Phase I Assessmentsby
Original Publication Date: January 1996
Phase I environmental site assessments are a common requirement today for most commercial real estate transactions. Typically, the purchaser or the bank that is financing the purchase will require a Phase I assessment of the property to qualify for the CERCLA innocent landowner defense (and similar defenses under Michigan Act 307), which is designed to allow the owner of contaminated property to defend against liability for hazardous substances that were put on the property by an unrelated third party.
Failure to conduct a site assessment prior to the purchase of a property, may leave the buyer liable for all investigation and clean-up costs of any contaminants that are discovered in site buildings, soil or groundwater. And since cleanup costs may often exceed the value of the property itself, the landowner or the bank may find themselves with what amounts to an un-collaterized loan.
Unfortunately the fact that a Phase I site assessment has been conducted and a "clean" report issued, is no guarantee that the buyer and the bank will escape liability for future clean-up costs should hazardous materials be found on the property. Instances exist of consultants conducting perfunctory Phase I assessments and issuing "clean" reports only to have subsequent development reveal what should have been obvious during the assessment.
The reliability of any Phase I report ultimately depends on the qualifications, tenacity and thoroughness of the individual conducting the assessment. Since the quality of individual consultants varies, so does the dependability of their Phase I assessment reports. However, there are several key indicators that can help determine the reliability of a consultant and the Phase I assessment reports .
As stated earlier, the purpose of a Phase I assessment is to provide a purchaser or lender the ability to avail themselves of CERCLA's innocent landowner defense, which allows the owner or operator of contaminated property to escape liability for hazardous substances (and in the case of Act 307 petroleum products as well) that were put on the property by an unrelated third party. To invoke the defense, however, the individual must demonstrate that it made "all appropriate inquiry into the past ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability, and that contamination was not discovered at that time."
Qualification for the "innocent landowner defense" rests on the issue of making "all appropriate inquiry". Consequently, one of the first indications of a consultant's reliability is in their use of accepted assessment procedures. Although there are no federal or State of Michigan regulations that stipulate proper investigation procedures, several professional organizations have developed standard guidelines for conducting environmental assessments, including: the American Society of Engineering Firms Practicing in the Geo-Sciences, the National Ground Water Association, and the American Society for Testing Materials (ASTM). The ASTM standards have gained widespread acceptance as a minimum requirement for environmental site assessments. ASTM standards include E1527-93 (Phase I Environmental Site Assessment Process) and E1528-93 (Transaction Screen Process), both published in May 1993, and subsequently revised in 1994.
At the very least, a basic Phase I assessment should include a review of a site's past ownership and uses, any improvements and facilities located on the property, and current use of the property as well as its compliance with environmental laws. The Phase I inquiry looks for any indications of hazardous substances (i.e asbestos or lead-based paints), petroleum products, underground storage tanks, or PCB electrical equipment on the site. The assessment should generally identify all site conditions that indicate the advisability of further investigation or conclude that no further investigation is deemed necessary.
Many sources of inquiry are standard and "readily available"; such as: title search, aerial photographs, Sanborn maps, soil surveys, topographic maps, state and federal regulatory databases and a review of state and local records. However, while sources of inquiry are generally standard, the availability of information depends on the degree of inquiry and the persistence of the consultant. Changes in state and local regulatory personnel and in departmental policies often make it very difficult for a consultant to obtain site information, unless he or she is willing to look beyond the standard sources of information.
For example, an aerial photograph may show a prior building or other improvement on a site, which was removed or demolished to allow current site development. Yet a trip to the local assessor and building department fails to supply any information regarding the previous improvements or even a date of demolition, since many local departments "purge"; their files upon redevelopment of a site. Often the address of the previous building is required to obtain information, however, the address is not known or "readily available."; A good consultant would address this problem by trying to obtain the addresses of adjacent properties and then check for the records of properties in-between.
What if the site in question contained a building with asbestos that was demolished and used as fill on-site or an underground heating oil tank not removed during demolition. A thorough consultant would examine assessment records which often contain information on the type of heating and building materials and provide clues to the types of materials or substances used on the site.
It is extremely important for a consultant to "qualify"; records and identify "knowledgeable"; sources of information. For example, a consultant was retained to conduct a Phase I assessment on a recently developed commercial property for purposes of re-financing. The client, who was the property owner, supplied the consultant with a "clean"; Phase I report performed by another consultant prior to current site development.
Further inquiry into the past uses of the property, however, revealed the removal of several underground storage tanks (USTs) from the site concurrent with the original Phase I assessment. This critical fact was not uncovered by the initial consultant. In addition, the second consultant discovered an undated building department drawing showing gas pumps associated with a previous development on the site. Subsequent interviews with prior owners revealed the removal of the USTs, but there were no available records regarding the number of USTs, their locations or site conditions. The second consultant prepared a Phase I report recommending appropriate additional investigation.
A reliable consultant will be constantly on the look-out for clues pointing to potential problems, such as:
When gathering information on adjacent properties, a consultant should interview someone knowledgeable with the facility's operations. While a receptionist may or may not know whether the site has USTs, the facility manager definitely should know. Although a clerk at the local assessors or building department office can provide files and site documentation, the building inspector or assessor is the person who should be interviewed.
Any consultant should be able to comply with published Phase I standards, however, the level of experience of the individual is crucial in developing an appropriate scope of work relating to current and past site use, and determining the significance of the findings.
Phase I environmental site assessments are like sleuthing. Information must be qualified, clues investigated, and leads followed until the consultant and client are satisfied that "all appropriate inquiry"; has been made and all "readily available"; information has been reviewed. Only then should a Phase I report be submitted for reliance as to the environmental condition of a property.