recent developments in environmental due diligence

RECENT DEVELOPMENTS IN ENVIRONMENTAL DUE DILIGENCEORANGE COUNTY BAR ASSOCIATIONREAL ESTATE SECTIONNOVEMBER 24, 2015

PRESENTED BY

Eddie Arslanian, PERamboll Environ

Pamela Andes, Esq.Emily Murray, Esq.

Allen Matkins Leck Gamble Mallory & Natsis LLP

AGENDA

• Background• Bona Fide Prospective Purchaser (BFPP) Liability Protection• New ASTM Standard• Characterization of Environmental Conditions• Vapor Intrusion• Conclusions/Take Aways

BACKGROUND

What is environmental due diligence?• Environmental due diligence is the pre-transaction (purchase, lease, sale,

finance) investigation of environmental conditions and history of the subject property

• Good commercial and customary practice for environmental due diligence for real property is a Phase I environmental site assessment (ESA)

BACKGROUND (CONTINUED)

Why conduct environmental due diligence?• Liability protection under federal law• Evaluate potential environmental risks and costs• Plan development based on any environmental restrictions

BACKGROUND (CONTINUED)

Liability protection• The Comprehensive Environmental Response, Compensation, and Liability

Act (CERCLA) provides statutory defenses for innocent land owners/operators, contiguous property owners/operators, and bona fide prospective purchasers/tenants (BFPP)

• To qualify for these statutory defenses, the owner/operator must conduct “All Appropriate Inquiry” (AAI) prior to transaction

BFPP LIABILITY PROTECTION

Elements of BFPP Defense• A BFPP is “a person (or a tenant of a person)” that acquires ownership of

a facility after the release of the hazardous substances and after January 11, 2002, and who meets the following criteria (see 42 U.S.C. §9601(40)):

• Conducted “all appropriate inquiries” (AAI) into the previous ownership and uses of the property

• The disposal of hazardous substances on the site occurred before acquisition

• Provide all legally required notices regarding the release• Provide full cooperation, assistance and access to those conducting

response actions

BFPP LIABILITY PROTECTION (CONTINUED)

Elements of BFPP Defense• Comply with institutional and engineering controls and do not impede

their effectiveness • Comply with governmental requests for information and subpoenas• Not already liable, affiliated with a responsible party, or simply the

reorganized entity of a responsible party• Exercise appropriate care with respect to the hazardous substances found

– stop continuing release, prevent threatened future release, and prevent exposure

NEW ASTM STANDARD

AAI/ASTM Standard• In 2005, the federal Environmental Protection Agency (USEPA) adopted its

AAI Rule, which endorsed the Phase I ESA standard promulgated by the ASTM to satisfy the statutory requirements for conducting AAI

• ASTM updates the standard every eight years• In 2013, ASTM finalized ASTM E1527-13, which updated the prior

standard• On December 30, 2013, USEPA issued a new final rule amending the AAI

Rule to include a reference to the new ASTM Standard E1527-13• The new ASTM Standard E1527-13 should now be used to satisfy AAI

KEY CHANGES

• Revised or new definitions for: ‒Recognized Environmental Condition (REC)‒Historical Recognized Environmental Condition (HREC) ‒Controlled Recognized Environmental Condition (CREC)

• Emphasis on regulatory file reviews• Revisions to user responsibilities• Vapor intrusion clarification

REVISED DEFINITIONS: REC

Recognized Environmental Condition (REC)• 2013: The presence or likely presence of any hazardous substances

or petroleum products in, on, or at a property: ‒due to any release to the environment ‒under conditions indicative of a release to the environment‒under conditions that pose a material threat of a future release to the environment

REVISED DEFINITIONS: HREC

Historical Recognized Environmental Condition (HREC)• 2013: An HREC is a REC that has been addressed to the satisfaction of a

regulatory agency or meets unrestricted use criteria without subjecting the site to controls, such as property use restrictions, activity and use limitations (AULs), institutional controls, or engineering controls

• Requires confirmation by an environmental professional (EP) that finding is no longer a REC (i.e., standards have not changed)—applicable when updating a previous Phase I report

NEW DEFINITIONS

Controlled REC (CREC)• An REC that has been addressed to the satisfaction of a regulatory agency

or meets risk-based criteria• Hazardous substances or petroleum products allowed to remain in place

subject to implementation of controls (e.g., AULs, engineering controls)• CRECs must be identified in the conclusions section of the report• Evaluation of adequacy of controls is not required of EP• CREC identification important for satisfying post-acquisition continuing

obligations of property ownerDe Minimis Condition• Now a stand alone definition (pulled out of REC definition)

REC-HREC-CREC RELATIONSHIP

Contamination in, at or on the target

property

Is it de minimis?

Would regulatory

officials view cleanup as adequate

today?

Are there ‘controls,’

such as use restrictions?

REC

De Minimis

CREC

HREC

YES

YES

YES

NO

NO

NO

YES

NO

Has it been addressed?

HREC EXAMPLEPROPERTY WITH PETROLEUM HYDROCARBON IMPACTSAND NO FURTHER ACTION

• Site with removed underground storage tanks and dated NFA letter• Prior sampling data collected with detection limits set above today’s

regulatory screening levels• Under today’s standards, consultant unable to characterize issue as HREC• Seller refused subsurface investigation • Buyer solution was to develop a cost analysis based on worst case

scenario

SOUTHERN CALIFORNIA SITE - SIGNIFICANT DATA GAP

• Site with history of past chemical impacts with current NFA status• Prior sampling data not readily available to make appropriate

characterization under current ASTM• Under prior standards, NFA letter sufficient to characterize the issue• Under current standard, underlying data needs to be evaluated to make

appropriate determination

VAPOR INTRUSION – CLARIFIED

• Vapor intrusion: migration of hazardous vapors from a subsurface contaminant source (e.g., soil or groundwater) through the vadose zone and into the indoor air

• Significant and challenging environmental remediation issue• Vapor migration is clarified and considered “no differently” than

contaminated groundwater migration


Indoor air

Vadose Zone Soil Gas

{{

Soil Contamination

(residual or mobile NAPL)

Chemical Vapr Migration

crawl spaceslab


• ASTM E2600-10 Standard Guide for Vapor Encroachment Screen on Property Involved in Real Estate Transactions now referenced

• When evaluating vapor intrusion, note that there are differences between Cal/EPA and USEPA methodologies

• New USEPA TCE toxicity factor (2011 - more conservative)• New USEPA PCE toxicity factor (2012 - less conservative)

SOUTHERN CALIFORNIA PROPERTYCREC - VAPOR INTRUSION

• Following significant soil excavation effort and soil/soil vapor sampling, the agency had issued an NFA letter in 1997

• Property owner had difficulty selling the property with the existing available data

• Performed additional soil vapor sampling/screening risk to evaluate current soil vapor conditions

• Characterized the current conditions as a CREC providing clarity on the issue

• Property was sold shortly thereafter

NORTHERN CALIFORNIA TCE EXAMPLE

• TCE was historically viewed as a long-term exposure concern• EPA’s recent change in toxicity evaluation has identified TCE as a short-

term reproductive concern• EPA has identified an acute TCE concentration which triggers urgent

response action• EPA’s requirements necessitate essentially continuous, real time

monitoring • Employers facing challenges sampling the air real time and establishing

appropriate response protocols• Tension between being proactive and being over-reactive

CONCLUSIONS AND TAKE AWAYS

CONTACT INFORMATION

Emily [email protected]

+1 213 955 5584

Eddie [email protected]

+1 213 943 6326

Pamela [email protected]

+1 949 851 5405

mailto:[email protected]

