Imagine that a local youth organization has construction plans for an unoccupied portion of the property they’ve owned for over fifty years. When the organization approaches the bank to refinance the property, instead of being granted funds to complete the construction, they discover that the soil and/or groundwater is potentially contaminated. Plans for their new activity center and playground are put on hold when they find themselves entangled in the costly activities of further investigation and potential remediation.
Environmental hazards aren't always this obvious.
Unfortunately, this situation is not uncommon. The property owner caught in such difficulties isn’t always a non-profit organization, as in the case of a recent client of the environmental engineering company I work for. Too often, landowners who have not abused their property find themselves having to pay for the actions of previous occupants, who either intentionally or unknowingly contaminated the land before selling it.
The good news is that current real estate buyers can protect themselves through due diligence, by making “all appropriate inquiries into the previous ownership, uses, and environmental conditions of a property,” according to the EPA. By taking these precautions, landowners may qualify for certain liability protections under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as the Superfund program.
Commercial real estate transactions are regularly accompanied by a Phase I Environmental Site Assessment (E.S.A.). These assessments conduct all appropriate inquiries* into historical and current use of the property in order to identify recognized environmental conditions (R.E.C.s). An R.E.C. identifies the presence of any hazardous substance or petroleum product, and includes indications of an existing release, past release, or material threat of release of any hazardous substances or petroleum products.
Environmental hazards like this can be discovered by during an E.S.A. Photo: Environmental Engineers, Inc.
Investigations like these emerged in the 1970s, due to regulations, lawsuits, and prosecutions that assisted potential buyers in assessing the risk associated with purchasing commercial and/or industrial property. In addition, they provided preliminary information regarding any necessary clean-up activities.
A Phase I E.S.A. is conducted by an environmental professional (E.P.), and consists of a site reconnaissance, interviews, and records review. The E.P. generates a report that summarizes known or suspected R.E.C.s, and typically makes recommendations regarding further investigation. Such recommendations are based on the absence or presence of environmental conditions associated with the property, as well as the E.P.’s professional experience. Should the E.P. recommend intrusive investigation, the client may choose to begin Phase II activities.
A Phase II Assessment typically includes sampling the soil and/or groundwater. The E.P. analyzes the samples to determine the presence and/or extent of the contamination. Occasionally, the E.P. will also conduct air sampling to determine the presence of radon or vapor intrusion. The test results determine whether any further action is required.
Site remediation can be quite costly. Photo: Environmental Engineers, Inc.
When considering a real estate transaction, we all want to make wise and prudent investments. As a real estate buyer, remember to conduct due diligence before taking advantage of any “great deal.” Sometimes a property is priced low because the seller knows or suspects it will need costly remediation work. By making “all appropriate inquiries,” you may save yourself from purchasing a property that needs remediation or from being responsible for the cleanup, should you decide to make the purchase.
But even wise and prudent investments may intentionally include remediation work. Remediation is a predictable expense when a buyer purchases a brownfield property. Fortunately, the EPA may assist with the cost of brownfield remediation. By remediating the property, the new owner both revitalizes the site and provides productive economic and green space use through the EPA Brownfields and Land Revitalization program.
*The EPA recognizes the ASTM E1527-05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process as fully compliant with the AAI final rule. For more information regarding Direct Final Rule on All Appropriate Inquiries refer to the EPA website (Negotiated Rulemaking Committee on All Appropriate Inquiries | Brownfields and Land Revitalization | US EPA).
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