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Before land acquisition or development, steps should be taken to verify the environmental condition of the property. This can be accomplished through the environmental due diligence process.

The first component of environmental due diligence is an evaluation of the property to identify historical land use and any potential contamination with a Phase I Environmental Site Assessment (ESA) by a qualified Environmental Professional under the All Appropriate Inquiries Final Rule and the American Society for Testing and Materials (ASTM) E1527-21 standard for conducting Phase I ESAs.

This is usually done as part of a commercial real estate transaction. If you need a bank loan for the land of interest, the lender may require a Phase I ESA of the property to ensure current and/or historical uses of the property have not negatively impacted soil or groundwater and could pose a threat to the environment or human health.

But how do you figure out whether your property of interest may have environmental concerns?

Phase I Environmental Site Assessment (ESA)

This is the first step in the due diligence process. Through a Phase I ESA, an Environmental Professional can investigate any historical use of the property and surrounding land. A Phase I ESA can be completed for all property types including industrial, residential, commercial, agricultural, and vacant land.

The Phase I ESA comprises of the historical records review, environmental database search, site visit to observe current and past site conditions, and interviews with past and present property owners/occupants.

Based on the review of these components, a Recognized Environmental Condition (REC) could be identified. A REC is defined as the presence or likely presence of any hazardous substance or petroleum products in, on, or at a property. An example of this is when our team did a Phase I ESA and discovered unlabeled drums/containers. It led to us doing a hazardous materials assessment to inventory.

Initial historical records review may reveal things you may not even see.

For example, the environmental database search could document the property of interest that had a dry cleaner on site 15 years ago. This raises a red flag because dry cleaners historically used chlorinated cleaning solvents until around the early 2000s. These chlorinated solvents are denser than water and often find their way into the groundwater table due to product spillage. The density of chlorinated solvents makes them very mobile in groundwater and can create large plumes traveling off-site, which could pose a threat (or REC) to nearby properties.

Why Complete a Phase I ESA

Due diligence will provide your client with several legal liability options:

• If a REC is not identified as part of a Phase I ESA and the purchaser later finds hazardous substances on site, the purchaser qualifies as an “innocent landowner”. This defense can be used to hold a former landowner responsible for the contamination because the purchaser made “all appropriate inquiries” per the ASTM E1527-21 standards.
• If a REC is identified as part of a Phase I ESA, the purchaser has several options: walk away from the transaction, proceed with additional soil and/or groundwater sampling (referred to as a Phase II ESA), seek a price reduction, or be indemnified from the identified REC.

What Comes Next

Many assessments end with a completed Phase I ESA without an identified REC associated with the property.

In some cases, additional assessment of a Phase II ESA may be recommended to collect soil and/or groundwater samples to further investigate an identified REC. Based on the Phase II ESA results, the purchaser can choose to enter a Voluntary Cleanup Contract (VCC) with the South Carolina Department of Environmental Services (SCDES).

The contract is an agreement between SCDES and the purchaser to perform further assessment of the property and can provide the purchaser with liability protection and tax benefits. The state’s goal with a VCC is to promote business growth and provide incentives for businesses and industries to utilize land that may be complicated by the presence of hazardous substances based on its historical use.

If you would like Davis & Floyd to complete a Phase I ESA or have any questions, please contact us here.