As we are currently witnessing, vibrant commercial property transactions are often a key indicator of a healthy economy. Completing these property transactions with minimal disruptions is owed to several factors, including a well-designed and strategic approach to environmental due diligence.
The due diligence is reliant upon state and federal environmental laws. This brings us to the current state of affairs in Michigan: How can you protect you/your client or your investment when there is regulatory uncertainty?
Michigan Part 201 Cleanup Criteria
Here is some background that led to the current uncertainty. The Michigan Department of Environmental Quality (MDEQ) drafted proposed rule revisions in October 2016 for the Part 201 (of Public Act 451) environmental cleanup rules. The proposed rules have undergone stakeholder and public comment, have been revised (more than once), and were submitted to the State Budget Office for public hearing. This fall will mark two years since the drafting of the rules and, as it is an election year, don’t bet on anything happening soon.
Even though the rules have not yet been adopted by the State of Michigan, certain aspects are already being used by the MDEQ as “best practices from other states, reasonable and realistic conditions, and sound science.” There are several industry groups that are highly critical of this approach. This conflict between the existing rules and the MDEQ’s use of the proposed rules isn’t exactly greasing the skids for commercial property transactions.
A major point of conflict is how the MDEQ is treating vapor intrusion (VI). Vapor intrusion can occur when vapors from a historical release of solvents, such as trichloroethylene (TCE) or gasoline from an underground storage tank, finds its way into an overlying building. The MDEQ estimates that there may be as many as 4,000 sites in the state where VI may be a concern. It isn’t always obvious which sites are going to pose a potential vapor intrusion risk.
See this short video for an explanation of vapor intrusion.
Vapor Intrusion Uncertainty in Michigan
The existing Part 201 rules contain “Cleanup Criteria and Screening Levels” for various chemicals in soil or groundwater relative to the vapor intrusion pathway. The proposed rules not only contain new screening levels; they also contain additional requirements for investigating the VI pathway. The conflict for current purchasers of real estate is whether to follow the existing, legally-allowable rules or follow the proposed rules that the MDEQ believes is the “best science” and are, therefore, by default, existing rules.
The MDEQ is using specific response language when replying to reports that follow existing versus proposed rules. Language being used by the MDEQ for their response to a report submitted based on the existing rules includes “…the DEQ has determined that the values relied upon may result in an unacceptable public health risk. Although the report is in compliance with Part 201, additional action may be necessary to provide protection of public health.” This type of response does not provide clarity on potential, future liability from the MDEQ. This is especially true if a purchaser is looking to acquire a property with existing contamination that was previously remediated to the existing Part 201 rules.
Closing the Deal on Commercial Property
Waiting on a political fix to this is not an option for most companies. So what is the best course of action to complete the transaction, protect your workers in the case of potential vapor issues, and protect your investment?
Three-Step Approach to Due Diligence
Our first recommendation is the advice we typically offer: make sure you have good legal counsel. If you need referrals, we can recommend several excellent lawyers.
Our second recommendation is to consider your transaction as a three-step approach. First, this must be a team approach (you, your legal counsel, and your technical advisor). This begins by clearly stating your goals, objectives, and risk tolerance. Second, ensure there is a thorough Phase I Environmental Site Assessment (ESA) performed prior to the property transaction. This should not be just a “check box” approach; rather, it should be based on the first step and project understanding. And third, put the information together in a package that documents your position to limit liability, especially when you consider that state and federal guidance will, in all likelihood, change in the future.
If you have any questions regarding Phase I/II Environmental Site Assessments, please feel free to contact me at 248-932-0228, Ext. 133.