The Basics of Environmental Due Diligence

May 19th, 2014

environmental-assessment

Environmental due diligence is a legal and technical investigation conducted to satisfy certain liability protections using state and federal environmental laws or standards. Due diligence can also be used to develop information about environmental conditions used to allocate liability and manage environmental risks. The first step in performing environmental due diligence is typically a Phase I Site Assessment. The Phase I can be conducted in accordance withAmerican Society for Testing and Materials (ASTM) Standard E1527 (Standard for Environmental Site Assessment) or All Appropriate Inquiry (AAI) (AAI Final Rule – 40 CFR Part 312. AAI).  It should be noted that according to AAI, if an investigation is conducted in accordance with ASTM E1527, it then meets the requirements of AAI.

The Phase I is intended to protect the commercial real estate property buyer and/or lending institution and to satisfy one of the requirements to qualify for landowner liability protections. The Phase I may also be conducted by the seller prior to marketing a property, in order to better understand the environmental liabilities prior to a sale.

Recent Changes to the Phase I

The ASTM Phase I was initially approved in 1995 with a major change in 1997, and later minor changes in 2005.  Every 8 years ASTM Standards must be reviewed, updated and voted upon according to ASTM bylaws. ASTM proposed and implemented changes to the Phase I Standard to provide additional clarification. The revised ASTM Phase I Standard (now ASTM E1527-13), includes a new category of Recognized Environmental Condition (REC), the Controlled Recognized Environmental Condition (CREC), which applies to risk-based closures of contaminated sites. This new term impacts the way findings and conclusions are discussed in the Phase I ISA Report, and potentially affects the report user’s understanding of environmental risk. Another change is an explicit requirement for regulatory file reviews on adjacent properties. These reviews are typically conducted by most consultants when appropriate, due to the risk those nearby properties pose to the subject property, if they are found to be contaminated.

Other changes include:

  • The term Vapor Migration was added to the definitions sections. Within the definition, there is note of the ASTM E2600-10 vapor encroachment standard, and
  • Enhanced descriptions of what is required of the user of the report, and why it is important.

Choosing the Right Consultant

Contracting with the right environmental consultant is critical. ASTM has defined a qualified person as an “Environmental Professional”, with specific education and experience. The final rule defines an “Environmental Professional” as someone who possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases of hazardous substances on, at, in, or to a property, sufficient to meet the objectives and performance factors of the rule. In addition, an environmental professional must have:

  • A state or tribal issued certification or license and three years of relevant full-time work experience; or
  • A Baccalaureate degree or higher in science or engineering, and five years of relevant full-time work experience; or
  • Ten years of relevant full-time work experience.

Many buyers opt not to perform an AAI or ASTM investigation, but the failure to perform such an investigation can be costly and time consuming if overlooked and environmental liabilities are present. The findings of an ASTM Phase I can delay a sale weeks, if not months.  This delay, however, is insignificant when weighted against the cost a post-closing environmental liability.

For questions on environmental due diligence issues, please contact Mike Coté of Corporate Environmental Advisors at (508) 835-8822.

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