Note:  This is the second in a two-part series on environmental due diligence (i.e., Phase I/II Environmental Site Assessment or ESA).  See Environmental Liability Protection Basics: Environmental Due Diligence (aka Phase I Environmental Site Assessment)

Environmental Due Diligence was born out of one of the nation’s early environmental horror stories – Love Canal in New York.  If you are too young to remember this, a Google search will provide you with more than 300 million references.

The U.S. Congress didn’t want this to happen again, so they amended the Comprehensive Environmental Response and Liability Act (CERCLA) in what was called the “Superfund Amendments.”  One provision in Superfund is “All Appropriate Inquiry.”  This is what we know as the Phase I ESA.

If there is a point we want to “drive home,” it’s this:  Do not take this lightly or brush it aside as an administrative function.  You are evaluating the site for very serious issues that can affect the health of those who use the site as well as your investment.

With the above said, let’s take a look at the Phase II ESA.

In our August 8, 2019, blog, we discussed why your legal counsel, bank, or other advisor suggested or required you to conduct environmental due diligence for the property/building you are considering acquiring.

The central objective of the Phase I ESA boils down to answering this question:  Are there any Recognized Environmental Conditions (RECs) at the site?  When the answer is “no,” you have fulfilled your environmental due diligence obligations.

Quantitative Data from Soil, Groundwater, and/or Vapor

When the answer is “yes,” and a Phase I ESA concludes that there are potential RECs, it is a qualitative statement.  That is, historical or regulatory data, site observations, or interviews indicate that the soil, groundwater, or indoor air (vapor) may have been affected by past practices.  Not all RECs are created equal.

The objective of the Phase II ESA is to gather quantitative data from the site to put the REC in perspective.  This may include collection and testing of soil, groundwater, and vapor samples for the RECs identified.

Sample collection and testing must be done according to established procedures.  This process must be carefully designed, conducted, and documented.  This cannot be overstated.  If this is done incorrectly, the subsequent data may be meaningless. Additionally, data can be a “double-edged sword” and should not be collected for collection sake.

Making Sense of the Data

Laboratory data are compared to applicable state or federal standards; this is where it can get complex.  It is not as simple as whether or not the data exceed a criteria.

For example, if chemical “xyz” is detected in soil, but there is no completed exposure route (e.g., no one will come into contact with the soil, it is not impacting groundwater, and it is not posing a threat via vapor to occupants), the decision may be to document the presence of the contaminant but not to mitigate or remediate it.

Phase II Environmental Site Assessments will often use direct-push methods to collect soil and groundwater samples.

Making Decisions Based on the Data

Where there is a potential for direct contact, remediation may be necessary, and this can include anything from removal of a limited amount of soil to far more complex remedies.  In the case of potential exposure to vapors, mitigation may be sufficient (depending on your intended use and several other factors).

Communication with your consultant during the Phase I/II process is important.  For example, if they discover areas of “significant” contamination and remediation or mitigation is necessary (given your intended use), you may want to “walk” from the property.  On the other hand, these data may prove useful in negotiating the purchase price.

Michigan-Specific Liability Protection

If your data show that soil or groundwater exceed applicable criteria in Michigan, you can use these data for a Baseline Environmental Assessment (BEA).  You can submit (“disclose”) the BEA report to the State and “be protected from liability for cleanup of existing contamination on the property.”

We covered BEAs and Due Care Obligations in a blog a few years ago (see Commercial Property Transaction in Michigan and Environmental Obligations).

There are a myriad of technical and legal considerations when conducting environmental due diligence.  Make sure you carefully choose your advisory team to help you make the best decisions possible.

If you have any questions about Phase I or Phase II ESAs, contact me at 248-932-0228, Ext. 133.

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