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RECENT DEVELOPMENTS IN
ENVIRONMENTAL DUE DILIGENCE
ORANGE COUNTY BAR ASSOCIATION
REAL ESTATE SECTION
NOVEMBER 24, 2015
PRESENTED BY
Eddie Arslanian, PE
Ramboll Environ
Pamela Andes, Esq.
Emily Murray, Esq.
Allen Matkins Leck Gamble
Mallory & Natsis LLP
AGENDA
• Background
• Bona Fide Prospective Purchaser (BFPP) Liability Protection
• New ASTM Standard
• Characterization of Environmental Conditions
• Vapor Intrusion
• Conclusions/Take Aways
BACKGROUND
What is environmental due diligence?
• Environmental due diligence is the pre-transaction (purchase, lease, sale,
finance) investigation of environmental conditions and history of the
subject property
• Good commercial and customary practice for environmental due diligence
for real property is a Phase I environmental site assessment (ESA)
BACKGROUND (CONTINUED)
Why conduct environmental due diligence?
• Liability protection under federal law
• Evaluate potential environmental risks and costs
• Plan development based on any environmental restrictions
BACKGROUND (CONTINUED)
Liability protection
• The Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA) provides statutory defenses for innocent land
owners/operators, contiguous property owners/operators, and bona fide
prospective purchasers/tenants (BFPP)
• To qualify for these statutory defenses, the owner/operator must conduct
“All Appropriate Inquiry” (AAI) prior to transaction
BFPP LIABILITY PROTECTION
Elements of BFPP Defense
• A BFPP is “a person (or a tenant of a person)” that acquires ownership of
a facility after the release of the hazardous substances and after January
11, 2002, and who meets the following criteria (see 42 U.S.C. §
9601(40)):
• Conducted “all appropriate inquiries” (AAI) into the previous ownership
and uses of the property
• The disposal of hazardous substances on the site occurred before
acquisition
• Provide all legally required notices regarding the release
• Provide full cooperation, assistance and access to those conducting
response actions
BFPP LIABILITY PROTECTION (CONTINUED)
Elements of BFPP Defense
• Comply with institutional and engineering controls and do not impede
their effectiveness
• Comply with governmental requests for information and subpoenas
• Not already liable, affiliated with a responsible party, or simply the
reorganized entity of a responsible party
• Exercise appropriate care with respect to the hazardous substances found
– stop continuing release, prevent threatened future release, and prevent
exposure
NEW ASTM STANDARD
AAI/ASTM Standard
• In 2005, the federal Environmental Protection Agency (USEPA) adopted its
AAI Rule, which endorsed the Phase I ESA standard promulgated by the
ASTM to satisfy the statutory requirements for conducting AAI
• ASTM updates the standard every eight years
• In 2013, ASTM finalized ASTM E1527-13, which updated the prior
standard
• On December 30, 2013, USEPA issued a new final rule amending the AAI
Rule to include a reference to the new ASTM Standard E1527-13
• The new ASTM Standard E1527-13 should now be used to satisfy AAI
KEY CHANGES
• Revised or new definitions for:
‒Recognized Environmental Condition (REC)
‒Historical Recognized Environmental Condition (HREC)
‒Controlled Recognized Environmental Condition (CREC)
• Emphasis on regulatory file reviews
• Revisions to user responsibilities
• Vapor intrusion clarification
REVISED DEFINITIONS: REC
Recognized Environmental Condition (REC)
• 2013: The presence or likely presence of any hazardous substances
or petroleum products in, on, or at a property:
‒due to any release to the environment
‒under conditions indicative of a release to the environment
‒under conditions that pose a material threat of a future release to
the environment
REVISED DEFINITIONS: HREC
Historical Recognized Environmental Condition (HREC)
• 2013: An HREC is a REC that has been addressed to the satisfaction of a
regulatory agency or meets unrestricted use criteria without subjecting
the site to controls, such as property use restrictions, activity and use
limitations (AULs), institutional controls, or engineering controls
• Requires confirmation by an environmental professional (EP) that finding
is no longer a REC (i.e., standards have not changed)—applicable when
updating a previous Phase I report
NEW DEFINITIONS
Controlled REC (CREC)
• An REC that has been addressed to the satisfaction of a regulatory agency
or meets risk-based criteria
• Hazardous substances or petroleum products allowed to remain in place
subject to implementation of controls (e.g., AULs, engineering controls)
• CRECs must be identified in the conclusions section of the report
• Evaluation of adequacy of controls is not required of EP
• CREC identification important for satisfying post-acquisition continuing
obligations of property owner
De Minimis Condition
• Now a stand alone definition (pulled out of REC definition)
REC-HREC-CREC RELATIONSHIP
Contamination in,
at or on the target
property
Is it
de minimis?
Would
regulatory
officials view
cleanup as
adequate
today?
Are there
‘controls,’
such as use
restrictions?
REC
De Minimis
CREC
HREC
YES
YES
YES
NO
NO
NO
YES
NO
Has it been
addressed?
HREC EXAMPLE
PROPERTY WITH PETROLEUM HYDROCARBON IMPACTS
AND NO FURTHER ACTION
• Site with removed underground storage tanks and dated NFA letter
• Prior sampling data collected with detection limits set above today’s
regulatory screening levels
• Under today’s standards, consultant unable to characterize issue as HREC
• Seller refused subsurface investigation
• Buyer solution was to develop a cost analysis based on worst case
scenario
SOUTHERN CALIFORNIA SITE - SIGNIFICANT DATA GAP
• Site with history of past chemical impacts with current NFA status
• Prior sampling data not readily available to make appropriate
characterization under current ASTM
• Under prior standards, NFA letter sufficient to characterize the issue
• Under current standard, underlying data needs to be evaluated to make
appropriate determination
VAPOR INTRUSION – CLARIFIED
• Vapor intrusion: migration of hazardous vapors from a subsurface
contaminant source (e.g., soil or groundwater) through the vadose zone
and into the indoor air
• Significant and challenging environmental remediation issue
• Vapor migration is clarified and considered “no differently” than
contaminated groundwater migration
VAPOR INTRUSION – CLARIFIED
Indoor air
Vadose Zone
Soil Gas
{
{
Soil
Contamination
(residual or
mobile NAPL)
Chemical Vapr Migration
crawl space
slab
VAPOR INTRUSION – CLARIFIED
• ASTM E2600-10 Standard Guide for Vapor Encroachment Screen on
Property Involved in Real Estate Transactions now referenced
• When evaluating vapor intrusion, note that there are differences between
Cal/EPA and USEPA methodologies
• New USEPA TCE toxicity factor (2011 - more conservative)
• New USEPA PCE toxicity factor (2012 - less conservative)
SOUTHERN CALIFORNIA PROPERTY
CREC - VAPOR INTRUSION
• Following significant soil excavation effort and soil/soil vapor sampling,
the agency had issued an NFA letter in 1997
• Property owner had difficulty selling the property with the existing
available data
• Performed additional soil vapor sampling/screening risk to evaluate
current soil vapor conditions
• Characterized the current conditions as a CREC providing clarity on the
issue
• Property was sold shortly thereafter
NORTHERN CALIFORNIA TCE EXAMPLE
• TCE was historically viewed as a long-term exposure concern
• EPA’s recent change in toxicity evaluation has identified TCE as a short-
term reproductive concern
• EPA has identified an acute TCE concentration which triggers urgent
response action
• EPA’s requirements necessitate essentially continuous, real time
monitoring
• Employers facing challenges sampling the air real time and establishing
appropriate response protocols
• Tension between being proactive and being over-reactive
CONCLUSIONS AND TAKE AWAYS
CONTACT INFORMATION
Emily Murray
emurray@allenmatkins.com
+1 213 955 5584
Eddie Arslanian
earslanian@ramboll.com
+1 213 943 6326
Pamela Andes
pandes@allenmatkins.com
+1 949 851 5405

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Recent Developments in Environmental Due Diligence

  • 1. RECENT DEVELOPMENTS IN ENVIRONMENTAL DUE DILIGENCE ORANGE COUNTY BAR ASSOCIATION REAL ESTATE SECTION NOVEMBER 24, 2015 PRESENTED BY Eddie Arslanian, PE Ramboll Environ Pamela Andes, Esq. Emily Murray, Esq. Allen Matkins Leck Gamble Mallory & Natsis LLP
  • 2. AGENDA • Background • Bona Fide Prospective Purchaser (BFPP) Liability Protection • New ASTM Standard • Characterization of Environmental Conditions • Vapor Intrusion • Conclusions/Take Aways
  • 3. BACKGROUND What is environmental due diligence? • Environmental due diligence is the pre-transaction (purchase, lease, sale, finance) investigation of environmental conditions and history of the subject property • Good commercial and customary practice for environmental due diligence for real property is a Phase I environmental site assessment (ESA)
  • 4. BACKGROUND (CONTINUED) Why conduct environmental due diligence? • Liability protection under federal law • Evaluate potential environmental risks and costs • Plan development based on any environmental restrictions
  • 5. BACKGROUND (CONTINUED) Liability protection • The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) provides statutory defenses for innocent land owners/operators, contiguous property owners/operators, and bona fide prospective purchasers/tenants (BFPP) • To qualify for these statutory defenses, the owner/operator must conduct “All Appropriate Inquiry” (AAI) prior to transaction
  • 6. BFPP LIABILITY PROTECTION Elements of BFPP Defense • A BFPP is “a person (or a tenant of a person)” that acquires ownership of a facility after the release of the hazardous substances and after January 11, 2002, and who meets the following criteria (see 42 U.S.C. § 9601(40)): • Conducted “all appropriate inquiries” (AAI) into the previous ownership and uses of the property • The disposal of hazardous substances on the site occurred before acquisition • Provide all legally required notices regarding the release • Provide full cooperation, assistance and access to those conducting response actions
  • 7. BFPP LIABILITY PROTECTION (CONTINUED) Elements of BFPP Defense • Comply with institutional and engineering controls and do not impede their effectiveness • Comply with governmental requests for information and subpoenas • Not already liable, affiliated with a responsible party, or simply the reorganized entity of a responsible party • Exercise appropriate care with respect to the hazardous substances found – stop continuing release, prevent threatened future release, and prevent exposure
  • 8. NEW ASTM STANDARD AAI/ASTM Standard • In 2005, the federal Environmental Protection Agency (USEPA) adopted its AAI Rule, which endorsed the Phase I ESA standard promulgated by the ASTM to satisfy the statutory requirements for conducting AAI • ASTM updates the standard every eight years • In 2013, ASTM finalized ASTM E1527-13, which updated the prior standard • On December 30, 2013, USEPA issued a new final rule amending the AAI Rule to include a reference to the new ASTM Standard E1527-13 • The new ASTM Standard E1527-13 should now be used to satisfy AAI
  • 9. KEY CHANGES • Revised or new definitions for: ‒Recognized Environmental Condition (REC) ‒Historical Recognized Environmental Condition (HREC) ‒Controlled Recognized Environmental Condition (CREC) • Emphasis on regulatory file reviews • Revisions to user responsibilities • Vapor intrusion clarification
  • 10. REVISED DEFINITIONS: REC Recognized Environmental Condition (REC) • 2013: The presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: ‒due to any release to the environment ‒under conditions indicative of a release to the environment ‒under conditions that pose a material threat of a future release to the environment
  • 11. REVISED DEFINITIONS: HREC Historical Recognized Environmental Condition (HREC) • 2013: An HREC is a REC that has been addressed to the satisfaction of a regulatory agency or meets unrestricted use criteria without subjecting the site to controls, such as property use restrictions, activity and use limitations (AULs), institutional controls, or engineering controls • Requires confirmation by an environmental professional (EP) that finding is no longer a REC (i.e., standards have not changed)—applicable when updating a previous Phase I report
  • 12. NEW DEFINITIONS Controlled REC (CREC) • An REC that has been addressed to the satisfaction of a regulatory agency or meets risk-based criteria • Hazardous substances or petroleum products allowed to remain in place subject to implementation of controls (e.g., AULs, engineering controls) • CRECs must be identified in the conclusions section of the report • Evaluation of adequacy of controls is not required of EP • CREC identification important for satisfying post-acquisition continuing obligations of property owner De Minimis Condition • Now a stand alone definition (pulled out of REC definition)
  • 13. REC-HREC-CREC RELATIONSHIP Contamination in, at or on the target property Is it de minimis? Would regulatory officials view cleanup as adequate today? Are there ‘controls,’ such as use restrictions? REC De Minimis CREC HREC YES YES YES NO NO NO YES NO Has it been addressed?
  • 14. HREC EXAMPLE PROPERTY WITH PETROLEUM HYDROCARBON IMPACTS AND NO FURTHER ACTION • Site with removed underground storage tanks and dated NFA letter • Prior sampling data collected with detection limits set above today’s regulatory screening levels • Under today’s standards, consultant unable to characterize issue as HREC • Seller refused subsurface investigation • Buyer solution was to develop a cost analysis based on worst case scenario
  • 15. SOUTHERN CALIFORNIA SITE - SIGNIFICANT DATA GAP • Site with history of past chemical impacts with current NFA status • Prior sampling data not readily available to make appropriate characterization under current ASTM • Under prior standards, NFA letter sufficient to characterize the issue • Under current standard, underlying data needs to be evaluated to make appropriate determination
  • 16. VAPOR INTRUSION – CLARIFIED • Vapor intrusion: migration of hazardous vapors from a subsurface contaminant source (e.g., soil or groundwater) through the vadose zone and into the indoor air • Significant and challenging environmental remediation issue • Vapor migration is clarified and considered “no differently” than contaminated groundwater migration
  • 17. VAPOR INTRUSION – CLARIFIED Indoor air Vadose Zone Soil Gas { { Soil Contamination (residual or mobile NAPL) Chemical Vapr Migration crawl space slab
  • 18. VAPOR INTRUSION – CLARIFIED • ASTM E2600-10 Standard Guide for Vapor Encroachment Screen on Property Involved in Real Estate Transactions now referenced • When evaluating vapor intrusion, note that there are differences between Cal/EPA and USEPA methodologies • New USEPA TCE toxicity factor (2011 - more conservative) • New USEPA PCE toxicity factor (2012 - less conservative)
  • 19. SOUTHERN CALIFORNIA PROPERTY CREC - VAPOR INTRUSION • Following significant soil excavation effort and soil/soil vapor sampling, the agency had issued an NFA letter in 1997 • Property owner had difficulty selling the property with the existing available data • Performed additional soil vapor sampling/screening risk to evaluate current soil vapor conditions • Characterized the current conditions as a CREC providing clarity on the issue • Property was sold shortly thereafter
  • 20. NORTHERN CALIFORNIA TCE EXAMPLE • TCE was historically viewed as a long-term exposure concern • EPA’s recent change in toxicity evaluation has identified TCE as a short- term reproductive concern • EPA has identified an acute TCE concentration which triggers urgent response action • EPA’s requirements necessitate essentially continuous, real time monitoring • Employers facing challenges sampling the air real time and establishing appropriate response protocols • Tension between being proactive and being over-reactive
  • 22. CONTACT INFORMATION Emily Murray emurray@allenmatkins.com +1 213 955 5584 Eddie Arslanian earslanian@ramboll.com +1 213 943 6326 Pamela Andes pandes@allenmatkins.com +1 949 851 5405