COVER STORY, FEBRUARY 2007

ENVIRONMENTAL ASSESSMENT
The EPA changes compliance requirements for ESAs.
Josh Patterson

More agricultural properties are undergoing development, confronting new problems.

As of last November, prospective purchasers of commercial properties are required to perform their Phase I Environmental Site Assessment (ESA) in compliance with the U.S. Environmental Protection Agency’s new All Appropriate Inquiries Final Rule in order to qualify for one of the Landowner Liability Protections (LLPs) provided by the Brownfields Amendment of 2002. The American Society for Testing and Materials (ASTM) Standard E 1527-05 replaces an earlier revision of the industry-accepted Phase I ESA Standard from 2000 and is being widely adopted by users in order to satisfy the new AAI requirements.

The ultimate goal of the new AAI rule is to support the commercial property market by making it easier to deal in sites that have been impacted by hazardous substances or affected by petroleum products. AAI defines what steps are necessary to grant protection from the “joint and several” liability web tangled by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA or the Superfund Act). CERCLA liability can encompass any owner who becomes part of a chain of title for a property that is connected to contamination issues, even if the new owner did not contribute to the contamination.

What are labeled as Recognized Environmental Conditions (RECs) by the Phase I ESA standard can typically be present in a number of common commercial settings in the Southeast. Common sites with past contamination issues are former marina sites, many of which are currently undergoing redevelopment for residential and commercial usage. As availability of virgin coastal land is dwindling, such properties have become increasingly attractive to developers, despite sometimes complex contamination issues involved — such as the cleanup of heavy metals associated with boat bottom paints, or petroleum impacts to marina basin sediments and surface waters. Fortunately, these issues can be assessed and remedied by a wide variety of remediation technologies. In addition, the associated cost of cleanup is integral to the commercial property transaction, as are the liability protections granted when AAI is followed.

As more and more agricultural properties are undergoing development, property buyers in the Southeast are also having to confront the issues of pesticide and herbicide residual impacts, and of cattle dipping vat sites that date back to the early 20th century. Created and mandated in an effort to eradicate the Texas cattle fever tick, the arsenical pesticide mixes used in the vats to disinfect herds have left behind severe soil and groundwater impacts in most agricultural settings where the vats have been identified.

While some states, including Florida, have granted immunity and do not require the cleanup of cattle dip vat sites, landowners (past, present, and future) still have to answer to CERCLA and third-party liability suits related to the contamination. Responsible assessment and remediation of the impacts on a voluntary basis with oversight of an environmental professional and approval from an environmental regulatory agency, along with use of AAI during due diligence, are the tools for liability protection.

Apart from helping to evaluate the business environmental risk of a particular property, a Phase I ESA performed in accordance with the new standard will provide a common sense evaluation of any environmental factors that could devalue the property in the future. Most importantly, it will satisfy AAI requirements for the LLPs, including the “innocent landowner defense” should contamination be discovered on the property in the future. It is due to this liability issue that most lending institutions and insurers now require an ASTM E 1527-05 Phase I ESA as part of their due diligence policies.

A Phase I ESA consists of thoroughly researching the property’s history as well as conducting a site visit to determine whether hazardous substances and/or petroleum products are likely to have been released into the soil, groundwater or any of the structures on the property. Adjoining and nearby facilities are also researched for their potential to cause impacts to the property. No sampling of soil, groundwater or building materials will take place at that time.

It is important to note that a Phase I ESA will not provide information regarding the presence of asbestos in building materials, lead-based paints, lead in drinking water, the presence of radon, mold, or other “non-scope” considerations. Prospective commercial property owners will have to consult the environmental professional separately to determine if any of these issues are affecting their property.

In order to comply with the new AAI rule, both the user and the environmental professional (EP) performing the assessment have to meet more stringent requirements than in the past. Not only are EPs now required to have proper certification and documented experience, they also have to produce a more detailed and comprehensive report. It is now mandatory for EPs to interview one or more of the past managers, owners, operators and occupants, if they are likely to possess information about potential contamination issues.

In addition, a Phase I assessment now requires that all parcels surrounding the property in question be viewed from the property line, any public right-of-way or similar vantage point. The EP must further research the first developed use of the property as far back as “it can be shown that the property contains structures or from the time the property was first used for residential, commercial, industrial or government purposes.”  Another requirement that has become more stringent under the new rule is the documentation of significant data gaps that could affect the EPs ability to identify RECs and reveal the information sources that were consulted to address them.

The new AAI rule also increases the demand on the prospective user who is now required to evaluate whether the purchase price for the property in question is below fair market value — a fact that might indicate potential contamination issues. Users must undertake the following tasks to help identify RECs:

• provide information about environmental liens as well as activity or use limitations

• disclose any specialized knowledge about the property

• make sure they are aware of commonly known and reasonably, ascertainable information about the property

Both the user and the EP are independently obligated to evaluate whether any Activity Use Limitations (AULs) such as deed-restrictive covenants have been placed on the property.

Given the increased complexity and the fact that the more rigorous professional requirements for EPs will eliminate less qualified service providers, the cost for the average Phase I ESA is projected to increase by approximately 15 to 20 percent above the cost of the old ASTM E 1527-00 standard. Due to the expanded requirement to document and address data gaps, it is also fair to assume that the number of required Phase II ESA assessments may increase. A Phase II ESA will typically involve the physical testing of soil, groundwater, and/or surface water to determine the physical presence or absence of contaminants of concern.

The new AAI rule also stipulates a user’s continuing obligations. If, for example,  groundwater had been previously monitored on the site due to past contamination issues, the new user will have to comply with the rules of any monitoring program already in place. Similarly, if AULs were in place at the site, such as an impervious soil cap preventing direct exposure to impacted soils, any such AULs will have to be maintained in order to qualify for the liability protections.

If your designated environmental firm was already following the old ASTM E 1527-00 standard appropriately and employs qualified environmental professionals, chances are it will not be a giant leap to come into compliance with the new standard. However, given the potential financial and legal ramifications of non-compliance, it is advisable to educate yourself as well as possible on AAI as it relates to due diligence for commercial property transactions, and to ask your EP if she or he is using the new AAI –compliant standard.

Josh Patterson, C.H.M.M., is vice president/division director with Environmental Services, Inc., in Jacksonville, Florida.

For more information, visit www.epa.gov/brownfields/regneg.htm or
www.astm.org, or www.environmentalservicesinc.com.


©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.