Assessing Environmental Contamination Risks
In the United States, the process of evaluating potential or existing environmental contamination liabilities for real estate holdings involves conducting an environmental site assessment (ESA). This comprehensive report aims to identify any environmental issues associated with the property, including the land itself and any physical improvements. One particular category of contaminated sites is referred to as "brownfield sites," which, in severe cases, may be added to the National Priorities List, subjecting them to the U.S. Environmental Protection Agency's Superfund program.
During a Phase I ESA, the actual sampling of soil, air, groundwater, or building materials is generally not conducted. Instead, it serves as the initial step in the environmental due diligence process. The standards for performing a Phase I site assessment have been established by the U.S. Environmental Protection Agency (EPA) and are based on the ASTM International Standard E1527-13.
The need for Phase I ESAs gained prominence in the 1980s following judicial decisions related to liability for property owners in environmental cleanup cases. The courts' interpretation of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) held that buyers, lessors, or lenders could be responsible for remediation even if they were not responsible for the contamination. To establish a defense known as the "Innocent Landowner Defense," it was necessary to conduct a Phase I Environmental Site Assessment before transferring ownership. Consequently, engineering firms began conducting professional engineering reports under various names such as "Environmental Audits," "Property Transfer Screens," "Environmental Due-Diligence Reports," and "Environmental Site Assessments."
The demand for Phase I studies further increased with the passage of the Superfund Cleanup Acceleration Act of 1998, which made Phase I ESAs mandatory for purchasers of commercial properties. The specific standard to be followed was established as ASTM E1527: Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.
The most recent standard, "Standards and Practices for All Appropriate Inquiries," is outlined in the 40 Code of Federal Regulations, Section 312. It draws heavily from ASTM E1527-13 and provides guidelines for conducting the environmental assessment of real property, ensuring compliance with the requirement of performing "all appropriate inquiry."
While residential property purchasers typically need only conduct a site inspection and chain of title survey, Phase I studies for commercial properties involve a comprehensive scope. The examination of the land includes assessing soil contamination, groundwater quality, surface water quality, vapor intrusion, and potential uptake of hazardous substances by biota. Other aspects evaluated may include the identification of asbestos-containing building materials, the inventory of hazardous substances on-site, assessment of mold and mildew, and evaluation of indoor air quality parameters.
The scope of a Phase I study can vary depending on the specific protocols used. However, certain tasks are common to almost all Phase I ESAs. These include an on-site visit to assess present conditions, evaluation of risks from neighboring properties, review of federal, state, local, and tribal records, interviews with individuals familiar with the property's history, examination of planning files and permits, searches with public agencies overseeing water quality and soil contamination, analysis of historical aerial photography, scrutiny of drainage patterns and topography using USGS maps, and evaluation of the chain-of-title for any environmental liens or Activity and Land Use Limitations (AULs).
Certain items are not typically included in a Phase I ESA, such as surveys for asbestos-containing building materials, lead-based paint, lead in drinking water, mold, radon, wetlands, threatened and endangered species, mercury poisoning, debris flow, earthquake hazards, vapor intrusion, and emerging contaminants. However, if requested by the report user, observations of these non-scope items can be included as "findings," but they do not constitute recognized environmental conditions.
The preparation of a Phase I study often involves a multidisciplinary approach, as it requires the integration of diverse disciplines like chemistry, atmospheric physics, geology, microbiology, and botany. Many environmental scientists specialize in combining these disciplines to compile all the components of a Phase I ESA. In some states, professional registrations are applicable to Phase I ESA preparers, ensuring their qualifications and expertise.
According to ASTM E 1527-13, an Environmental Professional who meets specific criteria must conduct Phase I ESAs. This professional can be someone with a current Professional Engineer's or Professional Geologist's license, a baccalaureate or higher degree in engineering or science, or equivalent full-time experience in the field. In cases where individuals do not meet these qualifications, they may assist in the ESA under the supervision or responsible charge of an Environmental Professional.
It's worth noting that most Phase I site assessments are conducted by private companies independent of the property owner or potential purchaser. This impartial approach ensures unbiased evaluations and accurate reporting.
In conclusion, Phase I Environmental Assessments play a crucial role in identifying potential or existing environmental contamination liabilities associated with real estate holdings in the United States. These assessments serve as an essential tool for property buyers, lenders, and regulatory agencies to understand and mitigate environmental risks, facilitating informed decision-making and protecting stakeholders from potential liability.