All Appropriate Inquiries in Commercial Real Estate Due Diligence: What Inquiring Minds Need to Know

The U.S. Environmental Protection Agency (EPA) made a rule in 2006 called “All Appropriate Inquiries” (AAI), which sets rules for checking for environmental issues when buying or selling commercial property. This rule is important to protect buyers and sellers from being responsible for cleaning up hazardous substances on a property. It’s important to follow these rules to avoid legal trouble. The purpose is to make sure that people know about any environmental issues on a property before they buy or sell it. In response to high costs of cleaning up contaminated properties, Congress created a fund to help cover the costs for buyers. However, owners and operators are still held responsible for the costs even if they didn’t cause the contamination. To avoid liability, they must conduct “all appropriate inquiries” before buying a property. The EPA set up standards for what this means, and the ASTM created a standard to help buyers and sellers comply with the rules. To avoid liability under CERCLA, a buyer or seller must show that they didn’t know about hazardous substances on the property when they bought it. They can do this by doing a thorough investigation before buying the property. This investigation is called “all appropriate inquiries.” It’s important to remember that following the EPA’s rules for this investigation is just one part of avoiding liability. There are other ongoing responsibilities, like giving access and information about the contaminated property. Also, the EPA’s rules only apply at the federal level, not at the state and local level. If you want to buy or sell contaminated land in Florida, it’s important to follow certain rules to protect yourself from liability. These rules include proving that you didn’t cause the contamination, didn’t know about it, and took steps to investigate the property before buying it. There are also specific defenses available under Florida law, such as acts of war or acts of God, that may help protect you from liability. It’s important to do your research and follow the laws to avoid legal problems when dealing with contaminated land. The new AAI rule has specific standards for who can qualify as an environmental professional. They need a certain amount of experience and possibly a science or engineering degree. The environmental professional must also stay current in their field and have participated in environmental site assessments.

Now, there must be a written report documenting the results of all appropriate inquiries, and the environmental professional must sign two declarations stating they meet the qualifications and that the standards and requirements have been carried out successfully. The new rule requires an environmental professional or someone under their supervision to interview past and present owners, occupants, and others related to the property. They also must conduct on-site visual inspections of the property. In some cases, the owner may refuse access, but the environmental professional must make a good faith effort to inspect the property. The goal is to identify any potential environmental hazards. The defendant in a CERCLA case (a law about hazardous substances) has to include any specialized knowledge they have about a property when they are trying to defend themselves. The court will consider this when deciding if they did everything they were supposed to. For example, if someone knew about past activities on a property that could have caused pollution, they can’t claim they didn’t know the property was contaminated. The defendant doesn’t have to tell the environmental professional about their knowledge, but the professional has to mention it in their report and ask if not sharing the info means there’s pollution on the property. The new rule still requires a comparison between the purchase price and the fair market value of a property, even if it’s not contaminated. This has been a rule since 1986. If a landowner is concerned about the value, they can hire someone to evaluate it, but they don’t need to get an official appraisal. The landowner should also consider any commonly known information about the property, like from newspapers or local government officials. This could help identify any potential environmental issues. To figure out if a place might be contaminated, the new rule says we need to look at old records to see how the land was used in the past. This could include things like property records, old maps, and building permits. There’s no specific number of documents we have to look at, but the goal is to make sure we’re doing a thorough investigation. It’s important to search for any environmental cleanup liens to find out if there have been any hazardous substances released on the property. This search can be done by the property owner or an environmental professional. You should also review federal, state, local, and tribal records to see if there are any restrictions or barriers on the property to protect the public. It’s also important to look at other sources like landfill locations, storage tanks, and cleanup sites. After gathering all this information, you should determine if there is contamination on the property or if there needs to be more investigation. It’s not required to take samples of the land at this stage, but it can be helpful. It’s important to do everything you can to identify any harmful conditions on the property. The new rule requires a lot of paperwork to show any missing information about a piece of land before someone buys it. You have to do this within a year before buying the land. If you’ve already done this before, you can use the old paperwork as long as it’s been updated to fit the new rule. The ASTM is a group that publishes the rules and standards to follow for this process. They have updated their standards to match the new rule from the EPA. The new EPA AAI rule and ASTM standard are important for evaluating the environmental impacts on commercial real estate. Buyers, sellers, and environmental professionals need to be familiar with these rules to avoid losing legal protections and potentially diminishing the value of a property. Not knowing the new standards can have serious consequences. Ralph A. DeMeo received his degrees from Stetson University and Florida State University. He is a lawyer at a law firm and has held leadership positions in bar associations.

Source: https://www.floridabar.org/the-florida-bar-journal/all-appropriate-inquiries-in-commercial-real-estate-due-diligence-what-inquiring-minds-need-to-know/