1 DEAL OR NO DEAL? ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process Presented By: Joel R. Burcat, Esq.

12 Why Conduct an Environmental Site Assessment (ESA)? To establish environmental conditions existing at the property: Buyers: evaluate the “real” cost of the property, to establish “baselines” that will determine relative liabilities of the buyer and seller. Buyers: limit liability in the event hazardous substances are found to have been released on the property. Buyers: evaluate environmental conditions of the real property that is being conveyed as a part of the deal.

23 Why Conduct an Environmental Site Assessment (ESA)? Sellers: to establish a baseline for which they are not liable. Lenders will require an ESA for most commercial properties that they are financing.

34 INNOCENT LANDOWNER DEFENSE Buyer of property wants to establish precondition to “innocent landowner” under CERCLA.

45 INNOCENT LANDOWNER DEFENSE The buyer has “carried out all appropriate inquiries… into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices.” CERCLA, 42 U.S.C. § 9601(35)(B)(i)(1).

56 Background It is not unusual to find significant real estate transactions from as late as the 1980’s where an ESA was not conducted.

67 Background Early on, many different kinds of professionals - engineers, geologists, even lawyers – carried out ESAs. There was no particular format for an ESA, so a recipient of an ESA could get anything from a 2-page letter to a multi- volume report that included significant testing data.

78 STANDARDIZATION OF ESAs ASTM first adopted a national standard for environmental site assessments in The current ASTM Standard Practice for Environmental Site Assessments, E 1527 – 05, was approved on November 1, 2005.

89 INTERRELATIONSHIP BETWEEN THE ASTM STANDARD AND EPA’S ALL APPROPRIATE INQUIRIES RULE There is a direct relationship between the ASTM Standard and EPA’s Appropriate Inquiries Rule, 40 C.F.R. §§ 312.1, et seq. Essentially, the ASTM Standard establishes the requirements necessary for buyers to comply with the All Appropriate Inquiries Rule.

910 Purpose of ASTM Standard: 1.1Purpose - *** The purpose of this practice is to define good commercial and customary practice in the United States of America for conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (42 U.S.C. 9601) and petroleum products. As such, this practice is intended to permit a user to satisfy one of the requirements to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser limitations on CERCLA liability (hereinafter, the “landowner liability protections,” or “LLPs”): that is, the practice that constitutes “all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice” as defined at 42 U.S.C. 9601(35)(B).... ASTM Standard, § 1.1 (emphasis added).

1011 EPA’s All Appropriate Inquiries Rule explicitly references the ASTM Standard as an “industry standard[] [which] may be used to comply with the requirements set forth in §§ through ” 40 C.F.R. § (a). EPA Rule contemplates that other standards may be used to comply with the EPA Rule. No such standards have yet been acknowledged by EPA.

1112 SIGNIFICANT POINTS OF THE STANDARD

1213 ASTM Standard is Voluntary The ASTM Standard is not limited to CERCLA’s “all appropriate inquiry” and may be used for other purposes. The standard is not intended to be used as a customary practice for residential real estate. ASTM Standard § 4.

1314 A Phase I Environmental Site Assessment (“Phase I ESA”) will be conducted by a qualified environmental professional. The purchaser (“User”) will provide relevant information necessary to assist the environmental professional.

1415 IDENTIFICATION OF LIMITATIONS ON ACTIVITY OR USES OF PROPERTY. ASTM Standard §5

1516 The purchaser (i.e. “user”) must conduct the following activities under the ASTM Standard. ASTM Standard § 6 1. Review title and judicial records for environmental liens or activity and use limitations. 2. Identify any special knowledge or experience that is material to identify any recognized environmental conditions in connection with the property. 3. Communicate to the environmental professional conducting the Phase I ESA any actual knowledge that the purchaser has regarding the property. 4. Consider the relationship of the purchase price of the property to the fair market value of the property if the property was not affected by hazardous substances or petroleum products. 5. The purchaser must communicate to the environmental professional any commonly known or reasonably ascertainable information regarding the property. 6. The purchaser must convey to the environmental professional the reason why the purchaser wants to have the Phase I Environmental Site Assessment performed. If the purchaser does not do so, the environmental professional shall assume that the purpose is to qualify for limited liability protection under CERCLA.

1617 PHASE I ENVIRONMENTAL SITE ASSESSMENT. ASTM Standard § 7 The purpose of the Phase I ESA is to identify recognized environmental conditions in connection with the property.

1718 PHASE I ENVIRONMENTAL SITE ASSESSMENT. ASTM Standard § 7 There are four components to a Phase I Environmental Site Assessment: 1. Records review. 2. Site reconnaissance. 3. Interviews with present and past owners, operators, and occupant of the property and interviews with local governmental officials. 4. Preparation of an evaluation and report.

1819 PHASE I ENVIRONMENTAL SITE ASSESSMENT. ASTM Standard § 7 The Phase I Environmental Site Assessment does not include any testing or sampling of materials. The ESA must be performed by an environmental professional or conducted under the supervision of such a professional.

1920 RECORDS REVIEW. ASTM Standard § 8 1. A records review shall be conducted to obtain and review records that will help identify recognized environmental conditions. 2. Records relating to the property and nearby properties must be reviewed. 3. Specifically identified environmental information shall be obtained. 4. Likewise, historical use information shall also be obtained.

2021 SITE RECONNAISSANCE. ASTM Standard § 9 1. Reconnaissance of the site. 2. Identify the uses and conditions of the site. 3. Extensive detail regarding observations, reporting the observations and using the observations as the basis for interviews.

2122 INTERVIEWS WITH PAST AND PRESENT OWNERS AND OCCUPANTS. ASTM Standard § The objective is to obtain information indicating recognized environmental conditions in connection with the property. 2. The ASTM Standard contemplates that the environmental professional will conduct the interviews. 3. Persons to be interviewed include: Key site managers Occupants Past owners, operators and occupants

2223 INTERVIEWS WITH STATE AND/OR LOCAL GOVERNMENTAL OFFICIALS. ASTM Standard § 11 Objective – to obtain information indicating recognized environmental conditions in connection with the property.

2324 EVALUATION AND REPORT PREPARATION. ASTM Standard § The Phase I ESA should generally follow the format contained in Appendix 4 of the ASTM Standard. 2. The report is required to contain a findings section which identifies known or suspect recognized environmental conditions and historical recognized environmental conditions. It should also contain de minimis conditions. 3. The environmental professional’s opinion(s) of the impact on the property of conditions identified in the findings section is integral to the report. 4. Recommendations for additional investigations, if any, to detect the presence of hazardous substances or petroleum products should also be contained in the report.

2425 DISCUSSION SCENARIO, part I Buyer is purchasing industrial property and other assets from the current owner/operator of the property in Pennsylvania. The arrangement is that the Buyer may terminate the deal and receive back her deposit at the close of all due diligence, including environmental. The Buyer does not have to disclose why she is terminating the deal, except to say that it is as a result of due diligence. Buyer conducts a Phase I ESA for the property. Buyer also conducts other due diligence related to the transaction.

2526 DISCUSSION SCENARIO, part II The environmental problems include some evidence of old releases of hazardous substances, suspected leaks from USTs, historical uses that are not compatible with the Buyer’s proposed use and a history of inspection reports that indicate numerous violations implying serious spill problems.

2627 DISCUSSION SCENARIO, part II Buyer detects too many environmental problems during due diligence and terminates the deal. In accordance with the agreement between the Buyer and Seller, the Seller is only told that the deal is off because the Buyer was not satisfied following due diligence. The Seller did not get a copy of any ESA Reports.

2728 DISCUSSION SCENARIO QUESTIONS 1. Does the Buyer have to report any of her consultant’s findings to DEP or EPA? 2. Does the Buyer’s consultant have to report any of this to DEP or EPA? 3. Does the Seller have to report anything to DEP or EPA?

2829 Contact Information Joel R. Burcat, Esq. 2 North 2 nd Street, 7 th Floor Harrisburg, PA Phone: Fax: Web:

2930 Saul Ewing’s Office Locations Baltimore, Maryland 100 S. Charles Street Baltimore, MD fax: Chesterbrook, Pennsylvania 1200 Liberty Ridge Drive, Suite 200 Wayne, PA fax: Harrisburg, Pennsylvania Penn National Insurance Tower Two North Second Street, 7th Floor Harrisburg, PA fax: Newark, New Jersey One Riverfront Plaza Newark, NJ fax: Philadelphia, Pennsylvania Centre Square West 1500 Market Street, 38th Floor Philadelphia, PA fax: Princeton, New Jersey 750 College Road East Princeton, NJ fax: Wilmington, Delaware 222 Delaware Avenue, Suite 1200 Wilmington, DE fax: Washington, D.C Thomas Jefferson Street, N.W. Suite 425W Washington, D.C fax: