23 rd annual real estate symposium snowmass village colorado n.
Skip this Video
Loading SlideShow in 5 Seconds..
23 rd Annual Real Estate Symposium Snowmass Village, Colorado PowerPoint Presentation
Download Presentation
23 rd Annual Real Estate Symposium Snowmass Village, Colorado

Loading in 2 Seconds...

play fullscreen
1 / 36

23 rd Annual Real Estate Symposium Snowmass Village, Colorado - PowerPoint PPT Presentation

  • Uploaded on

23 rd Annual Real Estate Symposium Snowmass Village, Colorado. The New Rules for Environmental Assessments in Real Estate Transactions by John R. Jacus Davis Graham & Stubbs LLP July 30, 2005. Small Business Liability Relief and Brownfields Revitalization Act of 2002.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about '23 rd Annual Real Estate Symposium Snowmass Village, Colorado' - bailey

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
23 rd annual real estate symposium snowmass village colorado

23rd AnnualReal Estate SymposiumSnowmass Village, Colorado

The New Rules for EnvironmentalAssessments in Real Estate TransactionsbyJohn R. JacusDavis Graham & Stubbs LLPJuly 30, 2005

small business liability relief and brownfields revitalization act of 2002
Small Business Liability Relief andBrownfields Revitalization Act of 2002
  • Additional CERCLA defenses established
  • Made EPA create a federal standard for “all appropriate inquiry” in ESAs
  • EPA initiated a negotiated rulemaking which led to a proposed rule, published at 69 Fed. Reg. 52542 (August 26, 2004)
  • Final Rule expected by end of 2005
the aai rule
The AAI Rule
  • Substantially alters the conduct of ESAs
  • Affects eligibility for new CERCLA defenses
  • Creates unprecedented “continuing obligations” for owners to retain their defenses
presentation overview
Presentation Overview
  • Compares AAI to current practice
  • Reviews the expanded defenses and criteria for eligibility
  • Reviews proposed revisions to ESA standards and procedures
  • Notes key issues and practice pointers to avoid common pitfalls
esa definition purpose
ESA Definition & Purpose
  • Systematic evaluation of property
  • To determine contamination/other conditions
  • that can create liability, remedial obligations, development restrictions, unanticipated costs and delays.
  • Ouch.
phase 1 esas
Phase 1 ESAs
  • ASTM Standard Practice E 1527-00, most common, a minimum Phase 1
  • Created to satisfy “all appropriate inquiry” standard and invoke “innocent purchaser” defense in SARA amendments of 1986
  • ASTM-equivalent Phase 1 ESAs routinely required by lenders, buyers, etc.
astm phase 1 esas
ASTM Phase 1 ESAs
  • Looks at past ownership and uses of property in a checklist approach
  • To identify “recognized environmental conditions,” or hopefully, their absence.
  • Unless modified, it is limited to CERCLA hazardous substances and petroleum only
items not covered by astm
Items Not Covered by ASTM
  • Wetlands and endangered species
  • Cultural & historic resources
  • Regulatory compliance
  • Industrial hygiene/health & safety
  • Asbestos & Radon
  • Lead-based paint/lead in water systems
  • Indoor air quality
astm phase 1 coverage
ASTM Phase 1 Coverage
  • Includes petroleum
  • Draft Standard Practice E 1527 for 2005 to include mold
  • Buyer/User of ASTM Standard Practice must request add-ons, determine if sampling (Phase 2) is warranted, etc.
  • Be aware of other standards, e.g., for raw land, agricultural lands
why perform esas
Why Perform ESAs?
  • CERCLA liability defenses
  • Lender requirements
  • Insurer requirements
  • Brownfields funding requirements
  • Seller evaluation of sale potential
  • Avoid delays and restrictions (later on)
  • Protect Buyer’s interests
you need to understand esas
You Need to Understand ESAs

Because you…

  • Are on the Front Lines
  • Contract for ESAs
  • Control timing of deal (?)
  • Are in the best position to know proper scope of ESA to meet the client’s needs; and
  • Lenders/insurers/investors will require them.
current practice astm phase 1
Current Practice: ASTM Phase 1
  • CERCLA’s broad liability net prompted need for an “innocent purchaser” defense
  • SARA amendments to CERCLA created it
  • Defense requires that owner show it “had no reason to know” of hazardous substances by
    • Having made “all appropriate inquiry”
    • Prior to or at time of acquisition
    • Into previous ownership & uses of property
    • Consistent with good commercial or customary practice to minimize liability
astm phase 1 standard
ASTM Phase 1 Standard
  • To satisfy original AAI, developed requirements and procedures for:
    • Site public records review
    • Interviews
    • Site inspections
    • Identifying Recognized Environmental Conditions
    • What comprises Final Phase 1 Report
astm a checklist approach
ASTM a Checklist Approach
  • Series of questions about the property
  • Answered in light of information gathered
  • Answers which tend to indicate a non-de minimis Recognized Environmental Condition elevate the inquiry
    • Phase 2 sampling & analysis
    • Reporting and remediation, etc.
2002 brownfields amendments
2002 Brownfields Amendments
  • Expanded CERCLA defenses to:
    • Amend innocent landowner defense
    • Add bona fide prospective purchaser defense
    • Add contiguous property owner defense
amended innocent landowner defense
Amended Innocent Landowner Defense
  • Must demonstrate that:
    • Did not know and “had no reason to know” of contamination prior to purchase
    • Acquired property after all disposal of hazardous substances
    • Satisfied AAI and “continuing obligations” (new)
bona fide prospective purchaser defense
Bona Fide Prospective Purchaser Defense
  • May purchase property with knowledge of contamination, but must show:
    • Purchase occurred after January 11, 2003
    • Acquired property after disposal of hazardous substances, and
    • Satisfied AAI and “continuing obligations”
contiguous property owner defense
Contiguous Property Owner Defense
  • Must demonstrate that:
    • Had no knowledge of contamination prior to acquisition (if this not possible, BFP defense still a possibility), and
    • Satisfy AAI and “continuing obligations”
  • Statutory language attached at Appendix 2
aai s statutory criteria
AAI’s Statutory Criteria
  • All of the Federal Brownfields Law’s new or expanded defenses are subject to 10 criteria specified in the Act.
  • They are:
    • Inquiry by environmental professional
    • Interviews of present and past owners/operators/occupants
    • Review of historical sources
ten criteria cont
Ten Criteria (cont.)
  • Review of governmental records (may incl. local)
  • Search for clean-up liens
  • Visual inspection of property, adjoining parcels
  • Account for “specialized knowledge” of acquirer
  • Relationship of price to value uncontaminated
  • Consider commonly known/reasonably ascertainable information, and
  • Degree of obviousness of likely contamination, ability to discover by investigation
aai defined 3 ways
AAI: Defined 3 Ways
  • For properties acquired before May 31, 1997, prior CERCLA factors and case law applies
  • If purchased on or after 5-31-97, ASTM Standard Practice E 1527 (Phase 1) applies as interim standard, until
  • EPA promulgates AAI Rule with 10 criteria, which then applies.
additional requirements of aai rule as proposed
Additional Requirementsof AAI Rule as Proposed
  • Must meet certain threshold criteria, and
  • Must satisfy certain continuing obligations not previously imposed on owners, if defenses are to be and remain available.
threshold criteria
Threshold Criteria:
  • No affiliation with the party liable for the contamination
  • Conducting “all appropriate inquiries” prior to the acquisition into prior uses and condition of the property, and
  • Duly reporting any detected hazardous substance release.
continuing obligations
Continuing Obligations:
  • Complying with land use restrictions
  • Not impeding effectiveness of institutional controls
  • Providing cooperation, assistance and access to EPA and state agencies with CERCLA authority
  • Complying with CERCLA information requests
continuing obligations cont
Continuing Obligations (cont.)
  • Taking reasonable steps to:
    • Stop continuing releases
    • Prevent future releases, and
    • Prevent or limit human or natural resource exposure (not defined).
some key aai rule issues
Some Key AAI Rule Issues
  • Who is a Qualified Environmental Professional?
  • Addressing Data Gaps
  • Obviousness/Ability to Detect Contamination through AAI
  • Comparing Price to Value Absent Contamination
  • Interviews
  • Use of Prior Assessments
  • Reporting Discovered Releases
who is a qualified environmental professional
Who is a Qualified Environmental Professional?
  • P.E. or P.G. plus 3 years full-time relevant experience
  • Government-certified for ESAs plus 3 years experience
  • B.S. in Eng’g, Env. Science or Earth Science plus 5 years experience
  • Other bachelor’s degree plus 10 years exp.
addressing data gaps
Addressing Data Gaps
  • Missing documentation or suggested but unconfirmed contamination
  • AAI Rule requires EPs to identify these gaps
  • Some commenters suggest a Phase 2 should always follow identification of such a gap
obviousness ability to detect contamination through aai
Obviousness/Ability to Detect Contamination through AAI
  • Requires evaluation of property information in its totality
  • To ascertain possible releases
  • Does not require sampling per se
  • EP must opine on need for additional investigation – lots of discretion.
comparing price to value absent contamination
Comparing Price to Value Absent Contamination
  • Some commenters oppose this requirement
  • Statute requires this consideration
  • Some commenters want formal appraisal
  • EPA not decided until final rule
  • Current owner and occupant
  • To extent necessary, current and past facility managers, past owners, occupants or operators and their employees
  • For abandoned properties, owners or occupants of neighboring, nearby parcels
  • Local officials only if satisfying “commonly known/reasonably ascertainable requirement
use of prior assessments
Use of Prior Assessments
  • Previous ESAs in compliance with rules in effect at the time may be considered if:
    • Information collected/updated within 1 yr. of purchase
    • Certain info. (interviews, lien searches, government records review, inspections and EP declarations) must be obtained/updated within 6 mos.
    • Info. updated to include changes in conditions, specialized knowledge/experience, price and commonly known/reasonably ascertainable information
    • ESA for 3rd party special knowledge, price and commonly known/reasonably ascertainable info. added
reporting discovered releases
Reporting Discovered Releases
  • Required for expanded defenses
  • Often unclear what is prior release
  • Some reporting on very short fuse, requires RQ determination, possibly sampling, etc.
  • Confidentiality expectations at odds
  • Have access to help in making these determinations quickly
selecting an ep
Selecting an EP
  • Choice should reflect need for experience, professional judgment
  • Also should consider:
    • E&O coverage in addition to general liability?
    • Claim limits of $1 million plus?
    • Issued by A-rated carrier?
    • Can supply 5 or more solid references?
    • Provides a sample report?
final rule by end of 2005
Final Rule by end of 2005
  • Know what you’re getting in an ESA
  • Hire qualified EP familiar with ASTM & AAI Rule
  • Allow adequate time for ESA & don’t count on using prior ESAs
  • Don’t stop short of AAI
  • Be mindful of reporting obligations
  • Document post-ESA reasonable steps and continuing obligations

Call, fax or email me at

  • Ph. 303-892-7305
  • Fax 303-893-1379
  • Email john.jacus@dgslaw.com