LEGAL Geologist with three years of relevant experience; (2) an individual with a scientific degree and five years of relevant experience; or (3) an individual having 10 years of full-time relevant experience in conducting environmental site assessments and related activities. The Rule requires Environmental Professionals to document two critical issues in their written due diligence reports. They must certify that they meet the definition of an Environmental Professional, and they must affirmatively state that they have developed and performed the due diligence investigation in conformance with the standards and practices set forth in the Rule. Performance factors are incorporated into the Rule and are now part of the due diligence process. These performance factors require an Environmental Professional to: (1) obtain sufficient information required for each standard and practice that is publicly available and obtainable from a source within a reasonable time and cost constraints; and (2) to review and evaluate the thoroughness and reliability of information gathered in complying with each standard and practice. If an Environmental Professional or person conducting due diligence determines through their review and evaluation that the information is not thorough or reliable, further inquiries must be made to ensure that the information meets these requirements. An important concept incorporated in the Rule is the requirement that Environmental Professionals identify "data gaps" which are defined as a lack of, or inability to obtain, information required by the standards and practices despite good-faith efforts to gather the information. Moreover, Environmental Professionals are required to comment upon the significance of the data gaps with regard to their ability to identify conditions on a property, and they are to provide an opinion as to whether there are releases of hazardous substances or the presence of environmental conditions. Environmental Professionals will be also required to identify the sources of information they used to collect the required information to address or fill data gaps. Although the Rule does not require that intrusive investigations (such as soil or groundwater sampling) be conducted to address data gaps, the preamble to the Rule notes that one way to address data gaps is to conduct sampling to determine the presence, and the scope and extent of potential contamination on property. An important consideration for all prospective purchasers complying with the Rule in connection with how EPA will evaluate their liability for environmental conditions is reflected in EPA's comments in the preamble to the Rule. Specifically, EPA observes that should an environmental condition or release (on, at, in, or migrating to a property) not be identified during the due diligence investigation, that landowners will still be obligated to undertake all "reasonable steps" to stop a release, prevent a threatened release and prevent any exposure to releases or threatened releases. By way of example, EPA notes that if a leaking underground storage tank is not identified during the course of a due diligence investigation, the landowner will still be obligated to take reasonable steps to stop ongoing releases after acquiring the property. In short, conducting a due diligence investigations under the Rule does not shield purchasers from post-acquisition obligations to take reasonable steps under Superfund (which could include remedial efforts). Nevertheless, compliance with the Rule should serve as an affirmative defense to minimize the scope and extent of liability. Another consideration relevant to purchasers is the fact that compliance with the Rule alone does not provide an absolute defense to, or a limitation of, Superfund liability. In order to qualify under the statute as a "Bona Fide Prospective Purchaser", "Innocent Landowner" or a "Contiguous Property Owner", all of whom have a potential defense to Superfund liability, a person must comply with other statutory requirements such as: complying with land use restrictions, not impeding the integrity of institutional controls, taking reasonable steps with respect to, or preventing or abating, releases, providing cooperation and access to EPA, complying with EPA information requests, and providing legally required notices under Environmental Laws. In addition to the objective performance standards contained in the Rule, it also contains subjective criteria which EPA and the Federal Courts will consider in evaluating whether liability is warranted. In brief, the Rule requires that the specialized knowledge of prospective purchasers, and persons responsible for undertaking all appropriate inquiry, be taken into account when conducting due diligence for the purpose of identifying conditions indicative of a release at a property. Existing case law demonstrates that the "specialized knowledge factor" will include an analysis by the Federal Courts as to the professional or personal experience of a party claiming the innocent landowner defense under Superfund. In addition, the Rule requires prospective purchasers to consider the relationship of the purchase price to the fair market value of the property, in determining whether a property may be contaminated. As a result of EPA's issuance of the due diligence Rule, ASTM International adopted a revised Phase I Environmental Site Assessment Standard in 2005 (ASTM E1527-05). EPA has acknowledged that the revised 2005 ASTM Standard is consistent and compliant with EPA's Rule and can be used to comply with the provisions of the Rule. A review of EPA's Rule, and the revised ASTM Standard E1527-05, demonstrates that the scope of environmental due diligence, and the methods by which it is conducted, will not only expand, but that adherence to the Rule will be absolutely critical to ensuring that all environmental conditions are identified and evaluated in order to assess and minimize liability. Moreover, the selection of an Environmental Professional will also be an important factor in all transactions if sellers, purchasers, developers, and lenders wish to ensure compliance with the Rule and meaningful evaluations as to the scope and extent of environmental risk. Due diligence investigations will require more time and money, and in complex transactions, it will be absolutely critical to ensure that environmental counsel is managing the due diligence process and the work conducted by the Environmental Professional. It is recommended that parties involved in mergers and acquisitions, divestitures, real estate development, commercial lending and project finance, review their existing due diligence policies and procedures to determine what modifications are necessary to comply with the Rule. 16 · MarineNews · December, 2006
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