We realized, while writing about the new "Continuing Obligations Standards" for contaminated properties (see here), that in order to give a comprehensive picture of what needs to be done if you're thinking about purchasing a contaminated property, we need to start at the beginning: the Phase I Environmental Site Assessment. This has to take place before you purchase the contaminated property.
If you are interested in purchasing a contaminated property, or a parcel contiguous to a contaminated property, there are several steps that you must undertake, both before and after you purchase the property, to protect yourself from liability under the federal Superfund Act (i.e., the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA). Before you purchase the property, you must conduct a Phase I Environmental Site Assessment ("ESA"); you may even be familiar with this term. But what is a Phase I ESA and how does it help protect you?
What is a Phase I Environmental Site Assessment?
The Phase I ESA is a preliminary, non-invasive investigation of a contaminated property (e.g., no drilling or sampling) to determine the extent of contamination at the property.
The purpose of a Phase I ESA is to try to identify all potential environmental issues (known as "recognized environmental conditions" or "RECs") with a property, so the prospective purchaser acquires an appropriate level of knowledge about the environmental conditions of the property in advance of purchasing it. A "recognized environmental condition" means the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum into structures on the property or into the ground, ground water or surface water of the property.
This due diligence is a key part to the "all appropriate inquiry" required by CERCLA, and interpreted by regulations (known as the AAI standards) developed by the U.S. Environmental Protection Agency, and must occur before the contaminated property transfers ownership. See, e.g., 40 CFR Part 312.
The first step in a Phase I ESA is to develop the information you have at hand, which will require the buyer to make a formal request for complete documentation from the seller. This work is usually performed, as a practical matter, by an environmental consultant or similar environmental professional, with the oversight of an environmental attorney.
Some of the information that the buyer may request includes:
- Copies of prior environmental audits, assessments, investigations or other reports on environmental conditions or compliance at the site;
- For all facilities on the property: all permits and pending permit applications; correspondence with government regulatory agencies; copies of notices of violation, administrative orders, consent orders, consent decrees, and civil orders; records of negotiations with enforcement agencies concerning environmental compliance; monitoring and non-compliance reports; past or present judicial actions, including citizen suits; and documents reflecting liens or encumbrances under any environmental laws or regulations;
- Lists and descriptions of all "hazardous wastes" under RCRA that a facility at the site generates, treats, stores, transports or disposes of;
- Description of all underground storage tanks presently or formerly on the property, whether the USTs have been registered, have been tested for "tightness" or "integrity" and results of those tests, dates of removal (if no longer present), and reports from any removal activities;
- Any report, notice, correspondence, or other document relating to hazardous substances or wastes found on or disposed of or released from the property;
- Copies of all material safety data sheets relating to substances used by the company(ies) operating on the property;
- Copies of all insurance policies that provide coverage for environmental damages, with dates of coverage; and
- List of pollution abatement or treatment devices which are or have been in use on the property.
ASTM Phase I ESA Standards
ASTM International, formerly known as the American Society for Testing and Materials or ASTM, is a private, professional standard-setting organization that has developed the Phase I ESA guidance that has become standard practice for all Phase I ESAs. See ASTM Standards: E1527-05.
Under the current ASTM Phase I ESA Standards, the Phase I ESA final report will include a discussion of the property based on a review of:
- Title search: reconstruct the chain of title as far back as possible to determine if property ever used for on-site generation, storage or disposal of hazardous materials;
- Historical facility records: manufacturing, etc., facilities have usually changed their practices over the years; areas that appear now not to pose any risk may have been used previously as lagoons, landfills, disposal areas;
- Regulatory compliance records: businesses are required to maintain a variety of records on site and to file reports with federal/state environmental agencies, including hazardous waste manifests, permits, monitoring and discharge reports, spill reports. See discussion of compliance audits, below;
- Neighboring properties: nearby properties can themselves be a source of contamination on the site to be purchased, and/or the contamination from the site can migrate "off-site";
- Off-site disposal: wherever the company has sent even its non-hazardous solid waste (as well as, of course, its hazardous wastes);
- Database searches: about the property and nearby properties: spills, tanks, Superfund sites there and nearby; and
- Site visits by consultant: on-site investigations, interviews of caretakers, managers, operational people, even neighbors.
Some of the investigation performed in a Phase I ESA is optional, e.g., asbestos and lead-based paint. The party seeking to have a Phase I performed should develop with the consultant and his attorney a plan of what additional work should be performed, if any, according to nature of property and how many "generations" of operations took place there.
Why You Need a Phase I ESA
As mentioned above, undertaking a Phase I is the first step to obtain the landowner liability protections under the federal Superfund Act. Thus, a proper Phase I ESA will provide you with:
1. The "baseline" conditions of the property, to help you establish what
conditions are present at the time of sale, so as to minimize any later arguments with the seller as to whether specified conditions pre-date the sale or occurred after it.
2. Satisfaction of recently enacted federal standards to demonstrate "all appropriate inquiry" by a prospective purchaser into the previous ownership and uses of the property "consistent with good commercial or customary practice" as defined in 42 U.S.C. §9601(35)(B). You need to meet this standard in order to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser limitations on CERCLA liability.
3. The means to identify "recognized environmental conditions" on the subject property, which is required by the AAI standards.
4. The ability to determine right kind of information you need to develop about the property or facility for, among other things, showing the property conditions at the time of sale. An accurate picture of property conditions, in addition to overcoming the fear and insecurity that comes with facing unknown and therefore frightening problems, also facilitates the contract negotiations, because parties are less likely to posture about theoretical protections or guarantees they think they need, and instead focus on the most likely concerns.
Continuing Actions to Obtain the CERCLA Landowner Liability Protections
As mentioned above, the Phase I is just the first step in obtaining the CERCLA landowner liability protections.
ASTM has also promulgated standards for the next steps for meeting the landowner liability protection requirements - namely, the revised Phase II ESA Standards and the newly published Continuing Obligations Standards, both of which are discussed in the Periconi, LLC Environmental Law Blog.
At Periconi, LLC, we work closely with environmental consultants to ensure that all of the necessary AAI requirements are met so that owners of contaminated properties are fully protected from liability. Contact us if you need help choosing or working with an environmental consultant for a contaminated property, one who knows has to develop an investigation that will receive quick approval from the government because it meets the highest standards of reliability in results.