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Update on the Use of Baseline Environmental Assessment

By Kevin A. Lavalle, Gault Davison PC and Jeffrey A. McCormack, Arcadia Environmental, LLC.

Prior to 1995, owners and operators of property were subject to strict liability for the cleanup of contaminated property. This liability scheme, commonly referred to as “draconian” by the commentators of the time, was abolished in 1995 by the Michigan Legislature and replaced with one based on fault. One vestige of strict liability still remains today, however. Any person who acquires contaminated property after 1995 must perform a Baseline Environmental Assessment (“BEA”) and disclose the results of the BEA to the State of Michigan or they may be subject to strict liability for any cost of cleanup. This exception to the fault standard can be easily overlooked.

Since their promulgation, the procedures governing performance of a BEA remained essentially unchanged until December of 2010. At that time, former Governor Jennifer Grandholm signed into law a package of bills that made significant amendments to Part 201, the state statute governing the cleanup of environmental contamination. These amendments became effective December 14, 2010 and drastically changed the manner in which BEAs are performed.

A comparison of the pre amendment definition of a BEA to the post amendment definition reveals fundamental differences in what a BEA is and how one is performed. Prior to the December 14, 2010, a BEA was defined as:

[A]n evaluation of environmental conditions which exist at a facility at the time of purchase, occupancy or foreclosure that reasonably defines the existing condition and circumstance at the facility so that, in the event of a subsequent release, there is a means of distinguishing the new release from the existing contamination.

The post December, 14, 2010 definition states that a BEA is:

[A] written document that describes the results of an all appropriate inquiry and the sampling and analysis to confirm that the property is a facility.

The requirement that a person define the contamination so as to be able to distinguish any new release from an existing one has been eliminated. DEQ guidance documents state that a person may still wish to establish a means to distinguish a new release from an old release but that choice is purely a business decision and not a BEA requirement.

For the first time, the new amendments specifically mandate a standard for the performance of what is commonly referred to as a Phase I Environmental Site Assessment (“Phase I ESA”). A Phase I ESA is a component of any BEA. The new amendments specifically provide for the performance of the USEPA “All Appropriate Inquiry” (“AAI”) standard codified at40 CFR 312.20. DEQ guidance documents indicate that a Phase I ESA prepared in conformance with ASTM Standard E1527-05 is an acceptable substitute for an AAI report. Most BEAs already included a Phase I ESA in either an AAI or ASTM compliant format; therefore this amendment brings the performance of a BEA in line with common practice.

Previously, once it was determined that a BEA was necessary to secure liability protection, it became critical to understand the past and future uses of the property in order to choose the proper category of BEA to perform. There were three categories of BEA’s: Category N, Category D, and Category S. A Category N BEA was prepared in situations where no hazardous materials were to be used on the property. This Category of BEA was comparatively simple to perform and had the lowest cost. A Category D BEA was required in situations where the future usage of the property involved hazardous substances, which were different from any existing contamination present on the property. Finally, a Category S BEA was required when the hazardous substances comprising any existing contamination were the same as what was expected to be used on the property in the future. Category S BEA’s were complicated from both a regulatory and technical level. They could also be prohibitively expensive. The new amendments abolished these categories and by implication, creates a one size fits all BEA similar to that of a Category N BEA.

Although environmental considerations are usually an afterthought in many commercial real estate transactions, a BEA must be completed within certain time frames. These times frames should be incorporated into the development plan from its inception. Two time frames are critical in the BEA process and must be met to receive liability protection. First, the AAI standard sets forth time frames in which certain tasks may be completed prior to acquisition. Under the AAI standard, all the tasks must be conducted prior to acquisition. Part 201 modifies this time frame and allows an extra 45 days after purchase, foreclosure, or occupancy to complete the BEA.

The second critical time frame involves submittal of the BEA to the DEQ. A BEA will not provide the prospective owner/operator with liability protection unless the BEA is submitted to the DEQ. The pre-amendment regulations allowed a person to submit the BEA to the DEQ anytime up to 6 months after completion of the BEA. The new amendments shorten this time frame and now require submittal within 6 months of purchase, occupancy or foreclose.

Prior to December of 2010, there were two options available for submittal of a BEA. A person could submit the BEA with a petition seeking a determination of adequacy or they could submit it for disclosure only. A person seeking a determination of adequacy was required to submit appropriate affidavits and forms along with a $750.00 fee. In essence, a person seeking a determination of adequacy was asking the DEQ for an upfront opinion of the adequacy of the BEA in securing liability protection. Conversely, under the disclosure method, once a report was sent in, the submittal process was essentially complete. The new amendments completely eliminated the option of asking for a determination of adequacy and all BEA must now be submitted using the disclosure option.

Individuals or business entities that purchase property today are provided a method to limit cleanup liability on sites with pre-existing contamination. To avail oneself of this opportunity, consideration must be given to proper environmental due diligence early on in the property transfer. The new amendments change the imbedded timelines in the BEA process. Therefore, it is important that a prospective purchaser engage their attorney and environmental professional early on in the process to ensure an effective and timely completion of the process.