{"id":1004084118,"date":"2013-09-25T13:09:01","date_gmt":"2013-09-25T21:09:01","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004084118"},"modified":"2022-12-06T00:00:16","modified_gmt":"2022-12-06T08:00:16","slug":"guest-column-how-much-environmental-due-diligence-is-enough","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/guest-column-how-much-environmental-due-diligence-is-enough\/","title":{"rendered":"Guest Column: How Much Environmental Due Diligence is Enough?"},"content":{"rendered":"<p><a href=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2013\/09\/Jane-Warren.jpg\"><img loading=\"lazy\" decoding=\"async\" data-attachment-id=\"1004084115\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/guest-column-how-much-environmental-due-diligence-is-enough\/jane-warren\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2013\/09\/Jane-Warren.jpg\" data-orig-size=\"150,210\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;Picasa&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;}\" data-image-title=\"Jane Warren\" data-image-description=\"\" data-image-caption=\"\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2013\/09\/Jane-Warren.jpg?w=150\" class=\"alignright size-full wp-image-1004084115\" alt=\"Jane Warren\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2013\/09\/Jane-Warren.jpg\" width=\"150\" height=\"210\" \/><\/a>By Jane Kimball Warren, Esq.<\/p>\n<p>Purchasers, investors and lenders involved with real property or businesses in the United States often ask how much time and money they need to spend to obtain \u201cenough\u201d information about potential environmental liabilities.<\/p>\n<p>With the rapid growth of laws enacted to protect the environment over the past 30 years comes the potential for liability for cleanup costs being imposed on seemingly \u201cinnocent\u201d parties in order to sustain the important public policy of safeguarding a clean, healthy environment. Accordingly, those involved with buying or selling real estate and businesses in the U.S. have learned that time and money must be spent early on in a transaction in order to avoid later becoming entangled in environmental disasters. But we come back to that question of how much investigation is enough.<\/p>\n<p>Federal environmental law\u2014and many corresponding state laws\u2014requires that those trying to seek a defense to environmental liability as a \u201cbona fide prospective purchaser\u201d or \u201cinnocent landowner\u201d must conduct \u201call appropriate inquiries\u201d into prior uses of a property before proceeding with the purchase in order to receive liability protection. An \u201cinnocent landowner,\u201d in general, is one who purchases a property without knowledge of any contamination (in addition to those who acquire by inheritance or escheat). Because knowledge of pre\u2011existing contamination negates the defense, the innocent landowner defense has proved to be of extremely limited benefit.<\/p>\n<p>Accordingly, federal and state laws have been amended over the past decade to allow for purchasers of contaminated property to qualify as \u201cbona fide prospective purchasers.\u201d To qualify as a bona fide prospective purchaser, a person must have bought the property after Jan.\u00a011,\u00a02002, and must perform &#8220;all appropriate inquiries&#8221; prior to acquiring the property and demonstrate &#8220;no affiliation&#8221; with a liable party. A bona fide prospective purchaser must also comply with any environmental land use restrictions; take \u201creasonable steps\u201d with respect to hazardous substances affecting a landowner\u2019s property; provide cooperation, assistance and access to anyone trying to effectuate a cleanup; comply with information requests and administrative subpoenas; and provide any legally required notices.<\/p>\n<p>In order to establish either of these defenses, a property owner must show that it conducted \u201call appropriate inquiry\u201d into the prior uses of the property. Fortunately, the federal Environmental Protection Agency has promulgated standards regarding what constitutes \u201call appropriate inquiry,\u201d better known as AAI, for environmental due diligence. The AAI Rule clarifies what is required in a Phase\u00a0I Environmental Site Assessment in order to qualify for a defense to environmental liability, but compliance with the AAI Rule may also create a longer and costlier due diligence process that may not always be necessary.<\/p>\n<p>Typically, a Phase\u00a0I environmental site assessment is performed by an environmental professional for lenders, buyers or sellers of a property or a business for the express purpose of determining environmental risk. A Phase\u00a0I is the first step in the due diligence process\u00a0\u2013 it involves no intrusive soil or groundwater testing, but is, instead, a review of historic and current site conditions that can help a consultant determine whether additional investigation is warranted. Prior to the adoption of the AAI Rule, most Phase\u00a0I\u2019s were performed in accordance with ASTM (American Society for Testing and Materials) standards, which also provide guidance on the types of records that should be reviewed and the kinds of observations that should be made during an inspection of a property. Today, both standards remain in effect and either can be utilized when conducting a Phase\u00a0I Environmental Assessment.<\/p>\n<p>Some of the key differences between the due diligence required under the newer AAI Rule and the ASTM Phase\u00a0I standards are as follows: (i)\u00a0the term \u201cenvironmental professional\u201d is defined to clarify who is qualified to conduct Phase\u00a0I\u2019s (the AAI Rule sets forth strict standards that must be met in order to qualify as an \u201cenvironmental professional\u201d deemed capable of issuing an AAI-compliant Phase I); (ii)\u00a0the required scope of historical research has been increased (AAI requires a search as far back in history as there is documentation that the property contained structures or was placed into use, versus ASTM\u2019s \u201cbright\u2011line\u201d 1940 cut\u2011off date); and (iii)\u00a0an analysis of the relationship of the purchase price to the site\u2019s fair market value, if uncontaminated, is necessary so that it can be determined whether contamination played a role in the price paid for the property. These differences will add time and cost to complete a Phase\u00a0I that conforms to the AAI Rule. While not all deals will require an AAI Phase\u00a0I, lenders have generally adopted the AAI standards as the baseline for due diligence necessary in the loan decision process, so the rule has become a de\u00a0facto due diligence requirement in financed transactions.<\/p>\n<p>There are 10 criteria that must be investigated in order to achieve compliance with the AI Rule, as follows:<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 results of an inquiry by an environmental professional;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 interviews with past and present site owners and occupants;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 reviews of historical sources;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 searches for recorded cleanup liens;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 reviews of government records;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 visual inspections of the facility and adjoining properties;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 specialized knowledge of the individual seeking the defense;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 relationship of the purchase price to the value of the property if not contaminated;<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 commonly known or reasonably ascertainable information about the property; and<\/p>\n<p>*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 degree of obviousness of the presence of contamination and the ability to detect contamination by appropriate inquiry.<\/p>\n<p>A key provision of the AAI Rule is that some components of the environmental site assessment must be less than <span style=\"text-decoration: underline\">180<\/span>\u00a0days old in order for the user to be able to rely on its contents for liability protection. Further, the report itself must be dated within one year of property acquisition or financing. Finally, the Phase I Report must include an opinion as to whether conditions indicative of a release or threat of release have occurred, as well as an identification of any data gaps that might have impacted the environmental professional\u2019s ability to recognize these conditions.<\/p>\n<p>If a release has occurred, or the environmental professional identified any other known environmental conditions warranting additional information, a Phase II, which involves testing of the soil and groundwater, would likely be recommended. A Phase II typically takes several weeks to complete, and the costs can range anywhere in the five figures, so advance planning is critical.<\/p>\n<p>Prospective business or property purchasers must also comply with state law requirements, such as those mandated by the New\u00a0Jersey Spill Act or the Connecticut Transfer Act, in order to obtain liability protection under state laws. Perhaps the most critical component of environmental due diligence is to ensure that once an environmental report is received, it is reviewed by knowledgeable in\u2011house or outside experts, as oftentimes what is missing or not covered in a report is the most crucial information, which could significantly impact a property\u2019s or business\u2019s value.<\/p>\n<p align=\"left\"><i>\u2014<\/i><i>Jane Kimball Warren, Esq., is a <\/i><i>partner in the Environment and Energy Redevelopment practice <\/i><i>of McCarter &amp; English L.L.P.<\/i><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>McCarter &amp; English partner Jane Warren talks about how much environmental due diligence you need to perform in order to protect yourself against liabilities.<\/p>\n","protected":false},"author":1515,"featured_media":1004084115,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21786],"tags":[],"class_list":["post-1004084118","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-sustainability"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v28.0 (Yoast SEO v28.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Guest Column: How Much Environmental Due Diligence is Enough? - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/guest-column-how-much-environmental-due-diligence-is-enough\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Guest Column: How Much Environmental Due Diligence is Enough?\" \/>\n<meta property=\"og:description\" content=\"McCarter &amp; English partner Jane Warren talks about how much environmental due diligence you need to perform in order to protect yourself against liabilities.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/guest-column-how-much-environmental-due-diligence-is-enough\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2013-09-25T21:09:01+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-06T08:00:16+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2013\/09\/Jane-Warren.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"150\" \/>\n\t<meta property=\"og:image:height\" content=\"210\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Jane Kimball Warren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/\"},\"author\":{\"name\":\"Jane Kimball Warren\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/#\\\/schema\\\/person\\\/5823db7c668a64091a9c8b5696483827\"},\"headline\":\"Guest Column: How Much Environmental Due Diligence is Enough?\",\"datePublished\":\"2013-09-25T21:09:01+00:00\",\"dateModified\":\"2022-12-06T08:00:16+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/\"},\"wordCount\":1177,\"commentCount\":0,\"image\":{\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/wp-content\\\/uploads\\\/sites\\\/46\\\/2013\\\/09\\\/Jane-Warren.jpg\",\"articleSection\":[\"Sustainability\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/\",\"url\":\"https:\\\/\\\/www.commercialsearch.com\\\/news\\\/guest-column-how-much-environmental-due-diligence-is-enough\\\/\",\"name\":\"Guest Column: How Much Environmental Due Diligence is Enough? 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