Environmental Risk Assessment Made Easier
The list of potential environmental risks facing commercial real estate property owners is long and full of potential pitfalls. How was the property used in the past? What sorts of contaminants might have been released? What sort of cleanup has been completed, if any? What does that mean for the current owner’s potential liability?
This is why ASTM International introduced the standard practice for environmental site assessments: Phase I environmental site assessment process (E1527) in 1993.
The purpose of the standard throughout its history has been to define good commercial and customary practice in the United States for “conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and petroleum products.” The intention is to allow a user to satisfy one of the requirements for someone such as a current, innocent owner to qualify for prospective purchaser limitations on CERCLA liability.
But with that qualification comes a comprehensive, time consuming and, potentially costly assessment process that must be performed by a trained environmental professional. What about those property owners who just want to see if they need to go through the full Phase I assessment process? What’s the lighter option?
That was the motivation behind the creation of the standard practice for limited environmental due diligence: transaction screen process (E1528), which was issued by the committee on environmental assessment, risk management and corrective action (E50) at the same time as E1527.
“If what you want is liability protection from Superfund, go to the Phase I standard,” says Bill Weissman, E50 second vice chair and E1528 task group co-chair, who has been involved with both E1527 and E1528 since 2002. “E1528 is not for you.” In 2002, Congress established criteria for qualifying for CERCLA liability protection and only E1527 and its forest land counterpart, E2247, satisfy those criteria.
As Georgina Dannatt, vice president and environmental risk manager at Bank of the West and co-chair of the task group overseeing E1528 explains it, the key difference between the two standards is the term “transaction screen.” “E1528 is meant to be a screening tool rather than characterizing the majority of potential risks within a reasonable amount of inquiry the way Phase I does.”
E1528 is meant as a screening tool for properties perceived to be lower risk. For example, if the owner of an apartment building becomes concerned that there is potential environmental liability related to their property, a transaction screen may be a suitable place to start. Maybe that pre-screening uncovers the fact that the apartment building is built on a former gas station property and it would be better suited for a Phase I assessment. At that point, the owner can convert to a Phase I assessment with the help of an environmental professional since an E1528 screen doesn’t provide the appropriate inquiry protections from CERCLA liability. It’s a way to determine if a deeper, more comprehensive assessment is truly needed. In many cases, the transaction screen may be sufficient.
Nearly 30 years since the standard was first introduced, E1528 recently went through a comprehensive round of revisions in an effort to modernize the standard and make it more accessible to laypeople. Unlike a Phase I assessment, which the EPA mandates must be performed by an environmental professional, the transaction screen is designed to be completed by the non-professional such as a property owner, lender, or other party – though the user is free to engage an environmental professional to undertake the process. The task group’s goal in this update was to simplify the transaction screen for everyday users without “limiting the environmental consultant’s existing discretion to offer a more rigorous limited environmental due diligence.” Some government agencies use the transaction screen as part of their programs and often add a requirement for an environmental professional to conduct the screen.
These most recent changes include a completely rewritten questionnaire and guide section, a revised appendix with new photographs to help users fill out the questionnaire, and changes to wording within the standard itself to better highlight the fact that it provides no CERCLA liability protection and serves a different purpose than the Phase I standard.
“[This updated standard] was designed so that somebody could pick it up, look at the guide, and be able to complete a transaction screen themselves,” Weissman says. “It isn’t intended to be the end-all and be-all book of descriptions of all types of environmental risks, but each section in the guide includes little snippets to explain what it is that should be looked for during the screen, why each item is a risk, and when to call in an expert.”
At its core, E1528 is for property owners or prospective property owners who are trying to gather more information about the potential environmental risks associated with a property. If what they learn gives them pause or gives their lender pause, they’ll know they may need to take additional steps to address whatever it is that they find.
“A big part of this revision was to make the standard more accessible to everyday people,” says Dannatt. “It’s an evolution of the standard.”