New EPA Due Diligence Standard of Questionable Value in Real Estate Transactions

November 04, 2005

AUSTIN – Jeff Civins, an environmental lawyer since 1975 and leader of the Environmental Practice Group for Haynes and Boone LLP, warned today that new due diligence rules approved Tuesday by the Environmental Protection Agency burden real estate transactions without providing any significant benefit.

The EPA’s new “All Appropriate Inquiries” (AAI) requirements detail investigative steps to be taken when buying land that will let parties in the deal take advantage of defenses allowed under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), or “Superfund.”

According to Civins, also a adjunct professor at the University of Texas School of Law, the rules laid out by the EPA will likely set a new industry-wide standard for minimum acceptable environmental due diligence, but that level of investigation will provide only very limited protections from liability and won’t provide enough information to make an informed decision on the purchase of land.

“Our view is that though the new standard is likely to set an industry practice, blind reliance on that standard is inadvisable,” Civins said.  “Prudent purchasers instead should consider each particular transaction in light of their own risk management objectives.”

Concerns with the new AAI Rule include:

  • The defenses afforded by AAI protect only against Superfund liability and do not protect against liability under other federal environmental laws, state laws or actions under common law. 
  • Transaction-related defenses using AAI apply only to purchasers of land and provide no protections to purchasers in stock acquisitions.
  • Investigations contemplated by AAI do not address numerous concerns that should be addressed as part of a meaningful environmental due diligence, including, among others, petroleum contamination, asbestos, lead based paint, lead in drinking water, wetlands, endangered species and indoor air quality.
  • The requirements of AAI may adversely affect the timing and confidentiality of real estate transactions, as well as adding to their cost. 
  • Purchasers seeking to take advantage of the transaction-related defenses under AAI are still responsible for stopping and preventing releases of hazardous substances and preventing and limiting exposure to them. 

Haynes and Boone, LLP is an international law firm with 10 offices throughout Texas, Washington, D.C., Mexico City, Moscow and New York, providing a full spectrum of legal services to corporate clients around the world.

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