estate attorneys, and environmental consultants. It is advisable to task your legal counsel with retaining your environmental consultant and managing that relationship. Not only does this allow for the environmental consultant’s opinions to be protected from discovery by the attorney-client privilege,6 but it also allows you to have greater control over the outcome of the environmental consultant’s determination. Additionally, environmental consultants typically provide a “form” engagement agreement including a job-specific scope of work mixed with other more general ‘form’ provisions that, if left unnegotiated, may severely limit the environmental consultant’s liability. You will be well-served to have your legal counsel negotiate the environment consultant’s agreement to best protect you, or at a minimum, to make you aware of any deficiencies or limitations in the agreement. In addition to liability limitations, consulting agreements often attempt to limit the timeframes for asserting claims potentially impacting otherwise applicable statutes of limitations or to narrow the scope of the investigation, precluding the availability of the AAI defenses. Once retained with the properly negotiated agreement in place, the environmental consultant will likely begin the due diligence process with a Phase I Environmental Site Assessment (“ESA”). Typically, a Phase I ESA is conducted to meet the requirements for AAIs established under CERCLA and set out in the U.S. Environmental Protection Agency’s (“EPA”) regulations. A Phase I ESA is limited to a historical and “above surface” investigation.7 While there are many benefits to environmental due diligence, the biggest benefit for prospective property owners is protection from liability for environmental risks, including liability under CERCLA. In short, CERCLA addresses the cleanup of uncontrolled or abandoned hazardous waste sites, as well as accidents, spills, and other emergency releases of pollutants and contaminants into environmental media (e.g., soil, groundwater, surface water, sediment). A party may be liable under CERCLA for cleaning up hazardous substances located at a property that it owns or operates even if the party did not own the property at the time the hazardous substances were released.8 CERCLA grants EPA, or under certain circumstances, private parties, the authority to sue any current owner or operator of a contaminated property for costs associated with cleanup.9 It is worth noting that past owners and operators are generally only liable if they owned the property at the time the hazardous substances were disposed of or otherwise released.10 Property owners, and even lessees,11 may avoid liability, however, by conducting proper environmental due diligence. When CERCLA was amended in 1986, the “innocent landowner defense” was established, which creates a shield to liability if the owner “did not know and had no reason to know” about the contamination on the property prior to the
purchase. When CERCLA was amended again in 2002, new liability protections were added, and the existing innocent landowner defense was clarified. Under the 2002 amendments, the liability protections were extended to parties who qualify as bona fide prospective purchasers, contiguous property owners, or innocent landowners who conduct AAIs into the potential contamination of the property.12 Because the liability protections are self-implementing, all an entity must do to receive the protections provided by the amendments is comply with the requirements of the statute. Importantly, there are different conditions for each of these landowner types.13 However, there are also overlapping threshold criteria and ongoing obligations, or common elements, that all three landowner types must meet in order to obtain the liability protections afforded under CERCA. The performance of AAIs is one such common element. 40 C.F.R. § 312.20 contains the requirements for AAIs, including (1) a Phase I ESA, (2) the collection of information about the property, and (3) searches for recorded environmental cleanup liens. The collection of information about the property includes (1) interviews with past and present owners, operators, and occupants, (2) searches for recorded environmental cleanup liens, (3) reviews of federal, tribal, state, and local governmental records, (4) visual inspections of the facility and of adjoining properties, and (5) the declaration by the environmental professional providing the Phase I ESA.14 AAIs must be conducted within one year prior to the date of acquisition of the property,15 and the information collected during the environmental due diligence period must be updated within 180 days of, and prior to, the date of acquisition of the property.16 It is important to note, however, that a Phase I ESA can, but does not always, satisfy the AAIs. For example, a prospective purchaser must also conduct a search for any recorded environmental cleanup liens and any activity-use limitations on the property. Most Phase I ESA agreements will exclude such a review. For this reason, it is important to have legal counsel manage the relationship with the environmental consultant to ensure all requirements of the AAIs have been satisfied. Based on the results of the Phase I ESA, additional investigation may be necessary to better understand the type and extent of any releases or potential releases. Typically, a finding of a recognized environmental condition, or REC, will lead the environmental consultant to recommend additional work be performed. This additional investigation is conducted via what is typically referred to as a Phase II ESA. The Phase II ESA is an investigation that often requires collection and analysis of environmental and other media samples (e.g., soil, groundwater, electrical equipment, insulation).17 A good reference of distinction between a Phase I ESA and a Phase II ESA is that a Phase I ESA is aboveground and a Phase II ESA is underground (or sub-surface).
Published in eReport, Winter 2025 © 2025 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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