By: Maureen Hodson
The average office building transaction usually proceeds without extensive environmental due diligence, and often times without anything more than a few cursory questions of the seller, who may not be knowledgeable. But environmental liabilities can and do exist beyond the manufacturing plants and heavy industrial sites. This is especially true in areas that were developed before 1950, as legacy contamination may exist.
The American Standard Testing Materials (ASTM) E1527-13 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Process identification of “all obvious uses of the property . . . from the present, back to the property’s first developed use, or back to 1940, whichever is earlier.” The purpose of the historical review is to identify the likelihood of past uses having led to recognized environmental conditions in connection with the subject property. Historical records such as Sanborn (insurance) maps, historical aerial photographs, historical topographic maps, historical city directories, and building department records are reviewed to establish all known uses of the property. Interviews with managers and long-term occupants can provide useful historical information as well.
Even a seemingly innocuous office building or warehouse constructed in the mid-2000s could have been the site of industrial activity in the past. If the history of the site is not carefully examined, even somewhat obvious recognized environmental conditions may not be uncovered prior to the sale. If contamination is later discovered when the property is redeveloped, it could be too late to seek indemnification from the seller or responsible party. Moreover, the new owner would be strictly liable for the contamination under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund). The current owner, having not conducted a Phase I Environmental Site Assessment prior to the sale would not qualify for innocent landowner defenses because “all appropriate inquiry” was not conducted before the sale. All appropriate inquiry is one necessary element of the defenses available under CERCLA and requires an ASTM Phase I ESA prior to the sale.
If contamination isn’t suspected because of the current land use, a complete Phase I Environmental Site Assessment may not be necessary. A desktop review of the site omits the site visit but still includes review of historical records and turn-around time and cost is reduced. While a desktop review does not qualify as all appropriate inquiry under CERCLA, if historical industrial uses are identified during the desktop review, the assessment can be expanded into a full Phase I Environmental Site Assessment.
For this reason, it is important to consider environmental due diligence early in the transaction. If you’re not engaging environmental professionals at least two weeks before closing, you may be too late to convert a desktop review into a full Phase I. Moreover, it could be too late to negotiate anything meaningful that arises in the environmental reports. For more information on how EHS Support can help you manage the environmental liability associated with your acquisition, please contact Maureen Hodson at 415-531-6160 or firstname.lastname@example.org.