$10,000,000 to learn what can happen without an ESA

A massive price to pay for avoiding the relatively minor cost of a Phase I environmental site assessment

A successful business had been operating in a relatively large building for several years.  As luck would have it, an opportunity to acquire the adjacent property presented itself. The last business went into bankruptcy.

The successful business owner took advantage of the opportunity to acquire the adjacent property for only the back taxes due, literally a steal considering the apparent value of the property.

The deal closed without an environmental site assessment.

The successful business owner was familiar with the adjacent property as far as his local experience provided but he was not acquainted with uses of the property before he became a neighbor. He did not know the adjacent property had housed several different businesses over the years.

In his haste to commence the transaction and believing that “all there is to know” about the property was known, he closed the deal to buy the property without an environmental site assessment.

What was not known to the successful business owner was the fact that 20 years ago a manufacturer of printed circuit boards had occupied the property. The operators of that business had spilled copious quantities of the chlorinated solvent, Trichloroethylene, as well as various acids and solutions of heavy metals onto the property. In fact, a regulatory agency had  issued an order to cleanup the property while the circuit board manufacturer was still operating.  However, that order was not heeded.

To make matters worse, the regulatory agency was lax in enforcing the cleanup order.

After the successful business owner acquired the property, the regulatory agency sent a notification that cleanup of the site would have to commence immediately. The new property owner, knowing nothing of the prior history, did not believe that there was a problem.                   

As time passed, the agency issued another cleanup order that they began to aggressively enforce.  The former operators of the offending business were nowhere to be found, having left the country or had died with empty estates, the ultimate escape. The successful business owner was viewed as the “Responsible Party” even though he had done nothing to directly contribute to the contamination that was now over ½ mile south of the subject property as it spread in the water table, a problem that could carry a price tag of over $10 million.

This case study is a prime example of the value of the landowner exemptions provided by the CERCLA Brownfields Amendments. Today, if the business owner rigorously followed the All Appropriate Inquiries – Environmental Site Assessment, Phase 1 Investigation while purchasing the property, he would likely be protected.

Just 27 soil samples from a 100-acre site met the owner’s criteria for economic feasibility and satisfied the federal and state environmental regulators

Also see: Investigate the correct contaminant

A 100-acre site had received fill material for nearly 25 years–since the late 1960s. The majority of the fill came from large operators who had total deposits   of 10,000 to 200,000 yards. The materials were trucked to the site in loads of 10 to 20 cubic yards each and deposited at different places at different times. The source of the fill material in any given area of the site was not known.

Because it was a well-known land mass and had received a large quantity of fill, the site was investigated by the Technical Assistant Team of the EPA.                   

• • The investigation resulted in the discovery of zones of waste oil contaminated soil in the fill material deposited at the site.

The owner was directed to conduct an environmental site assessment to determine the presence of hazardous waste. The EPA suspected that hazardous oil refinery waste was included in the fill material.                   

The owner was understandably concerned about the cost of complying with the environmental regulatory agencies’ request.                    

• For economy, he needed a site sampling and analysis plan that would utilize the minimum number of samples possible and yet still meet the close scrutiny of the federal and state regulatory agencies.    

Harris & Lee Environmental Sciences, LLC developed a cost-effective plan that satisfied the criteria of the environmental regulatory agencies. The plan was designed to collect the minimum number of samples adequate to allow accurate and precise measurement of the chemical properties of the fill material. If the measurements were accurate (free of error) and precise (repeatable), they would meet regulators’ requirements for statistically reliable estimates of conditions at the site.

• Data supplied by the regulatory agencies was used to calculate and estimate the characteristics of a typical “hot spot.”                     
• Next, statistical analysis was performed to estimate “consumer’s risk” and to establish the mathematical probability of not finding the typical “hot spot.”
• Additional analysis estimated the probability of a “hot spot” existing even if none were found through sampling and the mathematical probability of finding an existing “hot spot.”
• Together with the application of standard statistical methods, these analyses allowed determination of the adequate and reasonable number of samples.

The plan ultimately proposed by Harris & Lee Environmental Sciences called for collection of just 27 samples from the 100-acre site.

• The plan met the owner’s need for economic feasibility and satisfied the federal and state regulatory agencies’ criteria for the environmental assessment of the site.

Return to Environmental Site Assessments Overview

Inadequacies in environmental site assessment led to costly erroneous conclusion of oil contaminated soil

The application of inappropriate tests during the environmental site assessment led to erroneous conclusions of oil contamination and $100,000 down the drain

Also see: Contaminant Sleuth: Robert Harris detects toxins in food, wine, soil

A land development company in Northern California began improving a 13-acre site for inclusion in a nearby light industrial park.  The improvements included adding fill soils from various nearby locations to bring the parcel “up to grade” and retard potential flooding. When grading was accomplished, the site was put on the market and attracted the attention of a large industrial concern.

The buyer requested a Phase I site assessment that was conducted at the land owner’s expense by a local civil engineering firm. It included shallow soil borings and chemical analysis.

• The engineering firm’s laboratory, chosen for cost reasons only, performed “customary” analyses and reported that the soils were contaminated with used motor oil.

This finding extinguished the buyer’s interest in the property and compelled the owner to undertake extensive additional soils and groundwater testing.

• Five years later the owner had spent over $100,000 on environmental assessments and consulting without conclusive results.

The next step, he was told, was a full-scale risk assessment of the property, at a cost in excess of $250,000. At the suggestion of his bank, the property owner contacted Harris & Lee Environmental Sciences, LLC and requested an evaluation of the work done to date on the property. The bank was aware of Harris & Lee Environmental Sciences expertise in environmental chemistry and toxicology.

No oil found in the soils

In reviewing the engineering firm’s data on the site, Harris & Lee Environmental Sciences quickly determined that inadequacies in the initial environmental site assessment analysis plan led to the application of inappropriate tests and, likewise, to erroneous conclusions of oil contamination.                    

All of the analytical chemistry performed to evaluate the site for organic constituents was faulty due to application of incorrect analytical procedures.                   

• Specifically, the California Leaking Underground Fuel Tanks (LUFT) procedure was used, even though it is only for samples taken from directly underneath a leaking tank.
• In addition, the EPA Toxic Characteristic Leaching Procedure (TCLP) was used, even though samples from sites such as this are specifically excluded from the testing procedure.

Harris & Lee Environmental Sciences, LLC developed a new soil sampling and analysis plan for the property, one that would properly characterize the site through the use of appropriate EPA protocols. The analyses were conducted by laboratories Harris & Lee Environmental Sciences, LLC had audited and qualified as competent for these tasks. 

The resulting data showed that there was no motor oil on the site. Rather, the improper chemistry techniques of the engineering firm’s laboratory had mistakenly identified naturally occurring organic matter as petroleum compounds.

Back to environmental site assessments overview

by Robert S. Harris

One of the most challenging types of property to evaluate for environmental risk is the retail shopping mall or small strip center

Dry cleaners use a solvent in the cleaning process called Tetrachloroethylene (also known as Perchloroethylene, or Perc), a significantly toxic chemical. It is particularly obnoxious and difficult to remove from the environment and, over time, it degrades into a potent carcinogen.

Perc is heavier than water; it sinks to the bottom of the body of water it is in.

• Thus, when Perc is spilled or leaks from a dry cleaner operation, it moves into the groundwater and continues to work its way down until it contaminates the deeper aquifers from which wells typically draw their water.

The result is a major contamination situation that may effect many water wells in an area and can cost up to tens of millions of dollars to clean up.

Property owners are ultimately responsible for environmental contamination

Typically, the dry cleaners that created the mess are “Mom & Pop” operations with limited financial resources, if any, to deal with the clean up. Hence, the regulators move on to the next level of responsibility, the property owner.

• It is the property owner who is ultimately responsible for contamination that emanates from his property. While CERCLA provides three specific landowner liability exemptions, only those who rigorously follow the All Appropriate Inquiries Rule prior to purchase are protected.

All Appropriate Inquiries – Environmental Site Assessment, Phase 1 Investigation is essential when purchasing a retail mall or strip center

One of the most challenging types of property to evaluate for environmental liability risk is the retail shopping mall or small strip center, a typical location of dry cleaners – past and present. In fact, these types of commercial entities can be, and are, the most difficult of business properties to evaluate when performing an environmental site assessment. Some of the reasons for this are:

• Small strip centers and shopping malls typically have many different small businesses that move in and out frequently.

• Property managers change on a surprisingly regular basis; on average commercial property managers work with a specific retail property for only about 5 years. New property managers do not usually keep records of tenants that were present on a property prior to their involvement, making it difficult to recreate an accurate history of occupancy.

From this scenario come the following principles:

• When purchasing property that is or has been used for commercial entities, the All Appropriate Inquiries Rule must be rigorously followed for the purchaser to benefit from a liability exemption under CERCLA.

• If environmental risk insurance is available to a property owner, it is likely to be very expensive because of the likelihood of contamination and the cost of remediation.

• Owners of a property with a dry cleaner present in one of the units should closely monitor the tenant or create an environmental liability risk management program that includes a requirement that the dry cleaner use secondary containment to include not only the dry cleaning unit itself, but all of the chemicals and filters that come in contact with the solvent. No secondary containment, or inadequate secondary containment, virtually assures that Perc will contaminate the property. In that event the property owner may well be “taken to the cleaners” himself, facing up to an 8-figure cleanup cost.

Robert S. Harris is president and senior scientist of Harris & Lee Environmental Sciences, LLC, a Santa Rosa, California environmental consulting firm serving the western United States. He holds degrees in chemistry and biochemistry, and has 32 years experience in environmental analytical chemistry and environmental toxicology.  Mr. Harris has established and operated large laboratories andhas developed several ground-breaking methodologies for environmental analysis, including the standard method for analysis of polychlorinated biphenyls in water, soils and oils. His firm has saved lending, insurance, real estate and law clients millions of dollars, including conversion of a waste costing $120,000 per month to a usable fuel.

The application of inappropriate tests during the environmental site assessment led to erroneous conclusions of oil contamination and $100,000 down the drain

Also see: Contaminant Sleuth: Robert Harris detects toxins in food, wine, soil

A land development company in Northern California began improving a 13-acre site for inclusion in a nearby light industrial park.  The improvements included adding fill soils from various nearby locations to bring the parcel “up to grade” and retard potential flooding. When grading was accomplished, the site was put on the market and attracted the attention of a large industrial concern.

The buyer requested a Phase I site assessment that was conducted at the land owner’s expense by a local civil engineering firm. It included shallow soil borings and chemical analysis.

• The engineering firm’s laboratory, chosen for cost reasons only, performed “customary” analyses and reported that the soils were contaminated with used motor oil.

This finding extinguished the buyer’s interest in the property and compelled the owner to undertake extensive additional soils and groundwater testing.

• Five years later the owner had spent over $100,000 on environmental assessments and consulting without conclusive results.

The next step, he was told, was a full-scale risk assessment of the property, at a cost in excess of $250,000. At the suggestion of his bank, the property owner contacted Harris & Lee Environmental Sciences, LLC and requested an evaluation of the work done to date on the property. The bank was aware of Harris & Lee Environmental Sciences, LLC’ expertise in environmental chemistry and toxicology.

No oil found in the soils

In reviewing the engineering firm’s data on the site, Harris & Lee Environmental Sciences, LLC quickly determined that inadequacies in the initial environmental site assessment analysis plan led to the application of inappropriate tests and, likewise, to erroneous conclusions of oil contamination.                    

All of the analytical chemistry performed to evaluate the site for organic constituents was faulty due to application of incorrect analytical procedures.                   

• Specifically, the California Leaking Underground Fuel Tanks (LUFT) procedure was used, even though it is only for samples taken from directly underneath a leaking tank.
• In addition, the EPA Toxic Characteristic Leaching Procedure (TCLP) was used, even though samples from sites such as this are specifically excluded from the testing procedure.

Harris & Lee Environmental Sciences developed a new soil sampling and analysis plan for the property, one that would properly characterize the site through the use of appropriate EPA protocols. The analyses were conducted by laboratories Harris & Lee Environmental Sciences had audited and qualified as competent for these tasks. 

The resulting data showed that there was no motor oil on the site. Rather, the improper chemistry techniques of the engineering firm’s laboratory had mistakenly identified naturally occurring organic matter as petroleum compounds.

Innocent Landowner Protection

In 1986, the Superfund Amendments and Reauthorization Act (SARA) created an “innocent landowner” defense to CERCLA liability by adding Section 101(35)(B). This section states: “for those persons who could demonstrate, among other requirements, that they “did not know and had no reason to know” prior to purchasing a property that any hazardous substance that is the subject of a release or threatened release was disposed of on, in, or at the property. Such persons, to demonstrate that they had “no reason to know” must have undertaken, prior to, or on the date of acquisition of the property, “all appropriate inquiries” into the previous ownership and uses of the property consistent with good commercial or customary standards and practices.

Brownfields Amendment Liability Limitations

The Brownfields Amendment clarified liability provisions for innocent landowners and added protections from liability for bona fide purchasers and contiguous property owners who meet certain statutory requirements. The All Appropriate Inquiries Rule issued by the U.S. Environmental Protection Agency on November 1, 2005 established the specific regulatory requirements and standards for conducting All Appropriate Inquiries.

Generally, under the CERCLA Brownfields Amendments, the following conditions would minimize a purchaser’s exposure to liability for past environmental contamination. The advantage for lenders is that these landowner exemptions protect the borrower and collateral in commercial real estate loans.
For the Innocent Landowner Exemption:

• Did not cause or contribute to hazardous substances
• Property acquired by inheritance or bequest
• After completing All Appropriate Inquiries & ASTM E 1527-05 did not know and had no reason to know of “release or threatened release” at the time of acquisition

For the Bona Fide Purchaser Exemption:

• Acquires ownership after 1/1/05
• Hazardous substances released before purchase
• No potential liability or connection with Potentially Responsible Party other than through purchase agreement
• Rigorously completes All Appropriate Inquiries & ASTM E 1527-05
• Appropriate care in dealing with hazardous substances
• Cooperates with regulatory agency’s mandated remedial work, contractors, etc.

For the Contiguous Landowner Exemption:

• Adjacent Property Owner
• Did not cause, contribute, or consent to release or threatened release
• After completing All Appropriate Inquiries & ASTM E 1527-05 did not know and had no reason to know of “release or threatened release” at the time of purchase
• No potential liability or connection with neighboring Potentially Responsible Party

Harris & Lee Environmental Sciences, LLC strongly recommends purchasers seek legal advice before acquiring a property with known environmental damage. This information should not be construed as legal interpretation or legal advice. Our intent is to simply point out that these exemptions exist.

Residential Uses

In the case of property acquired by a non-governmental entity or non-commercial entity for residential or other similar uses, the current standards (ASTM and AAI) may not be applicable. For those cases, the Brownfields Amendments to CERCLA establish that a “facility inspection and title search that reveal no basis for further investigation shall be considered to satisfy the requirements for all appropriate inquiries”.

• The definition of “facility inspection” is open to conjecture. It can mean more than just inspecting; it may include an investigation into nearby environmentally active sites.

2013: ASTM E 1527-13: The standard methodology for performing Phase I’s has been updated for the first time since 2005. The new standard became official on November 13, 2013.  The major changes in the new revision include the following:

• New definitions for Recognized Environmental Conditions (RECs)
  • Historical RECs – must be cleaned up so that no “activity or use limitations” remain on the property. This means that the site must at least meet residential use contamination screening limits, or the former HREC will now be considered an REC
  • Controlled RECs – this is a new term created for past contamination that has been remediated to the satisfaction of the oversight agency, but some contamination remains on the site that pose “activity or use limitations.” Examples could be a site that  could not be converted to residential use or have subsurface disturbance without additional environmental investigation, oversight or controls. The Controlled REC is listed under the recognized environmental condition
  • RECs – the definition has been simplified and the new category of Controlled REC has been added.
• Files Reviews are No Longer Discretionary
  • In the past, some environmental firms, in an effort to minimize cost and/or time, have skipped performing agency file reviews. This step is no longer discretionary in the new standard. (Note: HLENV has always performed agency file reviews for Phase I Reports.)

2005: ASTM E 1527-05: The Federal EPA  finalized “Standards and Practices for All Appropriate Inquiries,” published in the Federal Register, Part III Environmental Protection Agency, 40 CFR Part 312 dated November 1, 2005. 

• The effective date for these regulations is November 1, 2006. The EPA specified ASTM 1527-00 for Phase I Site Assessments as the designated “interim standards.”
• After November 1, 2006  only ASTM E 1527-05 will meet the AAI regulations.

2002 Brownfields Amendments: The passage of the Small Business Liability Relief and Revitalization Act, the Federal “Brownfields Act,” an amendment to CERCLA, required EPA to develop standards and practices for conducting “all appropriate inquires.” The ASTM E-1527-97 and -00 were found to be inconsistent with applicable law because neither met the statutory criteria.

• The 2002 Brownfields Amendments added potential liability protections for “contiguous property owners” and “bona fide purchasers” who also must demonstrate they conducted all appropriate inquiries, among other requirements, to benefit from the liability protection.

1993: American Society for Testing and Materials (ASTM) published the ASTM E-1527 Standard Practice for Phase I Environmental Site Assessments and ASTM E-1528 Standard Practice for Transaction Screens. These standards were the accepted standards for the minimum levels of environmental due diligence within both the environmental consulting, legal, and financial services industries.

1986: Congress passed the “Superfund Amendment Reauthorization Act,” aka, SARA. As part of SARA, the EPA included liability protection known as the “innocent landowner provision” for purchasers of property, as long as the purchaser completed “All Appropriate Inquiry” consistent with “good commercial real estate practices.” Congress created the “innocent landowner” provisions in 1986.

1980: The Comprehensive Environmental Response Compensation and Liability Act (CERCLA) passed by Congress, aka, SuperFund. The law gave the EPA broad powers to investigate and remediate the worst contaminated sites in the country. The initial investigation consisted of a detailed review of the available background information, inspection of the off-site area and inspection of the on-site area. This process was known as “Preliminary Environmental Site Assessment” or “environmental due diligence.” This is the precursor to the Phase I Environmental Site Assessment process.

• CERCLA contained a concept called “strict liability” – liability without fault. This meant that an “innocent purchaser” of a property could be held liable although they did not cause the contamination.

Table 1. Key Differences between the Final All Appropriate Inquiries Regulation Specification and the Previous Specification Standard

CERCLA All Appropriate Inquiries compared to ASTM E 1527-05 Key Difference: Petroleum

The basic difference between CERCLA All Appropriate Inquiries and the new ASTM E 1527-05 is the extent of the definition of hazardous substances. Under the petroleum exclusion of CERCLA Section 9601(14), petroleum and crude oil have been explicitly excluded from the definition of hazardous substances. However, ASTM E 1527-05 includes petroleum products  because they are of concern in many commercial real estate transactions and current custom and usage is to include an inquiry into the presence of petroleum products in an environmental site assessment.

As noted above, the State of California now recognizes the Innocent Landowner Protection, the Contiguous Landowner Protection and the Bonafide Purchaser Protection. Thus, while CERCLA does not include petroleum products, that omission is picked up by the State of California.