As discussed in a prior post, U.S. EPA had issued a direct final rule approving the use of the new ASTM Standard E 1527-13 "Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process." The final rule was set to take effect on November 13, 2013.
If the rule had gone into
The title of this blog post may make many in the environmental consulting and legal business laugh. "Of course not…" most would certainly reply. With Phase I’s governed by two ASTM guidance documents and the EPA "All Appropriate Inquiries" Rule (AAI), how can there be such variations?
The answer is that a Phase I environmental
Ohio EPA has established its own voluntary cleanup program for addressing hazardous substances and obtaining a legal release from liability- the Voluntary Action Program (VAP). The VAP program has been on the books since 1995.
When the VAP was created its purpose was to allow the private sector to address historical contamination at industrial or
ASTM 1527-05 was the first ASTM standard recognized by U.S. EPA as meeting the requirements of the "All Important Inquiries Rule." (AAI) AAI sets forth the standards and practices necessary for fulfilling the requirements to obtain liability protection (i.e. bona fide purchaser defense) under CERCLA section 101(35)(B). Most Phase I proposals reference 1527-05.
A task force assigned to review the ASTM standard for Phase I environmental assessments has completed its review of the current standard. It has sent its recommendations to U.S. EPA who is expected to accept the recommendations.
Any revisions to the ASTM standard for Phase I has big implications. Phase I reports are a requirement of the
Often times businesses only worry about performing due diligence (Phase Is and Phase IIs) when they are purchasing a building, factory or land. In my experience, many tenants never think about the fact that they could inherit liability for pre-existing contamination just by leasing property. However, tenants, particularly those that are leasing industrial space, should
Phase I environmental assessments have become the norm in virtually any commercial or industrial property transaction. Almost any financial institution will require a Phase I report prior to agreeing to finance a transaction.
In this regard, Phase I’s have become a commodity- A box that needs to checked off before a deal can go through. But buyer beware, beyond securing your financing you may not truly know the condition of your property. Or even worse, you may not secure the legal protections from environmental liability you intended by procuring your Phase I.
A recent U.S. EPA study evaluated the quality of 35 Phase I reports that were performed on brownfields in connection with federal grant funding. The Phase I reports were evaluated against basic requirements necessary to secure protections under the "All Appropriate Inquiries Rules (AAI)" (a shield from CERCLA liability for innocent purchasers).
"All Appropriate Inquiries"
Under federal law, in order to establish a shield from liability under CERCLA, a purchaser must, prior to the date of acquisition, perform "all appropriate inquiries" into ownership and uses of the property. In 2005, U.S. EPA finalized its rule establishing mandatory standards for conducting AAI to secure liability protection.
IG Evaluates 35 Phase I’s
In the study, the Inspector General evaluated the 35 Phase I reports to see if they met the required elements of the AAI rule. Not one of the reports met the U.S. EPA required elements (or alternative ASTM standard). Worse yet, the missing components were simply formalistic elements necessary for a Phase I to meet U.S. EPA standards. They did not evaluate the professional judgments in the reports which would be more prone to varying opinion. Aspects evaluated included:
In the opinion of the Inspector General, not a single one of the 35 reports evaluated adhered to all of the requirements set forth above.
The report is another example of the risks associated with hiring an environmental consultant to perform a Phase I. From my discussions banks don’t often evaluate the quality of the consultant or even whether the report meets the ASTM or EPA rule requirements.
What are the risks to the future property owners in the transaction? The Inspector General summarized the risks as follows:
Improper AAI investigations introduce risk that the environmental conditions of a property have not been properly or adequately assessed. Consequently, decisions about appropriate uses of redeveloped or reused brownfields properties may be based on improper assessments. Ultimately, threats to human health and the environment could go unrecognized.
Beyond the risks of the unknown conditions, you also could be jeopardizing the legal protections available under the AAI rule. The rule is very specific in mandating an ASTM or EPA regulatory compliant Phase I assessment before the legal liability protections kick in. Years later, when an issue arises, you may find you have no shield from liability due to an inadequate Phase I.
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