BLDI Environmental Engineering Environmental Due Diligence Primer for Michigan – 2008

Q:    What is a Phase I Environmental Site Assessment (ESA)?

A:    A Phase I ESA is the first step in the environmental due diligence process. The Phase I ESA is a non-intrusive assessment of the existing site conditions. The Phase I ESA is generally conducted to meet USEPA’s All Appropriate Inquiry (AAI) and the ASTM standard or additional relevant lender specifications.
The scope of a Phase I ESA typically includes a review of the following: historical use of the Subject Property (various historical sources), known sites of environmental concern in the vicinity of the Subject Property (search of governmental databases of sites of known environmental concern), interviews with various local and state governmental agency personnel and, most importantly, a site walk-through. If sites of known environmental concern are identified in the vicinity of the Subject Property, a review of available environmental records for the identified sites may be appropriate.
The AAI and the ASTM standard defines the term Recognized Environmental Condition (REC) 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 product.” Once a REC is identified at the property, it should be resolved. Most commonly RECs are resolved by conducting a Phase II ESA.

Q:    What is a Phase II ESA?

A:    A Phase II ESA is conducted with the goal of resolving the RECs identified in the Phase I ESA. The Phase II ESA commonly includes the collection of samples of various media (e.g., soil, groundwater) to document site conditions. Other activities that may be conducted during a Phase II ESA include geophysical assessment, sediment sampling, and test pits. The samples collected at the site are then submitted to a laboratory for analysis for the relevant chemicals or compounds. The chemicals or compounds selected for analysis are based on the present and the historical use of the property. Future chemical use may impact parameter selection if a Baseline Environmental Assessment (BEA), Michigan only, is required. If the chemicals or compounds are found to exceed the regulatory criteria, the site does meet the definition of a “facility.” If the transaction is part of a new purchase, a Baseline Environmental Assessment (BEA) can be conducted to mitigate potential environmental liability. If the transaction is part of a re- financing, then an estimate of the cost to address the potential environmental issue can be prepared for the owner, operator or lender. If the chemical or compounds are found to be less than the regulatory criteria, the site does not meet the definition of a “facility”, meaning the site does not meet the definition of being contaminated.

Q:    What Regulations Govern Environmental Liability in Michigan?

A:    Environmental liability in Michigan is governed by state law under Public Act 451 of 1994, as amended. Part 201 and Part 213 of PA 451 govern sites of environmental contamination and define liable parties. Part 201 and 213 define a site contaminated above specified criteria (i.e., generic residential) as a “facility.”

Q:    What is a “Facility”?

A:    As defined in Part 201, a “facility” is “any area, place or property where there is a release of a hazardous substance in an amount that exceeds the established state cleanup standards for residential property.” An example of a facility would be an old automotive oil change shop where oil has contaminated the soil above generic residential cleanup criteria (GRCC) or a gas station with gasoline floating on the water table.

Q:    What is Generic Residential Cleanup Criteria (GRCC)?

A:    The criteria for residential property are the most restrictive and if the site meets or is cleaned up to residential standards, it is considered safe for all uses.

Q:    What is a Baseline Environmental Assessment (BEA)?

A:    A Baseline Environmental Assessment (BEA) is an evaluation of environmental conditions for a piece of property or “facility” prior to purchase or foreclosure. Currently, only Michigan offers this tool to protect purchasers or lenders from environmental liability for contamination. A BEA focuses on documenting the levels of contamination present at the “facility” prior to the purchase, foreclosure or occupancy. The purpose of a BEA is to protect the purchaser, foreclosing lender or operator of the facility from liability from previous owners' actions. This creates a “line in the sand” whereby a new owner is only accountable for future use and contamination and not past actions.

Q:    When Should a BEA be Completed and by Whom?

A:    The Michigan Department of Environmental Quality (MDEQ) requires that a BEA be “complete” before, but no later than 45 days after purchase, occupancy, or foreclosure. The environmental consultant must complete the BEA for the client within this timeframe or the BEA will not be accepted by MDEQ. The completed BEA and supporting documents (e.g. disclosure forms) are submitted to MDEQ within six (6) months of completion.

Q:    Are There Different Types of BEAs?

A:    Yes, there are three (3) types of BEAs. The proposed property and chemical use determines the applicable category of BEA.
Category N: No significant hazardous substance used by the new owner or operator.
Category D: The hazardous substance(s) to be used will be different from the existing contamination.
Category S: The hazardous substance(s) to be used will be the same as the existing contamination.
The Category N BEA is most commonly done by foreclosing lenders. Category D and S BEAs commonly use engineering controls (e.g. well-maintained concrete) to segregate new from existing contamination.

Q:    How About Liability for Sites Owned Prior to June 5, 1995?

A:    For contamination present prior to June 5, 1995, a causation standard is applied wherein an owner of a property who did not cause the contamination is not liable for pre-existing contamination so long as they owned the property prior to June 5, 1995. A new purchaser of such a property can then conduct a BEA for the known contamination.

Q:    Who Should Advise on my Legal Requirements?

A:    We always recommend our clients retain good, competent legal counsel at the onset of a purchase. Early involvement by legal counsel can help streamline the entire purchase process.