All Appropriate Inquiry: The Limitations Could Eat The Superfund Defense
As many of you know, a new era in purchasing environmentally contaminated (or possibly contaminated) land began in November, 2006. That is when new federal rules relating to All Appropriate Inquiry commenced and allowed new defenses to CERCLA liability for buyers of real estate. Without going into a lot of detail, the rule allows buyers to limit Superfund liability if they conduct a Phase I Environmental Site Assessment, in accordance with the rules, prior to purchasing the real estate. Under these circumstances, an individual or a company theoretically will not be liable for remediation of the property even if it is contaminated. However, in order to maintain the defenses, there are certain continuing obligations that are imposed on the buyer. These include complying with land use restrictions and institutional controls, responding to information requests and administrative subpoenas and providing legally required notices. Most importantly, there is a requirement of taking “reasonable steps” with respect to hazardous substance releases, and therein lies the problem.
The obvious question that is raised is what constitutes reasonable steps? If, for example, reasonable steps requires the removal of the hazardous substance from the ground, then EPA has effectively gutted the defense.
As a general rule, reasonable steps would include stopping any continuing release, preventing any threatened future release, and preventing or limiting human, environmental or natural resource exposure to any hazardous substance released on or from the property. But does it, for example, require a Phase II audit to identify the nature and extent of the suspected contamination? Does it require capping the contaminated soils with clay or asphalt? Does it require some sort of vapor intrusion protection around the basement of a building to avoid gas buildup?
ASTM has organized the Continuing Obligation Task Group to work on a draft continuing obligation standard which will define “reasonable steps.” Currently, it appears that the Group has identified two actions that may be taken to meet the requirement. They are: (a) lower the contaminate levels, also known as remediation; or (b) prevent exposure to the contamination through institutional or engineering controls. Obviously, both of these actions also require a Phase II site assessment and both could be extremely expensive to a purchaser.
I would suggest that if the ASTM Task Group does require these actions or something close to these actions, we will essentially be back to the pre-2006 days of sites having any potential contamination being difficult to market because banks will mandate a Phase II and, if any contaminate is discovered, bank financing will dry up.
I’ll let you know as soon as I hear the edict of the ASTM Task Group.
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Since 1996, Superfund has not really been a “fund.” From 1980 to 1996, the Superfund program levied taxes on petroleum and chemical companies and on corporate profits for its operational costs, but Congress failed to reauthorize it in 1995, and by 2003 the fund was fundless. It looks like that’s going to change.