Environmental Concerns for Real Estate Purchases and Sales - Part 4
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Summary: The final part of this series discusses the role of Phase II investigations, environmental concerns not normally addressed in a Phase I, the reuse of Brownfield sites, and the impact endangered species have on development.
D. Phase II Investigations
A Phase II is used when the Phase I identifies one or more “Recognized Environmental Conditions,” (“REC’s”) which is a defined term in the regulations and in ASTM E 1527-13. If a Phase II is determined to be necessary, testing of soil, air and/or groundwater, as recommended by the environmental professional, is undertaken.
Under the Brownfields Amendments the Bona Fide Prospective Purchaser defense may make purchase of a contaminated property feasible, but Phase II testing may be required to complete All Appropriate Inquiries, because it’s not possible to fulfill all of those obligations described in Section III.B in order to protect your BFPP status, if you don’t know what the contamination is or how extensive it is. For example, how can you know that you’ve taken all appropriate steps to contain an ongoing release, if you don’t know if there is an ongoing release?
Whenever a Phase I identifies RECs, we almost always recommend a Phase II. But unlike a Phase I, there are no regulations that define how a Phase II must be conducted. Therefore, that becomes a negotiation with your environmental consultant designed to get sufficient information without testing every square inch of the property and running up a huge bill.
There are other reasons to do a Phase II. Prospective Purchaser Agreements usually require that the contamination be documented before the agency will enter into such an agreement. A similar situation exists regarding No Further Action letters, and Enforceable Written Assurances. Those types of agreements and letters can be very valuable in protecting a purchaser, and later purchasers, against environmental liability in some instances. But to get one, you have to submit a Phase II to the regulatory agency. There also may be contractual obligations to do a Phase II if you’re selling the property.
E. Non-Scope Considerations (aka Business Environmental Risks)
Standard Phase I Environmental Site Assessments do not include investigation of those items classified in ASTM E 1527-13 as Non-Scope Considerations (aka Business Environmental Risks or “BERs”). Among the BERs that the prospective purchaser should consider including in the scope of work for the Phase I are the following:
• Asbestos-containing materials
• Lead-based paint
• Lead in drinking water
• Regulatory compliance
• Cultural and historic resources
• Industrial hygiene
• Health and safety
• Ecological resources
• Endangered species
• Indoor air quality
• High-voltage power lines (recently deleted from the ASTM Standards)
• Biological agents
Adding an investigation into BERs to the standard Phase I ESA is not an expensive proposition and may help the prospective purchaser avoid many costly problems that would not otherwise be identified. Some of the BER issues will be discussed below.
Much of the cleanup of Brownfield sites is accomplished primarily at the state level. EPA says:
State response programs play a significant role in assessing and cleaning up brownfield sites. As Congress recognized in the legislative history of the Brownfield Amendments,
“[t]he vast majority of contaminated sites across the Nation will not be cleaned up by the Superfund program. Instead, most sites will be cleaned up under State authority.”
Voluntary cleanup programs (VCPs) are typically the state authority used to address brownfield and other lower-risk sites.
Second, the owner of the Brownfield site can usually obtain a No Further Action Letter (“NFA”) or similar determination from the state regulatory agency if it meets the requirements of the VCP. Each state’s requirements are different, so it is important to consult with an expert in dealing with the state Brownfield regulations.
It is important to note that the Brownfields Amendments do not cover petroleum contamination. Therefore, the CERCLA safe harbor defenses are not applicable to properties contaminated with petroleum products.
the "bona fide prospective purchaser," "innocent
landowner," and "contiguous property owner" provisions limit
liability, there are still measures the property owner has to take, should
hazardous substances ever be identified at the property. These measures would have to be determined
based on the characteristics of the release, but can be described generally, as
follows: A "bona fide prospective
purchaser" and "contiguous property owner" must (i) provide
all required notices with regard to discovery or release of hazardous
substances, (ii) take reasonable steps to stop any continuing release, prevent
future releases and to prevent or limit exposure to hazardous substances on or
from its property, (iii) cooperate with any cleanup or restoration activities
and certain requests for information, and (iv) use the land in accordance
with any land use restrictions or other institutional controls used in
connection with the response to the contamination. The
"Innocent landowners" must (i) provide full cooperation with clean up efforts, (ii) comply with and not interfere with land use or other controls used in connection with the contamination, (iii) exercise due care with regard to the contamination, and (iv) take precautions against foreseeable acts of third parties and the foreseeable consequences of the acts of third parties.
If contamination is known to exist or is suspected at a site, the contracting process must be structured so as to clearly delineate who is responsible for the contamination and any necessary cleanup. This involves potentially complicated access agreements, indemnification provisions, and sometimes requires negotiations on caps to liability for the seller and/or buyer. Environmental insurance must be considered and negotiated.
The existence of any contamination must be addressed in a manner that will shield the developer and property owner from liability under the vast array of environmental laws that now confront them. Does the developer need to dispose of contaminated soil? The RCRA regulations must be followed. Will the developer be dewatering a site that has contaminated groundwater? How will s/he deal with that contaminated water? S/he can’t run it onto a neighboring property. Is contaminated groundwater causing a vapor intrusion problem? The structures must be built to deal with that eventuality. Is there asbestos-containing materials in structures that must be demolished? NESHAP regulations must be complied with.
The ESA requires federal agencies, in consultation with the FWS and/or the NOAA Fisheries Service, to ensure that actions they authorize, fund, or carry out are not likely to jeopardize the continued existence of any listed species or result in the destruction or adverse modification of designated critical habitat of such species. More importantly to private land owners, the law also prohibits any action that causes a "taking" of any listed species, by anyone. Likewise, import, export, interstate, and foreign commerce of listed species are all generally prohibited.
The “taking” issue is addressed in Section 10 of the ESA. It is designed to regulate a wide range of activities affecting plants and animals designated as endangered or threatened, and the habitats upon which they depend. With some exceptions, the ESA prohibits activities affecting these protected species and their habitats unless authorized by a permit from the FWS or the National Marine Fisheries Service (“NMFS”). Permitted activities are designed to be consistent with the conservation of the species.
The ESA makes it unlawful to “take” (a term which includes harm, harass, pursue, hunt, shoot, wound, kill, trap, capture, or collect any wildlife within the United States), remove and reduce to possession any plant from areas under Federal jurisdiction; maliciously damage or destroy an endangered plant on areas under Federal jurisdiction; and remove, cut, dig up, or damage or destroy any endangered plant in knowing violation of any State law or regulation or in the course of a violation of a State criminal trespass law. These prohibitions apply to live or dead animals or plants, their progeny (seeds in the case of plants), and parts or products derived from them.
Some activities that “take” an endangered or threatened species may be authorized by a permit. The activities authorized by permits differ depending on whether the species is listed as endangered or threatened. An endangered species is in danger of extinction throughout all or a significant portion of its range. A threatened species is likely to become endangered in the foreseeable future. For endangered species, permits may be issued for scientific research, enhancement of propagation or survival, and taking that is incidental to an otherwise lawful activity. For threatened species, permits also may be issued for zoological, horticultural, or botanical exhibition; educational use; and special purposes consistent with the ESA.
Permits issued by the Endangered Species program are of three basic types: incidental take permits, enhancement of survival permits, and recovery and interstate commerce permits. Incidental take permits are required when non-Federal activities will result in the take of threatened or endangered species. A habitat conservation plan or “HCP” must accompany an application for an incidental take permit. The HCP associated with the permit is designed to ensure that the effects of the authorized incidental take are adequately minimized and mitigated.
Enhancement of survival permits are issued to non-Federal landowners participating in Safe Harbor Agreements or Candidate Conservation Agreements with Assurances. These agreements encourage landowners to take actions to benefit species while also providing assurances that they will not be subject to additional regulatory restrictions as a result of their conservation actions.
Recovery and interstate commerce permits are issued to allow for take as part of activities intended to foster the recovery of listed species. A typical use of a recovery permit is to allow for scientific research on a listed species in order to better understand the species’ long-term survival needs. Interstate commerce permits also allow transport and sale of listed species across State lines (e.g., for purposes such as a breeding program).
Obtaining any of the permits is an expensive and time-consuming process. However, penalties for violation of the ESA can be as much as $25,000 per violation. Therefore, it is essential that appropriate environmental due diligence be completed prior to any activities that could result in a “take” of a threatened or endangered species to determine if a threatened or endangered species, or habitat for such a species, is present on the property.
Unfortunately, the ESA is not the only legislation with which property owners need be concerned in regards to flora and fauna located on their property. Other federal legislation that may be relevant to a specific plant or animal includes the Bald and Golden Eagle Protection Act (16 U.S.C. 668-668C), the Migratory Bird Treaty Act (16 U.S.C. 703-712), and the Marine Mammal Protection Act (16 U.S.C. 1361-1407), among others.
It is important to understand that investigation of endangered species on a property is not part of a standard Phase I Environmental Site Assessment. Endangered species investigation is considered a “non-scope consideration,” sometimes referred to as a “Business Environmental Risk.” An endangered species investigation will only be conducted by an environmental consultant preparing a Phase I ESA if requested by the user of the Phase I ESA and at additional cost. Even so, it is usually a good idea to purchase the non-scope considerations investigation.
 Revitalizing Contaminated Sites: Addressing Liability Concerns; Revitalization Handbook, p. 40 (emphasis added), http://www.epa.gov/compliance/resources/publications/cleanup/brownfields/handbook/index.html.
 16 U.S.C. 1531-1543
 See the discussion of completing environmental due diligence is Section F of this paper.
 This Act makes it illegal to import, export, or take bald or golden eagles, or to sell, purchase, or barter their parts, or products made from them, including their nests or eggs.
 Except as allowed by implementing regulations, this Act makes it unlawful to pursue, hunt, kill, capture, possess, buy, sell, purchase, or barter any migratory bird, including the feathers or other parts, nests, eggs, or migratory bird products.
 This Act establishes a moratorium on the taking and importation of marine mammals, including parts and products, and defines Federal responsibility for conservation of marine mammals, with management authority vested in the Department of the Interior for the sea otter, walrus, polar bear, dugong, and manatee.
 Forestry and farming are the only significant exemptions.
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