All Appropriate Inquiry (AAI) rule celebrates first birthday

On November 1, the All Appropriate Inquiry (AAI) Rule celebrated its first birthday. By now, most people preparing or ordering a phase one (1) environmental site assessment (ESA) are familiar with the new standards. This rule mandated by Congress and issued by the federal Environmental Protection Agency (EPA) was established to implement a greater level of due diligence when buying real estate. The new rule also provides purchasers with an Innocent Land Owner defense should an environmental issue arise after taking title to the property. The American Society of Testing Materials (ASTM) 1527-05 is the latest version of the ASTM standards (also released last November) and meets the AAI protocols The prior standard which is still utilized is the 1527-00 or millennium standards. Now that the rule has been around for almost two years (including a 1 year draft period) consultants and clients have a better understanding of the nuances within the standard. Some of the sections of the new rule have been easy to fulfill while other sections have been more challenging. Issues such as the involvement of the end user's participation in the final preparation of the report still present a concern to many consultants. A recent survey conducted by a database company indicated that less than 65 % of users are willing to complete the questionnaire or be part of an interview process. When this occurs, the consultant must outline the lack of cooperation within the report to limit their liability. Hopefully over time, all parties will understand the benefit of a cooperative effort when evaluating the piece of real estate during the preparation of an AAI report. As time marches on, more and more lenders are adopting the new standards when ordering environmental reports. Their legal departments have also played a role in advising of the benefits AAI provides since it is considered the current standard of care. Most lenders have an approved list of consultants in which they order the reports from. Some lenders will instruct the borrower to contact one of the approved consultants directly. In certain situations, lenders may have different teams or offices in several geographical areas which can present a challenge to consultants if each office operates independently and require different style reports. Larger banks and other lending institutions such as life insurance companies and Wall Street firms may have an in-house environmental person to determine which standard will be required as well as manage the approved list of consultants. There are approximately ten key changes to the new AAI style report which would need to be included for the report to meet the AAI definition. Many lenders have master contracts in which the consultants adhere to the requirements of the contract on each transaction. However, many real estate investors rely on a phase 1 report during their due diligence when deciding to buy a particular piece of property. Without the benefit of a lawyer familiar with the AAI report or having ordered one before, the perspective buyer can be at the mercy of the consultant's understanding of the new rule. Clients should check their contracts to see if the consultant is including everything required or billing in an "a la carte style" which can make it difficult to establish what the final cost of the report will be. The best way to avoid conflict is to agree up front how these changes to the AAI rule will be addressed and what the associated costs are. The AAI changes affect key issues such as environmental lien searches, additional historical sources to be reviewed, interviews of prior owners and adjacent property owners, etc. In addition, the new standard has identified what qualifications are required for an environmental professional (EP). Perspective users of AAI reports should interview the firm/individual about the qualifications they posses and how many AAI reports they have prepared. On the first anniversary of the rule, the end user should be confident the consultant preparing the report has adequate experience and expertise in the not so new AAI standard. Chuck Merritt is the director of environmental operations for
Merritt Engineering, Melville, N.Y.