Bona Fide Prospective Purchasers and the AAI Standard

On January 3, 2002 congress passed the “Small Business Liability Relief and Brownfields Revitalization Act.” As part of this act congress created a legal protection for future owners of portions of CERCLA sites called the Bona Fide Prospective Purchaser that exempts the Bona Fide Prospective Purchaser from liability for the historic contamination and any underlying groundwater plumes if the conditions of the act are met:

• All disposal of hazardous substances at the facility occurred before the “person” acquired the facility.
• All appropriate inquires into the previous ownership and uses of the facility were made.
• The “person” is in compliance with all land use restrictions and institutional controls established or relied on.
• The standards of cooperation, assistance, and access, care and notices as cited in the CERCLA amendment are complied with.
• Acquired property after January 11, 2002

This past winter, EPA expanded these protections to tenants using “Enforcement Discretion Guidance.” It is unclear how these guidelines will impact synthetic leases and land leases. It may be prudent for tenants to establish their own eligibility as a BFPP.

The AAI standard is an ASTM 1527-05 standard Phase I ESA. This consistent standard for AAI provides a way to ensure that the protections of a "Bona Fide Prospective Purchasers" under CERCLA are in fact obtained and a "good" due diligence is available when necessary. Before the 2005 revisions to the ASTM 1527 standard the quality of Phase I ESA reports had deteriorated significantly in the market place. Though there were always quality firms producing good product, much of the industry became price driven.

In order to compete on price for a market primarily driven by lenders (no one seemed to get a Phase I ESA unless they were trying to obtain a loan) more and more cursory reports were generated. As with the deterioration in underwriting standards less and less qualified individuals were performing less and less due diligence and calling it a Phase I ESA. Various lender regulatory organizations required Banks to have an environmental risk management policy, and the Bank examiners verify the consistency of application of the policy. However, no quality control of the actual due diligence was performed. Banks’ loan policies required performing an environmental due diligence, unless there was central control of quality and intent, the field found the cheapest way to meet that requirement with the least likelihood of finding a problem (can’t book a loan if the collateral is impaired). The low I observed was when someone slapped a cover on a database report and called it a Phase I ESA. The AAI standard ASTM 1527-05 restores the Phase I ESA report to a useful product.

The problem with AAI can be the cost for smaller properties that were once a portion of a larger site. With this standard available, the Bona Fide Pre Purchaser route has effectively become the only way to obtain the necessary protections of a CERCLA release from liability to make a property viable as collateral. For a known and complicated NPL site the cost of meeting the AAI standard for a small parcel could be prohibitive. Trying to obtain the protections provided under the by the amendments to CERCLA under the Bona Fide Prospective Purchaser for a very small property in that will occupy a tiny portion of a former industrial site. Because of the requirement under the AAI to review all government records and the size of the regulatory files for the site, the costs associated with AAI can be prohibitive in the instance when it will provide true protection. What we really need is for the responsible party or redevelopment agency to provide the AAI for these small parcels and certified summary of the file history so any future additions to the file can simply be reviewed on a new report. It should also be recalled that this protection only applies to CERCLA liability. There are other forms of environmental liability and causes of environmental impairment that are far more common and have nothing to do with CERCLA.