CounterPOINT:
AAI Raising the Bar
By John Watson

Now that the AAI rule has been published, the question is, what do we think about it? Do we like it? Will it contribute to EPA’s goal of encouraging the cleanup, redevelopment and sale of brownfields? Our views on AAI depend upon our vantage point.

Armed with a new and slightly more rigorous definition of “environmental professional,” the environmental consulting community is almost giddy over the prospects of life under AAI. Engineers, geologists and other industry professionals all see the AAI rule as their path to freedom from the shackles of the $1,500 Phase I audit.

Environmentalists like the rule because it promises to return some discipline to the assessment process, including engaging the community in the identification of environmental threats.

The real estate industry likes the final rule because, at least on paper, it looks and feels much like the Phase I standard they have been operating under for a long time. Perhaps the most tepid response has come from the lending community, which views AAI as just one more hurdle to overcome in their challenge to deliver cost competitive products to market.

Many will argue that the changes to Superfund contained in the 2002 Brownfields Revitalization Act (brownfield amendments), out of which EPA’s mandate to develop the AAI rule arose, fell far short of the meaningful reforms necessitated by Superfund’s onerous and arguably inequitable liability scheme.

The crown jewel of the brownfield amendments — the bona fide prospective purchaser defense — represents, however, a major step forward in allowing parties to take title to property with knowledge of contamination without taking on Superfund liability. The trade-off for providing this relief from the bounds of joint and several liability is the obligation, pre-acquisition, to carefully assess and identify, through AAI, potential conditions that could give rise to environmental harm and to take steps, post acquisition, to prevent exacerbation of that harm.

As the liability relief offered under the brownfield amendments has expanded, so have EPA’s expectations to perform meaningful pre-acquisition Phase I environmental site assessments (ESAs). While it is true that the revised ASTM E 1527-05 Phase I ESA does not represent major changes from the prior standard, most observers agree that complying with AAI will require significant modifications to Phase I practices. This is true especially for those in the industry willing to acknowledge the stated fact that more than 90 percent of all Phase I ESAs conducted fall short of compliance with the existing ASTM standard. It is this observation, coupled with the elevated importance of satisfying the far more expansive bona fide prospective purchaser defense, that environmental consultants point to in justifying higher quotes for their Phase I work.

Compliance with AAI will require more rigor and diligence on the part of environmental professionals and more detail and substance in documented Phase I reports. The real question is: Under what circumstances will AAI-compliant Phase I ESAs really be necessary? Unfortunately, no one may be all that anxious to make decisions to depart from AAI without careful legal analysis and some trepidation.

We can also expect state and local regulatory programs to grab onto AAI, thus creating momentum that may not be easy to reverse. It will be quite interesting to see where AAI takes us as we continue with hundreds of thousands of annual pre-acquisition Phase I ESAs. Understanding the benefits of the new liability relief provisions and the requirements of AAI is critical to consultants, lawyers, developers and lenders — now more than ever. BFN

John Watson is a partner at Baker & McKenzie LLP in Chicago. He is also an instructor of NBA’s AAI short course.

POINT: For Inquiring Minds Answers to Your AAI Questions
COUNTERPOINT: AAI Indeed for Inquiring Minds
COUNTERPOINT: AAI a Small Beacon in the Fog of Brownfields

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