Need More Room for Your Brew?
By Rick Marx, Senior Environmental Engineer and Elaine Enfonde, Senior Environmental Scientist at Nixon Peabody.
So, you are ready to purchase land or a building to expand your operations. One step that should be taken as part of your business due diligence is to determine if there are environmental issues. This will allow the buyer of a property to take advantage of certain defenses to liability under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA,” often referred to as “Superfund”). Purchasers of properties must demonstrate that they conducted “All Appropriate Inquiry” (“AAI”) into the condition of the property before they acquired it. The applicable regulations define AAI as a series of specific inquiries into the past history and operations at the property, which need to be made by the person seeking the exemption and an environmental professional. Purchasers most commonly satisfy this requirement by conducting a Phase I Environmental Site Assessment (“Phase I”) that meets the standards of ASTM International’s E1527-13 standard.
In general, a Phase I is comprised of four components: (1) records review (2) site reconnaissance (3) interviews and (4) a written report. The work must be conducted by an environmental professional.
How do you make sure that the Phase I is done right? It’s critically important to do it right because if a Phase I doesn’t satisfy the requirements of the ASTM standard or the AAI rule, it won’t provide the user with any protection from CERCLA liability. Here are some tips for making sure the Phase I you get for your transaction does what it’s intended to do and you get the liability protection you’re seeking from the report:
- Use a reputable consulting firm: You get what you pay for with these reports. Use a good firm—Nixon Peabody LLP (Elaine & Rick) can provide you with recommendations if necessary.
- Start early: Beginning the analysis early in the transaction gives consultants more options for analyzing issues—they can complete agency file reviews, make return visits to the site, or even conduct soil and groundwater sampling, but only if they have time to do so. Get the consultant out there as soon as you can!
- Get your own report: Sellers often prepare their own reports for buyers ahead of time. Those reports are often done in a more cursory fashion than a report prepared specifically for a buyer. You want the most control over the scope and depth of the analysis. Get your own.
- Watch the date: Reports more than 180 days old must be updated and reports more than one year old won’t qualify for the CERCLA defenses. Make sure your report isn’t “flat!” (expired).
- Follow-through: Completion of the Phase I report isn’t all that’s necessary for the CERCLA defenses to apply—the purchaser also needs to take “reasonable steps” with respect to any potential contamination known or discovered on its property, including taking actions to (a) stop continuing releases, (b) prevent threatened future releases, and (c) prevent human or environmental exposure to releases. If the Phase I itself or future activities uncover any releases of hazardous substances on the property, the purchaser will need to take appropriate action. What exactly that entails is highly fact-specific, and there’s precious little case law on this subject to allow us to generalize as to what’s required. If an issue does arise, be sure to contact your consultant or counsel immediately.