Can You Resuscitate an Elderly Phase I?
As an environmental practitioner, I am often asked to review Phase I environmental site assessments. The majority of Phase Is are prepared by a prospective purchaser or lessee of real property seeking to secure bona fide purchaser protection (BFPP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The BFPP defense is a carve-out from CERCLA liability, which otherwise will attach to current landowners and other persons irrespective of fault. As a result, the BFPP defense has significant value to persons seeking to purchase property with a checkered environmental past.
A prospective purchaser must conduct “all appropriate inquiries” regarding environmental conditions of the property to qualify for the BFPP defense. A Phase I assessment legally serves this purpose. ASTM Standard E1527 standardizes the process of evaluating a property’s environmental conditions and assessing potential liability for any contamination. As part of these requirements, ASTM E1527 prescribes limits on the age of a qualifying Phase I.
The basic Phase I age rule requires completion of the Phase I within 180 days from the date of the property transaction (typically the closing or signing of a lease). However, an older Phase I may be rehabilitated as long as the report was prepared no more than one year prior to the date of the transaction. There is an important catch: A prospective purchaser or lessee must update certain portions of the Phase I. Specifically, the following components must be updated to be within 180 days of the transaction:
- Interviews with owners, operators, and occupants;
- Environmental lien search;
- Visual inspection of the property and adjoining properties; and
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Declaration of the environmental professional
In summary, the environmental professional must make another trip to the property, and the lien search, typically performed by a title professional or lawyer, must also be updated. ASTM E1527 is clear that a Phase I that is older than one year cannot be used to satisfy “all appropriate inquiries” for the BFPP defense, although the information contained in it may be useful in subsequent Phase I investigations.
Conspicuously absent from the information to be updated is the User Information regarding knowledge of the property and experience of the User. This can be confusing. Often a party will want to revive a Phase I who did not commission it (i.e., is not the User of the original Phase I). An earlier prospective purchaser, the property owner, or even the updating party’s own lender may have commissioned the older Phase I, any of which will be listed as the User. The updating party must be added as a User. In this situation, a reliance letter from the environmental professional will not do. User information must be gathered by the environmental professional and attached to the updated Phase I, typically in the form of an attachment, letter or questionnaire. It is a common pitfall to omit the User information, particularly when one’s own lender originally ordered the Phase I for the lender’s benefit. To summarize, an elderly Phase I can be resuscitated, with limitations, as long as the select pieces are brought current.
40 CFR § 312.21, Results of inquiry by an environmental professional