Environmental Assessment in the United States

Environmental Assessment in Environmental Law

An evaluation of the condition of real property, any improvements on it, and surrounding properties to determine whether it has environmental problems. Sometimes called an environmental site assessment, it has become common in commercial transactions.

Real Property and the Comprehensive Environmental Response, Compensation, and Liability Act

The driving force behind environmental assessments is the desire to be an innocent purchaser. Under the Comprehensive Environmental Response, Compensation, and Liability Act (commonly called Superfund), owners or operators of contaminated property may be forced to clean it up, even if they didn’t cause the contamination. However, if a person can prove he is an innocent purchaser, he may be able to escape liability.

To do so, one of the things the landowner or operator must do is make “all appropriate inquiry into prior ownership and uses of the property, consistent with good commercial and customary practice.” That requirement has solidified into an environmental assessment.

Hazardous waste site cleanup is not the only consideration, however. Some environmental situations would not create liability under Superfund but could cause extraordinary expenses, nonetheless. For example, asbestos in building materials will not trigger Superfund liability, but if the building is going to be renovated, the asbestos may have to be removed. Removal of asbestos is extremely expensive, and prospective building owners who address asbestos in the assessment will not be unpleasantly surprised later.

Similarly, petroleum storage tanks particularly underground tanks can leak into the soil or groundwater. Although petroleum is not covered by Superfund, the prospective owner could face hundreds of thousands of dollars cleaning up a petroleum spill under the Resource Conservation and Recovery Act. As a consequence, most environmental assessments include investigations about tanks.

Contents of Environmental Assessments

Each property and transaction is fact specific. A potential buyer, lender, or lessee must consider the situation to know what is appropriate. In some cases, it is prudent to hire an independent environmental consultant to complete the assessment. In others, an in-house screening might suffice.

In general, the elements of an environmental assessment are (1) a records search, (2) interviews, (3) a site visit, and (4) communication of the results. The depth of investigation should intensify as problems arise.

Records that must be searched include databases or government records indicating hazardous waste releases, Superfund sites, releases from tanks, facilities that treat, store, or dispose of hazardous substances, and information about reported releases currently under investigation. Also, chain of title and deeds must be researched to make sure the property does not have environmental liens and that past owners are not associated with industrial activity. Violation notices, aerial photos, and fire code maps are other sources of information.

Interviews with the owner, tenants, neighbors, local government officials, and other available sources are invaluable sources of information to fill in the gaps. It often helps to have the owner, supervisor, or major tenant present when the site visit is completed.

But a true picture of the property and its environment cannot be gleaned by looking at records or talking to people. The site visit is critical to the process. During the visit, the person doing the assessment should look for signs of contamination, storage of hazardous substances or wastes, outlets for air pollutants, note the health of the vegetation, and use his sense of smell as well as his sight. It is also important to notice what the vicinity is like. If it is heavily industrial, that would be important to consider because the area is more likely to be contaminated. If a landfill is next door or nearby, caution is advised.

Finally, the information must be packaged so the person reading the report can see what was done during the assessment. If an independent environmental consultant did the assessment, it should be an in-depth report, complete with professional interpretations. If it was done as a screen, the reader may have to interpret the raw information.

Occasionally, the steps above will not make a purchaser comfortable enough to go ahead with the deal without testing. For example, if the property had underground tanks in the past and no one knows whether they are still present, testing may be appropriate.

Examples of Activities Involving Environmental Assessments

Examples of Activities Involving Environmental Assessments

Loan Involving Existing Dry-cleaning Establishment If a lender is loaning money to a dry-cleaning company and takes the business and property as collateral, the lender may eventually become the owner of the property. Drycleaners have a number of hazardous substances associated with them, so the lender should not only complete the standard evaluation, but also investigate the past and current disposal practices of the drycleaner thoroughly.

New Commercial Development in Former Industrial Zone The developers could cause a release of hazardous substances or might later find out the land is contaminated, subjecting them to liability. Businesses in industrial areas often use, store, and dispose of hazardous substances or wastes, so the developers should do a significant amount of investigation before they purchase the land. Testing may be necessary, depending on the prior use of the property and surrounding uses.

Asset or Business Acquisition

Buying the assets of a business or acquiring the company outright often subjects the purchaser to liability if a cleanup is necessary. Depending on the number of sites, the complexity of the deal, and the nature of the business, the purchaser should gather as much information as he can about the sites and the compliance history of the target company.

Purchase of Undeveloped Land for a Commercial Building If the purchaser does not find any problems in the records, interviews, or site visit, this type of environmental assessment will be a simple one. Even so, the buyer should not assume the property is clean unless the investigation is completed.

Standards for Environmental Assessments

Over time, most in-depth assessments have evolved to include standard elements (records searches, site visits, interviews, and reports). However, the actual components have varied, and environmental consultants often take different approaches.

In 1993, the American Society for Testing and Materials, a private organization that has developed many widely used standards, issued two documents for environmental site assessments. One is for transaction screens, a scaled down version of a fullblown assessment; the other is for a Phase I assessment.

A transaction screen does not have to be done by an environmental professional. It is based on a questionnaire and encompasses all of the elements mentioned before with the exception of a report. The questionnaire is, in a sense, the report. It contains no opinions of the person who filled it out.

The Phase I assessment must be done by an environmental professional. Each step in the assessment process includes more data, and the required report must also contain professional opinions about the data collected.

Both of the standard practices are voluntary. Also, they are flexible so they can be used in many circumstances. The purpose of the standard practices is to help landowners prove they are innocent purchasers.
Based on “Environment and the Law. A Dictionary”.