Major CMBS Lender Requiring EPs to Perform Site Inspections

We have previously discussed discussed here and in other forums how the All Appropriate Inquiries (AAI) Rule issued by EPA in 2005 is deeply flawed and has directly contributed to a worsening in the quality of phase 1 reports. This is ironic outcome since the reason EPA was instructed in the  2002 amendments to CERCLA  to issue an AAI Rule was to  improve the level of due diligence. This is evidenced by the fact that  Congress added five criteria to the then existing statutory test that property owners needed to  evaluate to satisfy the  CERCLA liability protections.

As we have explained. the principal  weaknesses of the AAI rule was the watered-down definition of Environmental Professional (EP) and not requiring EPs to actually perform any of the AAI tasks. Instead, the AAI rule allows the work to be done by persons who do not even have to have a high school education so long as they under the “supervision” of an EP (who also does not have to have a high school education). Often times, the so-called EP supervision consists solely of the EP stamping its signature on a template  form that has been completed by a field inspector.        

When EPA published a proposed rule to add a reference to the new ASTM E1527-13 to the AAI Rule, several lawyers and environmental consultants urged EPA to use the rulemaking as an opportunity to  revisit the EP definition or at least require EPs perform some of the more important AAI task. However,  the agency declined these requests on the grounds that they were outside the scope of the proposed rulemaking.

Recently, one of the leading  CMBS lenders revised its scope of work to require that EPs must actually perform the site inspections for reports prepared for that bank ( Note that I do not represent that lender but have seen its revised scope of work). The SOW requires that all reports must be performed by EPs (as opposed to under supervision or direction of an EP). In addition, the inspector must have at least five years of experience with that particular property type.

It will be interesting to see if other lenders follow the lead of this major CMBS lender and revise their scopes of work as well. It will also be interesting to see what impact this change will have on the business model of firms that heavily rely on independent contractors (1099s) or part-time employees to perform their phase 1 reports and who do not qualify as EPs.