When plans to buy, lease, or build expansions come to light, it’s important to spend time up front on environmental due diligence evaluations. If financing needs to be lined up, you will almost certainly be required to obtain a Phase I Environmental Site Assessment (Phase I ESA) by your lender.
Lenders and investors will want to be sure, prior to closing, that a buyer has conducted sufficient background inquiry to establish an “innocent purchaser” defense in the event that previously undiscovered contamination is found that could compromise the property or adjacent lands. Additionally, lenders will want some assurance that there is no known contamination on-site that could negatively affect the value of its collateral (or severely compromise borrower cash flow due to a clean-up).
You have heard the phrase “Buyer Beware.” If you have not conducted appropriate due diligence early enough in the decision process, you could be spending a lot of time and money negotiating the acquisition of a property, only to find out too late that past environmental contamination issues may complicate the purchase (or expansion plans). For example, there may have been an underground fuel oil storage tank in prior use at the site, but no one remembers it or recalls a tank removal. Looking through historic records may point to the presence of the former tank. If the tank is still present, removing it now would be preferable to discovering it during the excavation for the foundation for your planned facility expansion.
The Phase I ESA process is well-defined and standardized by the American Society for Testing and Materials (ASTM) in its Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment, E-1527. A Phase I report is not typically expensive when considering a commercial or greenfield setting. The inquiry process, typically conducted by an environmental consulting firm like Ruekert & Mielke (R/M), takes about 2 to 3 weeks, and will provide a quality summary about the past ownership and use of the property, and whether the site has been listed by federal or state agencies for past spills or releases of petroleum or hazardous substances.
The report will also document a site visit to observe conditions and practices at the property and will evaluate possible contaminant migration pathways if nearby properties are listed for spills or past releases. If contamination is suspected, you can evaluate the risk and determine if additional inquiry or research is needed, if a targeted subsurface investigation would be prudent to determine the actual condition, or if you should look elsewhere for a viable site.
State and federal laws can impose clean-up liability on owners or operators (tenants) of contaminated property. Further, that liability can be strict, without regard to fault or causation. Once you own the property, if contamination is later found, an agency may hold you liable for the clean up and leave it to you to demonstrate that you had no role in the spill or release. However, the burden will be on you to identify the responsible party, and it’s possible that party is no longer viable or operating. A past owner may not be found, or may be bankrupt. In that event, you may be required to take on an expense remediation project that could disrupt your business or cashflow, even if you did not cause the contamination (this is when a good environmental attorney gets involved).
Obtaining a Phase I ESA is therefore very important when contemplating the purchase of a property. It will help in the go/no-go decision-making process, and if you move forward with the acquisition, demonstrating compliance with the ASTM Phase 1 standard helps to meet the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA / Superfund) and other laws to establish your “no fault” position (e.g., your defense and liability protection as an innocent landowner).
R/M’s environmental team is available to provide support for your environmental consulting needs in the early phases of site acquisition, including Phase I ESAs, wetlands evaluation, drone surveys, etc. Contact one of our environmental experts today.
About the Author
Ginny M. Plumeau, REM
Environmental Team Leader
Ginny is a Senior Ecologist and Registered Environmental Manager with extensive experience managing projects in the Midwest. She is a regional leader for ecological services and permitting, leading teams engaged in siting, permit planning, environmental assessments, and all aspects of critical issues analysis related to development. Ginny has been with R/M since January 2019.