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Using Environmental Site Assessments in Real Estate Transactions

In November 2021, the ASTM standard governing most Phase I environmental site assessments was revised for the first time since 2013.  The revisions add to the amount of historical research required for the subject properties used for retail purposes and for properties in the surrounding area.  This will undoubtedly add to the length of ESAs as well as the cost. 

If you use ESAs with some regularity, you have probably been inundated with blogs and promos about the specific changes made and the EPA’s proposed addition of PFAs to CERCLA and how the 2021 standard relates.  If that is you, kudos to you, but I’m not actually writing this for your benefit.  Those who are well do not need a physician.

For the rest of you, I have a question.  Do you know why you should get a Phase I Environmental Site Assessment when you are purchasing or leasing an industrial or commercial property?  The answer – to have the benefit of landowner liability protections under CERCLA by making “all appropriate inquiries” into the previous ownership and uses of the subject property.

CERCLA – the Comprehensive Environmental Response, Compensation, and Liability Act – authorizes the federal government to seek reimbursement from potentially responsible parties (“PRPs”) to clean up hazardous substances on properties.  Current owners and operators (i.e., tenants) of the property are included as PRPs.  Picture yourself as a PRP on a site where hazardous substances were released (or migrated) long before you purchased or leased the site.  If you are not excited about cleaning up your own mess, imagine having to clean up someone else’s mess.  It is not a pretty picture.

That is why you want to do a Phase I site assessment, and why you want to do it right.  You want to qualify for the “innocent landowner defense.”  CERCLA provides that purchasers or operators of a property who did not know and had no reason to know that there had been a release of a hazardous substance after making “all appropriate inquiries” prior to their purchase or occupancy of the property qualify for the innocent landowner defense.

The key regulatory concept is “all appropriate inquiries.”  The EPA has set forth the criteria for “all appropriate inquiries” in 40 CFR Part 312.  I used these regulations to write my checklist for reviewing environmental site assessments for deficiencies and I came up with a four-page checklist in 10-point font.  They are extensive. 

Fortunately, the EPA ruled that Phase Is which follow the 2013 ASTM standard meet the requirements set forth in 40 CFR Part 312.  It is expected that the EPA will also rule favorably on the 2021 ASTM standard since it is more stringent than the 2013 version.

So it seems easy enough.  Hire an environmental professional, get a Phase I, review it for recognized environmental conditions, and assuming there are none, you’re done.  Right?  Maybe.  Or, you might have shot yourself in the foot before the report was ever written. 

Which brings me to my main point – COMPLETE THE USER QUESTIONNAIRE. 

Early on in your engagement of the environmental professional, you will receive a “User Questionnaire.”  Most clients blow this off, but it is actually a form that comes straight out of the ASTM standard.  It is designed to meet various requirements in 40 CFR Part 312 that the user of the report (you) contribute what you know and certain documents.

The first two questions on the User Questionnaire are whether any environmental liens or activity and use limitations have been filed or recorded against the subject property.  To answer these questions, you will need a title search at a title company.  As an alternative, you can ask the environmental professional to add those searches to their historical data search order.  Many environmental professionals use EDR as their data vendor, and EDR offers such add-on packages.  This will add to the price of the Phase I.

My Take:  When the User Questionnaire is not returned, its absence is noted in the environmental site assessment document.  By not doing the User Questionnaire, you jeopardize the very limited liability protection you are paying to obtain by having the report done.  And, with the 2021 changes to the ASTM standard, you will likely be paying more.

 May you find joy in what you do and who you are with.