After the Phase I ESA … then what?

We all know that it is essential and imperative that before you can do any property transfer you need to have a Phase I ESA (Environmental Site Assessment) done. Even if you have no reason to believe the property may be contaminated. After all, it is the blind sword of the EPA that decides who is responsible for cleaning up a site, and mere belief that the site was clean will get you nowhere with the EPA. Their AAI (All Appropriate Inquiry) standard has made it doubly clear that if you don’t take certain, specific steps in environmental due diligence you will waive any possibility at an exemption to liability under CERCLA. In our practice we have found the Phase I to be not only an essential element to any real estate transaction, but an incredible tool for ferreting out other issues, like lead paint, asbestos and historic property uses.
But the real question that haunts a lot of people is what do I do with the results of a Phase I? A less sophisticated law firm would probably tell you “nothing”. Which would likely dissolve your liability protections under CERCLA and the AAI standard. A really conservative law firm would tell you to “drill the site”. In other words, drill test holes on the site and have them sampled by a laboratory to determine what, if any, chemicals or issues are down there. Out of an abundance of caution the conservative law firm might insist that you need to “see what’s down there” before you can make a reasoned decision to purchase or not.
But when you have a law firm that understands the nuances of the law and the realities of business you’d probably get an answer along the lines of “let’s take a closer look at what the Phase I actually tells us.”
Here are a couple of examples that should stop the urge to drill … and by the way, saving the company a “few bucks” should never be a legitimate reason that any lawyer gives not to drill.

Example #1 – Let’s say that the Phase I ESA (Environmental Site Assessment) shows that historically the site has been used as a service station. But that the station is currently shuttered. In Arizona, this conclusion may mean little to you if you are putting in an office building. The reason? Because, even it if there was contamination, there may not actually be liability for future owners. (That is a whole different topic for a different post. But in short let me say that under the UST laws, unless you were the one using the gas tanks, you are generally not responsible for the leaks.).
However, if the new building requires foundation work and potential removal of soils, since they may be contaminated – it is something you would want to know before the lot is acquired.
However, if you were going to continue the service station operation – it would be essential for you to “set a baseline”. In other words, you would want to know the background levels or the presence of any contamination in case you have a release in the future. That way you can document the background versus new release. Separating old UST releases from new UST releases is difficult and requires skilled guidance.

Example #2 – Let’s say the property sits atop a historic hazardous waste plume. Assume that the prior land owners and the site have not been determined to be a source of contamination for that plume. For instance perhaps they ran a small hardware store. Since they had some chemicals on site during their operating years, there is the chance that they have some level of contamination at the property.
From the limited facts you have, I would say the best choice is not to drill. However, a conservative lawyer may again insist that you drill to determine if there is any known contamination there on the property. This attempt at being “overly cautious” and asking for the Phase II soil sampling “just to make sure”, might result in you being a potential responsible party and put you in the liability chain. How? If you do drill and find contamination, and then punch through a natural barrier like a clay layer and create a pathway for the pollution to seep down into the water table below, you may now be a responsible party, responsible for migrating the plum from one water table region to another. Sometimes when you are too eager to drill and you don’t have good advice or counsel, you can end up with an exponentially more troubling situation.

Michael Denby is the founder of Denby Law, PLLC an exclusive environmental and natural resources law firm in Phoenix, AZ focusing on regulatory compliance law for all the major environmental programs, CERLCA, RCRA, CAA, CWA, & TSCA. In his 18 years of environmental representation, Michael has written and presented on numerous environmental topics, sat on 3 gubernatorial appointments, and represented large and small clients before local, state and federal regulators. Learn more about Denby Law, PLLC or to contact the author click here www.denbylaw.com re