Transactional Environmental Due Diligence - What Diligence is Due

01/05/2010

Enacted in 1980, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) discouraged parties from acquiring, financing, and developing contaminated properties - so-called Brownfields - by dramatically changing the scope of liability and corresponding risks for parties dealing with such properties. In the 2002 Small Business Liability Relief and Brownfields Revitalization Act (the “Brownfields Amendments”), Congress encouraged brownfields development by, among other things, providing relief to small businesses and funding for contaminated properties. More significantly, however, the Brownfields Amendments added defenses for prospective purchasers of Brownfields and directed EPA to promulgate new standards for the type of environmental due diligence - or “all appropriate inquiries” (AAI) - required to obtain those types of defenses.

On November 1, 2005, EPA promulgated its final AAI rule, which is codified at 40 CFR Part 312. Although the AAI rule has become a de facto standard for environmental due diligence, the scope of AAI may not correspond to what is appropriate or prudent from a business perspective. This article briefly identifies environmental concerns, provides background on CERCLA, analyzes the changes made by the Brownfields Amendments, discusses the scope and limitations of the Brownfields Amendments’ AAI standard, and makes some practical recommendations regarding environmental due diligence.

Main topics include:

  • Environmental Liabilities of Concerns
  • Differences between Stock and Assets Acquisitions
  • CERCLA “All Appropriate Inquiry (“AAI”)”
  • Common Elements
  • Shortcomings of AAI
  • Recommendations - A More Tailored Approach

To read the full article, click on the PDF linked below.

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