Business environmental risks: What property owners should know - by Kevin Taylor and Jason Cooper

 

 

Due diligence is an important part of any commercial real estate transaction, helping minimize potential environmental liabilities for buyers, sellers, lenders, and other stakeholders. Many property owners erroneously assume that environmental compliance requirements address the full scope of potential liability, leaving their business exposed to additional environmental risks without even knowing it.

Phase I Environmental Site Assessments (ESAs) are a vital tool for identifying site conditions, flagging potential contamination risks, and ultimately protecting purchasers and stakeholders from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

Though ESAs and CERCLA compliance are a necessary part of the development process, they do not address the entire spectrum of liability faced by a property owner. Business Environmental Risks (BERs) are liabilities that can negatively impact a business or the future use of its site, but which fall outside the scope of CERCLA statutes. Without assessing for BERs in addition to the standard Phase I ESAs, property owners are only protecting themselves from a fraction of their potential liabilities.

Where ESAs Fall Short
The primary goal of a Phase I ESAs is to locate and identify Recognized Environmental Conditions (RECs), which indicate the potential presence of hazardous substances and/or petroleum spills on site. RECs include leaking underground storage tanks, a history of on-site dry-cleaning operations, and improperly handled waste products.

There are a number of common health hazards that are not recognized as RECs, including asbestos-containing materials (ACMs), fungal growth, radon, and pharmaceuticals and personal care products (PPCPs). Phase I ESAs are intentionally narrow in scope, designed specifically to establish liability protection under CERCLA. Therefore, property owners should never assume they are fully protected from all environmental liability simply because a Phase I ESA discovered nothing of concern. There are a myriad of other factors that can impact a property owner’s ability to sell or lease property, secure financing, obtain insurance, or meet state regulations outside the scope of CERCLA.

Identifying & Addressing BERs
Despite their exclusion from Phase I ESAs, BERs can pose serious financial, legal, and regulatory consequences for property owners. An unaddressed BER can drive up construction costs, derail project timelines, damage a property’s value, and open up the owner and/or developer to litigation and lasting reputational harm. Deals can stall or change dramatically, not because an REC was identified, but because historic petroleum management practices triggered unexpected tank closure obligations, petroleum vapor intrusion (PVI) concerns, or regulatory compliance costs that were never part of the original budget estimates.

Many of the targeted evaluations for BERs, such as asbestos surveys for ACMs and sub-slab vapor sampling for PVI, can be effectively integrated into a Phase I ESA. Property owners can work with an environmental consultant to identify the appropriate evaluations based on intended and historic uses, renovation plans, and risk tolerance, and conduct those evaluations while on-site for Phase I ESAs. Understanding these additional risks allows stakeholders to make more informed decisions prior to a sale or lease and avoid potential conflicts once a deal has already been closed.

A Multidisciplinary Approach
Investigating and addressing different BERs requires the experienced insight of different professionals. Environmental specialists like Certified Asbestos Inspectors (CAIs) and Certified Microbial Investigators (CMIs) can identify and sample ACMs and mold, respectively. Testing for PVI, however, requires a licensed Professional Geologist (P.G.) or Professional Engineer (P.E.). Where protected wetlands are concerned, civil engineers and environmental planners can support property owners through federal, state, and local permitting.

Multidisciplinary consultants can help streamline BER mitigation by providing all of the required disciplines in-house. The long-term continuity of care provided by a single consultant means that BERs can be identified and mitigated by professionals in consistent communication with one another. This approach also creates a single point of accountability, reducing the likelihood of errors and the need to rely on additional subconsultants.

Phase I ESAs are a critical first step in due diligence, but they do not give stakeholders a comprehensive picture of environmental risk. Working with a multidisciplinary consultant to identify and address BERs early helps stakeholders approach commercial real estate transactions with confidence.

Kevin Taylor, P.E., P.G., CIH, is vice president & environmental discipline director and Jason Cooper, P.G.  is environmental department manager at H2M architects + engineers, Manhattan, N.Y.