Envronmental Due Diligence Overview
When buying or selling commercial properties, it is important for all parties involved to have an understanding of the environmental condition of the soil and groundwater at that property. Additionally, an Environmental Professional (EP) can advise of potential environmental problems at a facility, saving the owner the costly expense of a clean-up. For perspective buyers of contaminated property: don't be afraid! With the proper documents, you can own just the right property without fear of past contamination issues. The following page is a description of some of the "tools" Westshore uses to assist commercial and residential landowners in the transfer of real estate:
Westshore’s Environmental Site Assessments (ESAs) follow industry standards set forth by the American Society for Testing Materials (ASTM). These nationally recognized standards are intended to satisfy the “all appropriate inquiry” requirements into previous ownership and property uses to qualify for the innocent landowner defense of the Comprehensive Environmental Response, Compensation, and Liability Act.
The ESA documents can also provide support for liability protection under Part 201 of Michigan’s Natural Resources and Environmental Protection Act (Public Act P.A. 451).
Environmental Transaction Screen (ETS)
The purpose of an ETS is to assess the environmental condition of commercial real estate. Specifically, Westshore is looking for "Recognized Environmental Conditions" which are defined as "the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release to the property" by the ASTM.
Upon completion, the person requesting the ETS should be able to conclude either (1) no further inquiry or (2) further inquiry is needed to assess recognized environmental conditions for the purposes of appropriate inquiry. An ETS represents the "bare minimum" of environmental due diligence and should only be relied upon when the history of a commercial property is well understood and when the need of a Baseline Environmental Assessment (see below) is not likely.
Phase I Environmental Site Assessment (Phase I)
A Phase I ESA (spoken "phase one") also evaluates the potential for contamination to be present, but includes an extensive review of more historical use sources than an ETS, assesses the physical conditions of the Subject Property (e.g., topographic gradient, potential groundwater flow direction), includes a review of adjacent property uses, and relies on the judgment and opinion of an environmental professional regarding the impact of recognized environmental conditions.
An ASTM Phase I ESA is recognized as the standard for environmental due diligence since it addresses a more complete list of historical sources, minimizing the potential oversight of a historical use at a property. As in the case of the ETS, described above, upon completion of a Phase I ESA, the person requesting the Phase I should be able to conclude either (1) no further inquiry or (2) further inquiry (a Phase II, see below) is needed to assess recognized environmental conditions for the purposes of appropriate inquiry.
Phase II Subsurface Investigation
The objective of a Phase II Subsurface Investigation is to evaluate the recognized environmental conditions identified in an ETS or Phase I ESA. This is typically accomplished by collecting soil and/or groundwater samples from the site at areas of concern. These samples are analyzed by independent environmental labs subcontracted by Westshore. This information is compiled by Westshore and compared to established screening levels.
The purpose of the evaluation is to (1) provide sufficient information regarding the nature and extent of contamination to assist in making informed business decisions about a property; and (2) where applicable, provide the level of knowledge necessary to satisfy the innocent landowner defense under CERCLA.
If contamination is discovered onsite that exceeds the current cleanup criteria, a new purchaser, who is not responsible for the historical practices on the Subject Property, can have a Baseline Environmental Assessment prepared, which offers liability protection from the known contamination (under Part 201 of the Natural Resources Environmental Protection Act (NREPA), P.A. 451).
Baseline Environmental Assessment (BEA)
The State of Michigan (through Part 201 of NREPA) allows you to purchase contaminated property without liability for the pre-existing contamination if a BEA is completed within the statutory time constraints. This is a great tool that has proven to be one of the key driving factors to the redevelopment of useful but environmentally contaminated properties across the state.
Although the statutory limit for completing a BEA is 45 days from purchase, occupancy, or foreclosure, Westshore recommends that you begin the Phase I ESA, which is required for a BEA, up to 3 months before you want to close if you are planning to seek an optional determination of adequacy by the Michigan Department of Environmental Quality.
There are three categories of BEAs:
Category N – New owner or operator will use no significant amounts of hazardous substances.
Category D – New owner or operator will use a significant amount of hazardous substances that are different from existing contaminants.
Category S – New owner or operator will use a significant amount of hazardous substances that are the same as existing contaminants.
Due Care Plan
A Due Care Plan must be completed within 6 months of the submittal of the BEA report. The plan summarizes activities that a person who owns or operates property, and he or she has knowledge is a facility, will undertake:
- Prevent exacerbation of the existing contamination
- Mitigate unacceptable exposure in a manner that protects public health and safety
- Take reasonable precautions against the reasonably foreseeable acts or omissions of a third party and the consequences that could result from those acts or omissions.
Contact us for more information or a free, propoerty-specific quote for environmental due diligence.
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