January, 2014

CLIENT ALERT

NEW RULES FOR ACQUIRING PROPERTY

AND ENVIRONMENTAL EVALUATIONS

For almost three decades, buyers of commercial, industrial and other properties have known to investigate for environmental problems prior to acquisition.  The primary reason is to evaluate the risks and potential costs of assessment and clean-up of contamination and other regulatory issues, which costs can far exceed the value of the property.  But a proper environmental investigation also provides certain liability protections under federal environmental laws, if one conducts a sufficient investigation.  While some similar limited protections are offered under Florida law, they are not as explicit as the federal protections, which include those for innocent landowners, contiguous property owners subjected to contamination from off-site sources, or bona fide prospective purchasers of contaminated property.

These protections are only afforded if an appropriate environmental investigation is conducted prior to acquisition.  What constitutes an appropriate inquiry (known as “all appropriate inquiries” or “AAI”) has evolved and become more extensive and sophisticated over time.  For many years, the standard for sufficient inquiry has been the ASTM International’s standard practice for Phase I environmental site assessments.  Until the U.S. EPA adopted its newest revised regulation on December 30, 2013, the most recent version approved by the EPA was ASTM E1527-05.  However, ASTM recently promulgated E1527-013, its revised standard for Phase I Environmental Site Assessments.  The changes from the 2005 to the 2013 versions are significant and demonstrate the increasing sophistication of pre-acquisition environmental investigations.  Among the most significant changes are:

1.  More attention will be paid to the migration of potentially harmful vapors from hazardous substances and petroleum products.
2. There are broader definitions of what constitutes Recognized Environmental Conditions, or REC’s, which give rise to the need for additional testing to evaluate the risks associated with contamination.  These include new categories of “historical REC’s” (for past releases of contamination that have been addressed to unrestricted residential uses) and “controlled REC’s” (where previous releases were addressed, but contamination is allowed to remain in place under certain restrictions or conditions).

These changes are likely to increase the number of recognized environmental conditions that are identified in a Phase I Environmental Site Assessment, which could lead to concerns by lenders and an increased need for soil, surface water and groundwater testing to more fully evaluate the scope and risk associated with the REC.  Whether an environmental issue rises to the level of a REC (triggering a higher level of lender scrutiny) often remains somewhat subjective, requiring analysis and discussion among qualified environmental consultants and attorneys.

EPA’s revised All Appropriate Inquiries Rule, 40 CFR Part 312, endorses but does not require the use of ASTM E1527-013.  However, it likely will be the only relevant standard for conducting such investigations.  EPA has not yet amended the recent rule to delete reference to the older 2005 ASTM standard, but promises to do so in the very near future.  The revised rule can be found at https://www.federalregister.gov/articles/2013/12/30/2013-31112/amendment-to-standards-and-practices-for-all-appropriate-inquiries-under-cercla.

Persons or entities acquiring property or businesses with properties, are cautioned to be sure that consultants, attorneys, and other environmental professionals are familiar with the new standard for pre-transaction environmental investigations.

For further information on this or other environmental issues, please contact Dennis Stotts in our Tampa Bay office at dstotts@llw-law.com, or 941-708-4040.