Be Careful What You Look For: EPA Updates “All Appropriate Inquiries” Environmental Diligence Standard

by Pillsbury Winthrop Shaw Pittman LLP

On December 30, 2013, the U.S. Environmental Protection Agency (“EPA”) amended its “All Appropriate Inquiries” rule, which sets out the standard for environmental due diligence in commercial and industrial property transactions in order to qualify for certain defenses to liability under the federal “Superfund” law. The amended rule endorses ASTM standard E1527-13, which incorporates new requirements to report on vapor migration, review agency records as well as search databases, and distinguish controlled from historical conditions. Responding to objections that allowing a prior, less time-consuming and costly standard to remain in effect would cause confusion, EPA also announced that, in the near future, it will propose deleting the prior standard from the rule. Meanwhile, many purchasers and lenders are likely to require their sellers and borrowers to switch to the new standard in light of EPA’s announced intent.


Generally, prospective purchasers of commercial and industrial property conduct environmental due diligence investigations in order to discover and disclose information on current and past uses of the site and the risk that hazardous substances have been released on-site or nearby. In the 1990s a private organization, the American Society for Testing and Materials (“ASTM”), developed a standard for conducting such investigations, the Phase I Environmental Site Assessment standard. Property purchasers and lenders soon began routinely requiring sellers and borrowers to produce “Phase I reports” in compliance with the standard, though originally it had no legal force. In 2002, Congress gave purchasers greater incentive to perform thorough environmental diligence by amending the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or “Superfund”). CERCLA imposes liability on current property owners (among others) for cleanup of hazardous substances released by former owners or operators or migrating from adjacent properties. However, property owners may qualify for defenses against CERCLA liability as “innocent landowners,” “bona fide prospective purchasers” or contiguous property owners if, before acquiring the property, they conducted “all appropriate inquiries” into its environmental condition and, after the acquisition, they took reasonable steps to prevent its condition from worsening.

The 2002 CERCLA amendments directed the EPA to establish due diligence standards for purposes of the defenses and grants. EPA finalized its All Appropriate Inquiries (“AAI”) Rule in 2005.1 The 2005 AAI Rule was based on ASTM’s Phase I standard then in effect, but it added some more stringent elements, such as interviews with past and adjacent property owners and occupants, as well as updates of Phase I reports prepared more than one year prior to acquisition. ASTM then issued a revised standard E1527-05 to conform to the AAI Rule.

Effect on the Prior Phase I Standard

In 2013, ASTM (now known as “ASTM International”) undertook an update of its Phase I standard, which EPA proposed to add to its AAI Rule. Initially, EPA proposed merely to add the new standard E1527-13 while allowing purchasers the option of either utilizing it or continuing to rely on the existing E1527-05 standard. Commenters strongly objected that retaining both standards as alternatives would cause confusion and undercut the new standard, particularly since it incorporates additional stringent (and more costly) features as described below. ASTM issued E1527-13 in November 20132 and, on December 30, EPA amended the AAI Rule to incorporate the final standard.3 Nevertheless, EPA agreed with the comments and announced that, while it could not delete E1527-05 from the rule before separately proposing the deletion for public comment, it intends to propose deleting E1527-05 in the near future. Meanwhile, EPA “strongly encourages prospective purchasers of real property to use the updated ASTM E1527-13 standard when conducting all appropriate inquiries.”4 Accordingly, although in theory purchasers may rely on either E1527-13 or E1527-05 until EPA removes the latter, in practice many are likely to switch to the new standard without awaiting EPA’s action.

Key Changes in the New Phase I Standard

The E1527-13 standard is largely based on the prior standard, but it includes several more expansive requirements now incorporated into the AAI Rule:

Vapor Migration

Vapor migration – that is, the migration of hazardous substances in gaseous form through the soil and potential migration through the building floor into indoor air – has become a significant concern for property owners (and, in particular, for commercial landlords) in recent years. The new standard specifies that vapor migration must be addressed in Phase I investigations. Although EPA now asserts that “vapor migration has always been a relevant potential source of release or threatened release,”5 many practitioners did not regard it as a necessary component of Phase I reports under the prior standard. Property sellers, purchasers and environmental consultants are now on notice that vapor migration is a significant consideration and this analysis will become more commonplace. Vapor migration does not necessarily follow the same path as groundwater plumes, and preferred pathways such as utility corridors may complicate the analysis. In many instances, sufficient information may not be available to determine the risk of vapor migration from adjacent property.

Consultants may be more likely to identify a Recognized Environmental Condition (“REC”) based on vapor migration risk and to recommend vapor screening or other Phase II site investigations to assess the risk, requiring additional cost and time. These types of investigations often present complicated technical and legal issues for both buyers and sellers that should be carefully evaluated before proceeding. Because the AAI Rule and E1527-13 rely to a great extent on the professional judgment of consultants in identifying RECs and making recommendations for further assessment, buyers and sellers should give careful consideration to the selection of qualified consultants to perform their Phase I investigations. In addition, where contamination cleanup has already occurred, regulatory agencies may not have considered vapor migration when issuing “no further action” letters based on low concentrations remaining in soil or ground water. In some cases, under the new standard, Phase I ESA reports may identify vapor-related conditions despite the issuance of no further action letters.

Agency File Reviews

The new standard requires the consultants who prepare Phase I reports to conduct reviews of regulatory agency files and records, in order to document the validity of information obtained from online databases such as CERCLIS. In the past, some consultants have relied on database searches and not conducted follow-up agency file reviews. The new standard requires the Phase I report to include a specific explanation justifying the failure to conduct a review, if the consultant believes it is not necessary. Alternatively, information from other sources (such as interviews with regulatory agency staff) may be relied on if reviewing agency files is infeasible. Depending on the availability of agency files, the more rigorous review requirement may add significantly to the time and cost of preparing a Phase I report. If online databases indicate potential releases at the site or adjacent sites, and agency files are not available within the transaction timeframe, Phase I reports will be more likely to identify a REC and/or recommend follow-up agency file review.

Historical and Controlled Conditions

Under the prior standard, Phase I reports identified certain site conditions as “Historical” if past releases of hazardous substances have been addressed in accordance with regulatory requirements. This category included both property cleaned up to a level allowing unrestricted use and property where contamination was permitted to remain subject to ongoing controls, such as deed restrictions prohibiting residential development. The new standard divides the old “Historical” category in two: “Historical” where unrestricted use is permitted, and “Controlled” where institutional controls or restrictions must be maintained. For many commercial and industrial properties where prior cleanups were completed to non-residential standards, the Controlled Recognized Environmental Condition finding will apply, due to the prohibition on residential use.

De Minimis Conditions

The new standard also adds a definition of “de minimis conditions” that do not present a threat to human health or the environment or trigger regulatory action. Such conditions should be disclosed in Phase I reports but are not considered RECs.

Implications for Real Property Transactions

Commentators were concerned that EPA’s original proposal, allowing reliance on either the old or the new standard, would lead to many property owners and lenders opting for the prior, less time-consuming and expensive version. This appears less likely now that EPA has announced its intent to eliminate confusion by deleting the old standard from the AAI Rule. Moreover, EPA strongly encourages use of the new standard and views the prior standard as no longer conforming to best practice as identified by ASTM.

Nevertheless, it is worth keeping in mind that the AAI Rule is intended to support specific statutory defenses to CERCLA liability for property owners, and it in no other way obligates purchasers or lenders to conduct any specific level of environmental due diligence. In circumstances where a prospective purchaser may not otherwise be able to qualify for one of the defenses, there may be less incentive to meet the more stringent new requirements, e.g., for review of regulatory agency files (especially when little time remains before a closing date). Lenders are covered by a separate provision of CERCLA for secured creditors, which does not require compliance with the AAI Rule. Ultimately, the behavior of parties to real estate transactions will be determined by their underlying reasons for seeking information about environmental contamination. For many, the largest motivating factor is the need for sufficient information to negotiate the purchase price and other terms reflecting the condition of the property. Market forces on purchasers, sellers, lenders, insurers and consultants led to the establishment of the original ASTM Phase I standard long before the 2002 CERCLA amendments. With all that said, though, those purchasers who can qualify for the CERCLA defenses may have good reason to comply with the new E1527-13 rather than the previous E1527-05 standard. When the new E1527-13 standard is used, greater scrutiny of vapor migration risk and increased lead time for regulatory agency file review should be anticipated as part of environmental due diligence.

We would like to thank Joseph Ferranti of InDepth Corp. for contributing to the publication.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.