Environmental
Strategies &
Applications
Due Diligence
Due diligence is a non-invasive investigation (i.e., no samples are taken initially) used to determine if potential areas of environmental concern exist on a piece of industrial or commercial property. When performing due diligence one follows a defined methodology to ensure that a thorough investigation is performed. Due diligence is often required by lenders, should always be performed by buyers, and is often performed by property owners as well. There are three basic types of due diligence performed in New Jersey.The service most frequently requested by our clients is a Phase I Environmental Site Assessment. But sometimes when this is requested, what people really need to order is a Preliminary Assessment. The differences between the two are very important and are described below. The third form of due diligence, the Transaction Screen, is also explained.
- Phase I Site Assessments
- Preliminary Assessments
- Transaction Screens
Phase I Environmental Site Assessment
The purpose of a Phase I Environmental Site Assessment is to identify “recognized environmental conditions” in connection with a property. The American Society for Testing Materials (ASTM) defines the term “recognized environmental conditions” 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 of any hazardous substances or petroleum products on the property or into the ground, ground water, or surface water of the property”. The term includes hazardous substances or petroleum products even under conditions in compliance with laws. The term is not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies A Phase I Environmental Site Assessment follows the guidelines established by ASTM E1527-05, and does not include taking any samples. The need for any additional work (i.e., Phase II sampling) is determined based on the findings of the Phase I. It is important that all readily available environmental reports written for the subject property be reviewed as part of the Phase I. Phase I reports may be needed when one wishes to purchase, sell, or refinance a commercial or industrial property. A Phase I Environmental Site Assessment conducted in accordance with ASTM E 1527-05 is intended to constitute appropriate inquiry for purposes of an innocent landowner defense pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), however it is not intended that its use be limited to that purpose. Additionally, completion of a Phase I Environmental Site Assessment conducted in accordance with ASTM E 1527-05 will not satisfy the specific requirements of an innocent landowner defense established by the New Jersey Department of Environmental Protection.
Preliminary Assessments
Similar to an ASTM Phase I, Preliminary Assessments identify potential environmental concerns without taking any samples. It provides the same information as an ASTM Phase I Environmental Site Assessment, but goes beyond the Phase I. Every Preliminary Assessment must follow the format prescribed in the New Jersey Technical Requirements For Site Remediation (N.J.A.C. 7:26E), which differs from the ASTM format and must include a comparison of the results of all past environmental cleanups to contemporary standards. Preliminary Assessments are the preferred form of due diligence when buying commercial or industrial property in New Jersey because they are required pursuant to New Jersey’s Brownfield and Contaminated Site Remediation Act (N.J.S.A. 58:10B-1 et seq.). Additionally, a Preliminary Assessment must be performed to satisfy the specific requirements of an innocent landowner defense established by the New Jersey Department of Environmental Protection.
Transaction Screens
Transaction Screens (also known as Limited Environmental Site Assessments), are a minimal form of due diligence. They are inexpensive and provide a good indication if potential recognized environmental conditions exist on site. They are performed for roughly half the price of a Phase I and can often be completed in less than two weeks. Typical candidates for transactions screens are property refinances where a full Phase I was recently performed, or properties that are relatively new and the likelihood of common environmental problems like USTs, asbestos, lead, PCBs, etc. is well known.