 important components

1.1. Amended “innocent landowner defense” Amended “innocent landowner defense”

2.2. Added two new landowner liability protections: Added two new landowner liability protections:

• contiguous property ownercontiguous property owner: protects buyer : protects buyer from contamination caused by migration of from contamination caused by migration of hazardous substances from off-site hazardous substances from off-site

• bona fide prospective purchaserbona fide prospective purchaser: protects : protects buyer who knowingly purchases buyer who knowingly purchases contaminated propertycontaminated property

AAI Rule: Background-Brownfields LawAAI Rule: Background-Brownfields Law

Now property owners have 3 avenues of protection Now property owners have 3 avenues of protection

IF “all appropriate inquiry” conducted before purchase IF “all appropriate inquiry” conducted before purchase so….so….

• 3. Congress mandated that EPA “establish standards 3. Congress mandated that EPA “establish standards and practices for the purpose of satisfying requirement and practices for the purpose of satisfying requirement to carry out all appropriate inquiries” to carry out all appropriate inquiries”

- Two-year deadline (by January 11, 2004)- Two-year deadline (by January 11, 2004)

- Statute lists 10 criteria EPA must include…- Statute lists 10 criteria EPA must include…

AAI Rule: Background-Brownfields Law AAI Rule: Background-Brownfields Law

10-Point Criteria for All Appropriate Inquiry Rule:10-Point Criteria for All Appropriate Inquiry Rule:

1. 1. Results of inquiry by environmental Results of inquiry by environmental professionalprofessional

2. 2. Interviews with past and present owners, Interviews with past and present owners, operators and occupantsoperators and occupants

3.3. Reviews of historical sourcesReviews of historical sources

4.4. Searches for recorded environmental Searches for recorded environmental clean-up liensclean-up liens

5.5. Reviews of federal, state and Reviews of federal, state and locallocal government records…government records…

AAI Rule: Background-Brownfields LawAAI Rule: Background-Brownfields Law

10-Point AAI Criteria 10-Point AAI Criteria (cont’d)(cont’d)

6. 6. Visual inspections of property and adjoining Visual inspections of property and adjoining properties properties

7. 7.  Specialized knowledge or experience Specialized knowledge or experience

8. 8. Relationship of purchase price to value of Relationship of purchase price to value of property if not contaminated property if not contaminated

9. 9. Commonly known or reasonably ascertainable Commonly known or reasonably ascertainable information about propertyinformation about property

10. Degree of obviousness of contamination at 10. Degree of obviousness of contamination at propertyproperty

Development of AAI Rule:Development of AAI Rule:Regulatory Negotiations Regulatory Negotiations

AAI Rule: NegotiationsAAI Rule: Negotiations

• Under Federal Advisory Committee Act Under Federal Advisory Committee Act (FACA), EPA chose to write AAI rule by (FACA), EPA chose to write AAI rule by “Regulatory Negotiation” (reg-neg) “Regulatory Negotiation” (reg-neg)

• Why reg-neg?Why reg-neg?

• Solicit input from stakeholders in the processSolicit input from stakeholders in the process

• Minimize disruption to current real estate Minimize disruption to current real estate market market

• Facilitate implementationFacilitate implementation

• Reduce significant public comments Reduce significant public comments

AAI Rule: Negotiations AAI Rule: Negotiations (cont’d)(cont’d)

• EPA invited representatives of “affected and EPA invited representatives of “affected and interested stakeholder” groups including:interested stakeholder” groups including:• Real estate developersReal estate developers• LendersLenders• Environmental professionals Environmental professionals • Federal, state, local and tribal governmentsFederal, state, local and tribal governments• Environmental interest groupsEnvironmental interest groups• Environmental justice community Environmental justice community

AAI Rule: Negotiations AAI Rule: Negotiations (cont’d)(cont’d)

• EDR was a “Resource Participant”EDR was a “Resource Participant”

– Attended all committee meetingsAttended all committee meetings

– Provided technical expertise and Provided technical expertise and guidance to the committeeguidance to the committee

– EDR’s Phase I ESA market data being EDR’s Phase I ESA market data being used in EPA’s Regulatory Impact used in EPA’s Regulatory Impact AnalysisAnalysis

AAI Rule: Final Consensus DraftAAI Rule: Final Consensus Draft

• After 8 months and more than 100 hours of After 8 months and more than 100 hours of debate during 2003debate during 2003

• Reg-neg committee agreed on Final Reg-neg committee agreed on Final Consensus Draft AAI rule on Consensus Draft AAI rule on November 14, 2003: November 14, 2003:

CFR Part 312 – Standards for Conducting CFR Part 312 – Standards for Conducting All Appropriate Inquiries All Appropriate Inquiries

• Performance-based approach, relies on Performance-based approach, relies on environmental professionals’ judgmentenvironmental professionals’ judgment

AAI Rule: AAI Rule: Nuts & Bolts of Consensus DraftNuts & Bolts of Consensus Draft

Major Areas Impacting Conduct of Phase I Major Areas Impacting Conduct of Phase I

• Definition of “environmental professional”Definition of “environmental professional”

• Expanded government records reviewExpanded government records review

• Historical research Historical research

• Data gapsData gaps

• New interview and site visit requirements New interview and site visit requirements

• Phase I shelf lifePhase I shelf life

AAI Rule: Professional Qualifications AAI Rule: Professional Qualifications

• Who can conduct AAI?Who can conduct AAI?

• Committee sought to limit conduct of Committee sought to limit conduct of environmental inquiries to those qualified to environmental inquiries to those qualified to make necessary judgment calls make necessary judgment calls

• Draft rule contains hotly debated, controversial Draft rule contains hotly debated, controversial definition of “environmental professional”definition of “environmental professional”

AAI Rule: Minimum EP RequirementsAAI Rule: Minimum EP Requirements

Professional/Educational QualificationsProfessional/Educational Qualifications

RelevantRelevant

ExperienceExperience

PE or PG license/registrationPE or PG license/registration 3 years3 years

Federal or state license/certification to Federal or state license/certification to perform environmental inquiriesperform environmental inquiries

3 years3 years

B.A./B.S. degree or higher in relevant B.A./B.S. degree or higher in relevant discipline (engineering, environmental discipline (engineering, environmental science or earth science)science or earth science)

5 years5 years

B.A./B.S. degree or higherB.A./B.S. degree or higher

(grandfather clause)(grandfather clause)

10 years10 years

AAI Rule: Minimum EP RequirementsAAI Rule: Minimum EP Requirements

• AAI rule allows consultants who do not meet EP AAI rule allows consultants who do not meet EP definition to conduct Phase Is under AAI, provided definition to conduct Phase Is under AAI, provided that: that:

- Inquiry is conducted “- Inquiry is conducted “under the supervision or under the supervision or responsible charge”responsible charge” of someone who does of someone who does

- But EPA’s preamble will recommend that the site - But EPA’s preamble will recommend that the site visit be conducted by an EP!visit be conducted by an EP!

AAI Rule: Minimum EP RequirementsAAI Rule: Minimum EP Requirements

• To ensure accountability, EP’s report must state: To ensure accountability, EP’s report must state: ““[I, We] declare that, to the best of [my, our] professional [I, We] declare that, to the best of [my, our] professional knowledge and belief, [I, we] meet the definition of knowledge and belief, [I, we] meet the definition of Environmental Professional as defined in §312.10 of 40 Environmental Professional as defined in §312.10 of 40 CFR 312.”CFR 312.”

““[I, We] have the specific qualifications based on [I, We] have the specific qualifications based on education, training, and experience to assess a education, training, and experience to assess a property of the nature, history, and setting of property of the nature, history, and setting of the subject property. [I, We] have developed the subject property. [I, We] have developed and performed the all appropriate inquiries and performed the all appropriate inquiries in conformance with the standards and in conformance with the standards and practices set forth in 40 CFR Part 312.”practices set forth in 40 CFR Part 312.”

Government Records ReviewGovernment Records Review

KEY AREA OF DEBATE: KEY AREA OF DEBATE:

How extensively do government records of nearby How extensively do government records of nearby or adjoining properties need to be reviewed? or adjoining properties need to be reviewed?

Should E 1527’s search distances be used?Should E 1527’s search distances be used?

Two extremes on committee: Two extremes on committee:

- Search out 1 mile for all databases Search out 1 mile for all databases

- Adopt ASTM E 1527-00 search distances Adopt ASTM E 1527-00 search distances

Government Records ReviewGovernment Records Review (cont’d)(cont’d)

For databases listed in E 1527-00, search For databases listed in E 1527-00, search distances in AAI rule are consistent, except:distances in AAI rule are consistent, except:

DatabaseDatabase AAIAAI ASTM E 1527-00ASTM E 1527-00CERCLIS CERCLIS NFRAPNFRAP

1/2 mile1/2 mile 1/8 mile 1/8 mile

Delisted NPLDelisted NPL 1/2 mile1/2 mile Target propertyTarget property

State brownfieldsState brownfields 1/2 mile1/2 mile n/a n/a

Records of Records of registered storage registered storage tankstanks

Adjoining Adjoining propertyproperty

USTs: adjoiningUSTs: adjoining

ASTs: n/a ASTs: n/a

Government Records Review Government Records Review (cont’d)(cont’d)

INSTITUTIONAL AND ENGINEERING INSTITUTIONAL AND ENGINEERING CONTROLS (Activity and Use Limitations)CONTROLS (Activity and Use Limitations)

• Controversial issue for EPA committee:Controversial issue for EPA committee:

• Availability: not all states have recordsAvailability: not all states have records

• Inconsistency across states: different Inconsistency across states: different database namesdatabase names

• Cost/time involved in obtaining such Cost/time involved in obtaining such records records

but….but….

……More states developing such inventories, soMore states developing such inventories, so

• Consensus: Consensus:

Institutional controls Institutional controls ½ mile ½ mile

Engineering controls Engineering controls ½ mile½ mile

• Departure from ASTM E 1527-00Departure from ASTM E 1527-00

Government Records: ICs/ECsGovernment Records: ICs/ECs

Government Records: Local/TribalGovernment Records: Local/Tribal

“…“…Federal, tribal, state and local government Federal, tribal, state and local government records or databases of government records of records or databases of government records of the subject property and adjoining properties the subject property and adjoining properties must be reviewed…”must be reviewed…” (AAI consensus draft) (AAI consensus draft)

• Local records review now mandatoryLocal records review now mandatory

• Under ASTM E 1527-00, local records “may Under ASTM E 1527-00, local records “may be checked” at EP’s discretion be checked” at EP’s discretion

• If local USTs, brownfields available, state If local USTs, brownfields available, state records alone are insufficient records alone are insufficient

Government Records: Local/TribalGovernment Records: Local/Tribal

• Tribal records MUST be reviewedTribal records MUST be reviewed

• New requirement beyond ASTM E 1527-00New requirement beyond ASTM E 1527-00

• Tribes maintain records of USTs, LUSTsTribes maintain records of USTs, LUSTs

• Some environmental records housed at tribal Some environmental records housed at tribal officesoffices

Review of Historical SourcesReview of Historical Sources

KEY AREA OF DEBATE: KEY AREA OF DEBATE:

How prescriptive should AAI rule be? How prescriptive should AAI rule be? How much research is enough?How much research is enough?

CONSENSUS:CONSENSUS:

• Very general requirementsVery general requirements

• Leaves decisions about research timeframe, Leaves decisions about research timeframe, data sources and search intervals up to data sources and search intervals up to environmental professional’s judgmentenvironmental professional’s judgment

Review of Historical Sources Review of Historical Sources (cont’d)(cont’d)

Research timeframe:Research timeframe:- AAI: EP must “…AAI: EP must “…cover a period of time as far cover a period of time as far

back in the history of the subject property as it can back in the history of the subject property as it can be shown that the property contained structures or be shown that the property contained structures or from the time the property was first used for from the time the property was first used for residential, agricultural, commercial, industrial, or residential, agricultural, commercial, industrial, or governmental purposesgovernmental purposes.”.”

- versusversus- ASTM: “…- ASTM: “…back to property’s obvious first back to property’s obvious first

developed use, or back to 1940, whichever is developed use, or back to 1940, whichever is earlierearlier””

Review of Historical Sources Review of Historical Sources (cont’d)(cont’d)

• How much historical research is sufficient? How much historical research is sufficient?

• In all areas of AAI, environmental In all areas of AAI, environmental professionals must seek to gather professionals must seek to gather information that is:information that is:

– ““publicly available;publicly available;

– obtainable from its source within obtainable from its source within reasonable time and cost constraints; andreasonable time and cost constraints; and

– which can practicably be reviewedwhich can practicably be reviewed…”…”

Data Gaps Data Gaps

Extensive, NEW requirements for data gapsExtensive, NEW requirements for data gaps

1. Identify gaps2. Identify

sources consulted to address them

3. Comment on significance of gaps

4. If data gaps prevent EP from reaching opinion

about property, gaps must be noted

in EP’s opinion in written report

Data Gaps Data Gaps (cont’d)(cont’d)

• Data gaps language raises bar for consultantsData gaps language raises bar for consultants

• Emphasizes need to conduct comprehensive Emphasizes need to conduct comprehensive research using all “reasonably ascertainable” research using all “reasonably ascertainable” sources to avoid gapssources to avoid gaps

• Must demonstrate attempt to fill gapsMust demonstrate attempt to fill gaps

• Sampling may be conducted to address data Sampling may be conducted to address data gaps, but is not requiredgaps, but is not required

Interviews Interviews

“…“…interviews with past and present owners, operators interviews with past and present owners, operators and occupants” and occupants” (10-point AAI criteria)(10-point AAI criteria)

KEY AREA OF DEBATE:KEY AREA OF DEBATE:

• Strong arguments for involving community in Strong arguments for involving community in environmental inquiryenvironmental inquiry

versusversus• Concerns about:Concerns about:

– TimeTime– CostCost– ConfidentialityConfidentiality

Interviews Interviews (cont’d)(cont’d)

COMPROMISE: COMPROMISE: • Mandatory interview(s) with one or more Mandatory interview(s) with one or more

(as necessary) owners or occupants of (as necessary) owners or occupants of neighboring properties only in cases of neighboring properties only in cases of abandoned properties abandoned properties

• Otherwise, up to EP’s professional Otherwise, up to EP’s professional judgment (similar to ASTM E 1527-00)judgment (similar to ASTM E 1527-00)

Visual InspectionVisual Inspection

“…“…visual inspections of the facility and adjoining visual inspections of the facility and adjoining properties”properties” (10 point AAI criteria) (10 point AAI criteria)

KEY AREAS OF DEBATE:KEY AREAS OF DEBATE:

• Will AAI require visuWill AAI require visual inspections of adjoining al inspections of adjoining properties?properties?

• What if consultant cannot get access to target What if consultant cannot get access to target property?property?

Visual Inspection Visual Inspection (cont’d)(cont’d)

CONSENSUS: CONSENSUS:

1)1) visual on-site inspection of the subject visual on-site inspection of the subject property must be conducted; andproperty must be conducted; and

2)2) visual inspection of “adjoining properties visual inspection of “adjoining properties from the subject property line, public from the subject property line, public rights-of-way, or other vantage point.”rights-of-way, or other vantage point.”

Similar to ASTM E 1527-00 except….Similar to ASTM E 1527-00 except….

Visual Inspection Visual Inspection (cont’d)(cont’d)

• In “unusual circumstance” of inability to In “unusual circumstance” of inability to gain site access, EP must:gain site access, EP must:

1. Visually inspect property from “nearest 1. Visually inspect property from “nearest accessible vantage point” accessible vantage point”

2. Document efforts taken and explain reason 2. Document efforts taken and explain reason for failurefor failure

3. Document other sources of information 3. Document other sources of information consulted and comment on significance of consulted and comment on significance of failure to conduct visual on-site inspectionfailure to conduct visual on-site inspection

AAI: Shelf LifeAAI: Shelf Life

• Under AAI, Under AAI,

– Phase I valid without updating if not more than Phase I valid without updating if not more than 180 days old180 days old

– 180 days to 1 year, certain components must be 180 days to 1 year, certain components must be updated:updated:

• interviews;interviews;

• reviews of government records; reviews of government records;

• visual inspections; andvisual inspections; and

• declaration of EP. declaration of EP.

AAI: Shelf Life AAI: Shelf Life (cont’d)(cont’d)

• If more than one year has passed since If more than one year has passed since environmental inquiry was conducted, all environmental inquiry was conducted, all information must be “…collected or updated information must be “…collected or updated within one year prior to the purchase date of within one year prior to the purchase date of the subject property.”the subject property.”

• ““Previously collected information must be Previously collected information must be updated to include relevant changes in the updated to include relevant changes in the conditions of the property…”conditions of the property…”

• Under ASTM, it is acceptable to update only Under ASTM, it is acceptable to update only select components of “old” Phase Is select components of “old” Phase Is

AAI Rule: Next Step AAI Rule: Next Step • Ball in EPA’s court:Ball in EPA’s court:

• Prepared draft rule using Final Consensus Prepared draft rule using Final Consensus DocumentDocument

• Wrote preamble with guidance, interpretation Wrote preamble with guidance, interpretation • Provided OMB with final Economic Impact Provided OMB with final Economic Impact

Analysis (cost impacts)Analysis (cost impacts)• Published proposal package in Published proposal package in Federal RegisterFederal Register

on August 26, 2004on August 26, 2004• 60-day public comment period expires 60-day public comment period expires

October 25, 2004October 25, 2004• Final rule by late 2005 (tentative) Final rule by late 2005 (tentative)

Future of ASTM E 1527-00 Future of ASTM E 1527-00 StandardStandard

ASTM E 1527-00: Current StatusASTM E 1527-00: Current Status

• Until EPA finalizes AAI rule, Until EPA finalizes AAI rule, ASTM E 1527-00 (and ASTM E 1527-97) ASTM E 1527-00 (and ASTM E 1527-97) will satisfy AAI requirementwill satisfy AAI requirement

• E 1527 (as revised) could be recognized by E 1527 (as revised) could be recognized by EPA in AAI rule if standard is “fully EPA in AAI rule if standard is “fully compliant” with final AAI rulecompliant” with final AAI rule

• Next milestone is “pre-compliance review” Next milestone is “pre-compliance review” of revised E 1527 by EPA of revised E 1527 by EPA

• ASTM hopes to publish updated E 1527 as ASTM hopes to publish updated E 1527 as EPA finalizes AAI rule (mid 2005-tentative)EPA finalizes AAI rule (mid 2005-tentative)

What Does AAI Rule What Does AAI Rule Mean? Mean?

AAI Rule: The Bottom LineAAI Rule: The Bottom Line

• What we know:What we know:

– Environmental due diligence will changeEnvironmental due diligence will change

– Consultants have to do more, document moreConsultants have to do more, document more

• What we don’t know:What we don’t know:

– How much of an impact? How much of an impact?

– Who will be required to comply?Who will be required to comply?

– More Phase Is?More Phase Is?

– Fewer providers? Fewer providers?

AAI Rule: Consultants’ ExpectationsAAI Rule: Consultants’ Expectations

• Mixed reactions from consultants:Mixed reactions from consultants:

- Significant increase in level of effortSignificant increase in level of effort

- Little effect, already go beyond E 1527 standardLittle effect, already go beyond E 1527 standard

- Could increase insurance costs due to flexibility Could increase insurance costs due to flexibility in AAI rulein AAI rule

- More Phase IIs conducted to fill data gapsMore Phase IIs conducted to fill data gaps

Predictions About AAI Rule’s Price Impact Predictions About AAI Rule’s Price Impact

5%

8%

21%23% 22%

18%

3%

0%

5%

10%

15%

20%

25%

NoChange

1-5%Increase

6-10%Increase

11-15%Increase

16-20%Increase

21% andabove

Other

• More than 60% of EDR’s DDD attendees in More than 60% of EDR’s DDD attendees in 6 cities predict price increase of 11% or more6 cities predict price increase of 11% or more

Chicago

Dallas

Houston

Los Angeles

Minneapolis

Scottsdale

AAI Rule: Market ImpactAAI Rule: Market Impact

• Impact will extend beyond CERCLA liability Impact will extend beyond CERCLA liability concernsconcerns

• Likely to see trickle down effect in marketLikely to see trickle down effect in market

• Rating agencies (Moody’s, S&P, Fitch) could Rating agencies (Moody’s, S&P, Fitch) could adopt AAI/ASTM converged standardadopt AAI/ASTM converged standard

• Federal agencies could require AAI and…Federal agencies could require AAI and…

• State governments may adopt AAI ruleState governments may adopt AAI rule

• Some users still plan to predominantly use E 1527 Some users still plan to predominantly use E 1527 for detailed guidance, standardization of processfor detailed guidance, standardization of process

AAI Rule: Market ImpactAAI Rule: Market Impact

• ASTM E 1527 will be revised to reflect new AAI ASTM E 1527 will be revised to reflect new AAI requirements and remain the “de facto” standard requirements and remain the “de facto” standard practice for environmental due diligencepractice for environmental due diligence

• AAI could result over time in higher quality AAI could result over time in higher quality Phase Is because of the more stringent EP Phase Is because of the more stringent EP definition and the price of Phase Is will increase definition and the price of Phase Is will increase slightly (10-15%)slightly (10-15%)

What Can You Do Now?What Can You Do Now?

Read consensus draft for familiarity with Read consensus draft for familiarity with possible changes, terminology, new defensespossible changes, terminology, new defenses

Read EPA’s proposed rule at Read EPA’s proposed rule at www.edrnet.com/aai/FR_AAIproposedrule.pdfwww.edrnet.com/aai/FR_AAIproposedrule.pdf

Prepare for modifying your services as Prepare for modifying your services as necessary to meet AAI, revised E 1527 necessary to meet AAI, revised E 1527

Be cautious!Be cautious!