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Final Rule on Environmental Due Diligence Standards Resolves a Dilemma for Real Estate Purchasers and Lenders

January 7, 2014

Environmental due diligence has always been a somewhat murky area. To date, clients and their consultants and lawyers have been guided by the U.S. Environmental Protection Agency’s (“EPA”) due diligence process codified at 40 CFR 312.20. This regulation prescribes the detailed process required to obtain a defense to federal statutory liability and, alternatively, permits land purchasers to use a similar process established by the American Society for Testing and Materials (“ASTM”), specifically ASTM standard E-1527-05. To improve upon its standard, ASTM recently developed a new standard, E1527-13. This seemed fine until, in 2013, EPA both proposed an amendment to 40 CFR 312.20 which would have added the use of E-1527-13 as a means of perfecting statutory liability protection, and then subsequently withdrew that proposal. Fortunately, on December 30, 2013, EPA formally adopted its proposed amendment, effective immediately.
 
The differences between E-1527-05 and E-1527-13 are not purely academic. E-1527-13 standard contains several new requirements. The main new features include: 1) increased attention to possible conditions of indoor vapor intrusion; 2) clarification of whether environmental conditions are fully, partially, or not remediated, or are de minimis; and 3) increased obligations to search for government records and report on the outcome. It is the latter requirement that can add time and cost to a transaction – something purchasers and lenders do not want to hear.
 
While EPA has not yet removed the use of E-1527-05 as a means of satisfying the requirements of 40 CFR 312.20, in its December 30, 2013 preamble it proposed to do so. Therefore, buyers and lenders seeking the statutory defenses to liability would be wise to cease using E-1527-05 immediately, and instead follow E-1527-13. As has always been the case, however, for those conducting environmental due diligence with other goals in mind, there is no single piece of advice on what protocol to follow. Each property is unique in terms of its layout, history of uses and history of actual and possible environmental conditions. Additionally, each transaction is different in terms of its schedule and the goals of the purchaser and lender, ranging from highlighting all possible environmental conditions to minimizing any possible environmental conditions. These considerations and the judgment of the client’s consultant and lawyer dictate how thoroughly to explore and follow up on indications of contamination.

For assistance with environmental due diligence or any other environmental matter, please contact Paul M. Schmidt, Co-chair of Zarwin Baum’s Environmental Practice Group, at 267-765-9636, pmschmidt@zarwin.com.


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