Phase I Environmental Site Assessments/AAI Due Diligence

Background

The Phase I Environmental Site Assessment (ESA) service area has been evolving since the late 1980s. The Superfund Amendment and Reauthorization Act (SARA) and Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) created an environmental liability exclusion for the "innocent landowner" that performed "all appropriate inquiry" (AAI) during property acquisition. Congress did not define AAI. In an attempt to better define the scope of AAI, ASTM International issued its first Standard Practice for Phase I ESAs in 1993. The ASTM International Standard, which was modified in 1994, 1997, 2000, and 2005, quickly became the industry standard for defining AAI due diligence.

In November 2005, the U.S. Environmental Protection Agency (EPA) issued rules establishing standards and practices for conducting AAIs. The most recent ASTM International Standard Practices for conducting Phase I ESAs (E 1527-05 and E 2247-08) are consistent with those rules. R&W is intimately familiar with both the EPA Rules and ASTM International Standard Practices. R&W provided comments to the EPA during the rule-making process.

For a detailed summary of cleanup liability, please refer to R&W's Cleanup Liability Discussion.

Phase I ESA Process

The Phase I ESA process starts with the desire to seek one of the three CERCLA liability defenses, such as "the innocent landowner" (or similar state liability defense), or to assess the environmental condition of the real estate prior to purchase, re-financing, or foreclosure. R&W assists a wide variety of clients including banks, private parties, municipalities, developers, real estate agents, and attorneys in completing environmental due diligence during the property transaction.

The key components of a Phase I ESA are historical research, records/governmental agency file reviews, interviews, a site reconnaissance, and a summary of the assessment findings. Historical information sources typically include chain-of-title documentation, fire insurance maps, aerial photographs, city directories, plat maps, assessor records, and topographic maps. In Michigan, the Department of Environmental Quality (MDEQ) and local health and fire department records are typically evaluated for a Phase I ESA.

A site reconnaissance is performed to establish the current use and operations of the site, as well as identify potential sources of contamination (both current and historical from the site itself and adjoining real estate). In order to further establish the historical, current, and future use of the site, interviews are typically conducted with the current owner and tenant of the site, as well as historical owners or occupants and representatives of the entities involved in the current transaction.

Once all of the above components of the Phase I ESA have been completed, R&W drafts a report that summarizes the findings, discusses the implications of the findings to the site, and identifies any Recognized Environmental Conditions (RECs) as defined by the ASTM International Stardard Practice.

ASTM International Standard E 1527-05 defines a REC as

. . . the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property or into the ground, ground water, or surface water of the property.

If any RECs are identified when a client is purchasing or leasing, R&W can assist clients with determining appropriate action to complete their due diligence to avoid cleanup liability.

R&W has conducted more than 300 ESAs for clients in the past three years.

Please feel free to contact either Mark Westra or Bill Bosze for more information.

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