All Appropriate Inquiry International Right of Way Association Appraisal Institute Federal Agency Update, January 15, 2009 Presented by Richard A. Maloy, MAI, SRA, JD Maloy and Company, Inc rd Avenue, North Birmingham, AL

Appraisal Institute2 Introduction What is a Brownfield What the Act means to the real estate world Obtaining liability protection as a bona fide prospective purchaser How to coordinate All Appropriate Inquiry

Appraisal Institute3 An industrial or commercial property that remains abandoned or underutilized in part because of environmental contamination or the fear of such contamination What is a Brownfield?

Appraisal Institute4 What is a Brownfield? Real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. U.S. EPA Definition

Appraisal Institute5 What is a Brownfield? Abandoned, idled, or underused industrial or commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. (State of Mass. Environmental Dept.)

Appraisal Institute6 Abandoned Idled Underutilized Commercial Industrial Where redevelopment is complicated Environmental contamination Perceived contamination What is a Brownfield?

Appraisal Institute8 More Terms and Definitions CERCLA - (“Superfund”) Comprehensive Environmental Response, Compensation and Liability Act CERCLA created a tax on the chemical and petroleum industries and provided broad Federal authority to respond directly to releases or threatened releases of hazardous substances that may endanger public health or the environment. Congress established the Superfund Program in 1980 to locate, investigate, and clean up the worst contaminated sites nationwide.

Appraisal Institute9 CERCLIS - Comprehensive Environmental Response, Compensation and Liability Information System CERCLIS is a database listing all the sites managed under the CERCLA program More Terms and Definitions

Appraisal Institute10 RBCA (Rebecca) - Risk Based Corrective Action A streamlined approach in which exposure and risk assessment practices are integrated with traditional components of the corrective action process to ensure that appropriate and cost- effective remedies are selected, and that limited resources are properly allocated. More Terms and Definitions

Appraisal Institute11 RBCA (Rebecca) - Risk Based Corrective Action The goals of a RBCA process are: Protection of human health and environment Practical and cost-effective application of risk-based decision-making Consistent and technically-defensible administrative process More Terms and Definitions

Appraisal Institute12 Remediation - Treatment or cleanup of a contaminated area. Voluntary Cleanup Plan (VCP) - State programs where parties may engage in supervised voluntary cleanup of contaminated sites, and, in return receive certain liability protections. More Terms and Definitions

Appraisal Institute13 Hazardous Material - A substance or combination of substances which because of its quantity, concentration, or physical, chemical or infectious characteristics, may either (1) cause, or significantly contribute to, an increase in mortality or an increase in serious, irreversible, or incapacitating reversible, illness; or (2) pose a substantial present or potential hazard to human health or environment when improperly treated, stored, transported, disposed of or otherwise managed.Such as: Perchloroethylene, BTEX, Asbestos, PCB’s and petroleum products More Terms and Definitions

Appraisal Institute14 The Small Business Relief and Brownfield Revitalization Act of 2002.

Appraisal Institute15 Superfund Amendment affording protection to secured creditors that provide financing for contaminated sites The Small Business Relief and Brownfield Revitalization Act of 2002.

Appraisal Institute16 Creation of liability exemption and EPA enforcement policy not to prosecute owners of land whose groundwater is contaminated from off site sources Liability exemption for Prospective Purchasers of contaminated sites post 2002 The Small Business Relief and Brownfield Revitalization Act of Before After

Appraisal Institute17 5. Brownfield exemption for small business and non-profit organizations responsible for only de minimis waste contribution. 6. Issuance of EPA policies for Comfort letters, no further action letters, RFR certifications (ready for reuse) in situations where liability exemption is not available. The Small Business Relief and Brownfield Revitalization Act of 2002.

Appraisal Institute18 The Small Business Relief and Brownfield Revitalization Act of Petroleum contamination sites are now included as brownfields (were not in the 1997 legislation)

Appraisal Institute19 Landowners who qualify for liability protection and what must they do to qualify A) Bona Fide Prospective Purchasers B) Contiguous Property Owners C)Innocent Party Defense Brownfields Act

Appraisal Institute20 The 1986 Brownfield Amendments had a liability exemption for “innocent landowners” who were able to establish that they purchased property without knowing contamination was present. Practically, purchasers who bought contaminated property also bought into the liability. Bona fide Prospective Purchasers

Appraisal Institute21 The 2002 Act provides statutory exemption for a new “Bona Fide” Prospective Purchaser of a Brownfield site (both owners and tenants) who satisfy pre and post acquisition requirements. These prospective purchasers are exempt from liability even if they learn of contamination before the acquisition. Bona fide Prospective Purchasers

Appraisal Institute22 Bona fide Prospective Purchasers The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that: It did not cause or contribute to the contamination and that all disposal of all contaminants occurred before the date of acquisition

Appraisal Institute23 Bona fide Prospective Purchasers It is not potentially liable or affiliated with the party that caused or contributed to contamination of the site. The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that:

Appraisal Institute24 Bona fide Prospective Purchasers The Prospective Purchaser conducted “all appropriate inquiry” at the time the property was acquired. The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that:

Appraisal Institute25 Bona fide Prospective Purchasers The prospective purchaser has taken steps to limit any effects on human health and the environment (participation in a VCP). The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that:

Appraisal Institute26 Bona fide Prospective Purchasers The prospective purchaser has cooperated with governmental authorities (for example providing access or providing information when requested) The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that:

Appraisal Institute27 Bona fide Prospective Purchasers The prospective purchaser has complied with any governmental agency institutional control requirements (including land use covenants or deed restrictions). The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that:

Appraisal Institute28 Bona fide Prospective Purchasers The prospective purchaser has provided all required notices in connection with site releases. The Bona Fide Prospective Purchaser must establish by a preponderance of the evidence that:

Appraisal Institute29 The 2002 Act exempts a class of owner whose property is or may be contaminated by contiguous or nearby properties. But this exemption exists only to the extent that the contiguous owner was unaware of contamination when it acquired the property. Contiguous Land Owner Defense

Appraisal Institute30 The key is that the source is outside of the property. Contiguous Land Owner Defense

Appraisal Institute31 Contiguous owners are charged with the same seven requirements that apply to the bona fide prospective purchaser except they do not need to show that the acts of disposal leading to the contamination occurred before the owner acquired the property. Contiguous Land Owner Defense

Appraisal Institute32 CERCLA was amended in 1986 to exclude from liability, innocent landowners who conduct pre-acquisition appropriate inquiry and do not find contamination which is later the subject of enforcement action. Innocent Landowner Defense

Appraisal Institute33 Innocent landowners must satisfy the same requirements as the Contiguous Landowner to qualify for the defense. Innocent Landowner Defense

Appraisal Institute34 Appropriate inquiry for this defense is applied on a sliding scale Residential Inspection and title search Industrial/Commercial ASTM 1527 Phase I or AAI Innocent Landowner Defense

Appraisal Institute35 Environmental cleanup costs are fully deductible in the year they are incurred On October 3, 2008, Congress passed, and the President signed into law, the Emergency Economic Stabilization Act of 2008 (EESA) including environmental expense deductibility for tax years 2008 and Brownfield Tax Incentives

Appraisal Institute36 CERCLA 101 (35)(2)(B)(ii) criteria ASTM update of ASTM All Appropriate Inquiry (AAI) Chain of Title Report Environmental Study Results Land Use Records Building Department Records Previous Occupants Sanborn Maps EPA Records Purchase Price

Appraisal Institute37 The Responsibility is on the Prospective Purchaser to perform “All appropriate inquiry” The Environmental Professional can perform part The owner can perform part Brownfields Act

Appraisal Institute38 1.) The results of an inquiry by an environmental professional YES NO All Appropriate Inquiry (AAI)

Appraisal Institute39 All Appropriate Inquiry (AAI) ENVIRONMENTAL PROFESSIONAL Due diligence investigations, under the All Appropriate Inquiry Rule, must be conducted, for the most part, by an "Environmental Professional". Environmental Professionals must have sufficient, specific education, training and experience in order to develop opinions and conclusions regarding the environmental conditions of a property.

Appraisal Institute40 All Appropriate Inquiry (AAI) ENVIRONMENTAL PROFESSIONAL EPA does not license, certify or approve professional certifications by organizations It is the Environmental Professional’s own determination of whether the competency and experience requirements are met. It is the client’s responsibility to select a qualified EP.

Appraisal Institute41 All Appropriate Inquiry (AAI) An Environmental Professional under the Rule includes: a Professional Engineer or Geologist with three years of relevant experience; an individual with a scientific degree and five years of relevant experience; or an individual having 10 years of full-time relevant experience with a college degree.

Appraisal Institute42 All Appropriate Inquiry (AAI) Importantly, Environmental Professionals will be required to include two statements in their written All Appropriate Inquiry Reports. They must certify that they meet the definition of an Environmental Professional, and that they developed and performed the due diligence investigation in conformance with the standards and practices set forth in the Rule.

Appraisal Institute43 2.) Interview past and present owners, occupants or operators of the facility Purpose is to gather information regarding the potential for contamination at the property All Appropriate Inquiry (AAI)

Appraisal Institute44 All Appropriate Inquiry (AAI) 3.) Review historical sources chain of title documents, aerial photographs, building department records, land use records determine previous uses and occupancies of the real property since the property was first developed

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Appraisal Institute48 4.) Searches - recorded environmental cleanup liens against the facility that are filed under federal, state, or local law All Appropriate Inquiry (AAI)

Physical Setting MapDetail Map

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Appraisal Institute51 All Appropriate Inquiry (AAI) federal, state, or local records waste disposal records underground storage tank records hazardous waste handling Generating Treatment Disposal spill records 5.) Review materials concerning contamination at or near facility

Appraisal Institute52 6.) Visual inspections of the facility and of adjoining properties All Appropriate Inquiry (AAI)

Appraisal Institute53 All Appropriate Inquiry (AAI) 7.) Specialized knowledge or experience on the part of the defendant

Appraisal Institute54 All Appropriate Inquiry (AAI) 8.) The relationship of purchase price to the value of the property, if the property was not contaminated Unimpaired Value Time B Discovery C Assessment D Repair E Ongoing cost A

Appraisal Institute55 All Appropriate Inquiry (AAI) 9.) Commonly known or reasonably ascertainable information about the property

Appraisal Institute56 10.) The degree of obviousness or of the presence or likely presence of contamination at the property, and the ability to detect the contamination by appropriate investigation All Appropriate Inquiry (AAI)