Originally Published in Law360 - June 26, 2013.
Most commercial or industrial buyers of contaminated property, and virtually all lenders at contaminated sites, require sellers to either obtain a no-further-remediation letter (NFR) themselves, place money in escrow in an amount necessary to pay for the projected future cost of obtaining an NFR or reduce the sales price based on the projected NFR cost.
The NFR is a document in which government agencies such as the Illinois Environmental Protection Agency confirm that no additional remediation is necessary for the protection of human health or the environment, as long as site conditions, as verified by a professional engineer, do not change.
A new rule issued by the Illinois Pollution Control Board (IPCB) adds a requirement to NFRs. After July 15, 2013, the Illinois EPA will issue an NFR only if the applicant shows that vapor from soil or groundwater is not seeping into buildings and causing an indoor inhalation health risk, a process known as “vapor intrusion.” Vapor intrusion is common at old gas station sites, dry cleaners or other properties where underground storage tanks have been located or solvents or other volatile chemicals have been used.
At many commercial or industrial sites, the new rule will require additional cleanup or installation of vapor extraction systems to prevent indoor exposure to volatile organics. For instance, in Chicago and many surrounding suburbs using Lake Michigan water, NFR applicants rarely, if ever, are required to remediate groundwater contamination in order to obtain an NFR. The new rule makes groundwater relevant everywhere, as contaminated groundwater may be causing vapor intrusion.
To obtain an NFR under the new rule, applicants may be required to make costly expenditures to remediate groundwater. While applicants could, alternatively, obtain a NFR by installing underground systems to block vapor from entering buildings, such systems can be expensive, unsightly and, in many cases, must be maintained for years.
While this article addresses only the new Illinois rule, the rule reflects national and state trends to regulate vapor intrusion. Vapor intrusion is quickly becoming a mainstream environmental concern that parties must address in commercial real estate transactions at sites throughout the United States.
In 1997, the IPCB first issued remediation standards for NFRs based on risks to human health posed by environmental conditions. This program, known as the Tiered Approach to Corrective Action Objectives (TACO), provides alternative remediation standards depending on, among other things, the site’s use (residential or commercial/industrial), the existence of engineered barriers such as asphalt to prevent exposure and the use of institutional controls such as groundwater use restrictions. TACO has addressed exposure of contaminants from four pathways: outdoor inhalation, soil ingestion, groundwater ingestion and dermal contact with soil.
Historically, the Illinois EPA has not, except in extreme cases, regulated volatile organics migrating from the ground into buildings and impacting indoor air quality. Recently, however, the Illinois EPA expressed concerns about “public health crises and ensuing legal and financial challenges caused by vapor intrusion exposure at sites where the indoor inhalation exposure route was not evaluated prior to the issuance of the NFR letter or its equivalent.”
In response to these concerns, after long delays, in March 2013, the IPCB amended the TACO rule, 35 Ill.Adm.Code 742, to add evaluation of the indoor inhalation exposure route to future NFRs.
The Illinois EPA will administer the new indoor inhalation pathway in a manner similar to its management of TACO’s other four exposure pathways. Applicants will continue to have alternative means of satisfying NFR requirements, including: three tiers (tier 1 look-up tables, or tier 2 and 3, based on site-specific conditions), the use (residential or industrial/commercial) of the property and whether the contamination pathway can be blocked or excluded, in this case, using building control technologies.
Although vapor intrusion arises from volatile chemicals in soil, soil gas and groundwater, the rule regulates only soil gas and groundwater. The Illinois EPA explains that scientific literature is skeptical about determining indoor inhalation risks based upon volatile chemicals in soil.
Consistent with the other exposure routes, the IPCB has published tables outlining acceptable contaminant levels under tier 1. In determining acceptable contaminant levels at specific sites under tier 2, the IPCB employs a modification of the Johnson and Ettinger (J&E) model. Environmental experts have used the J&E model for years to predict indoor inhalation levels. The new rule explains how to use the J&E model under tier 2 and provides guidance for tier 3 evaluations.
Perhaps most important to the regulated community is the rule’s list of acceptable building control technologies (BCTs), which may be used to block or exclude the indoor inhalation pathway. Like engineered barriers, as long as the BCTs remain in place, they can, at many sites, authorize the issuance of an NFR without any remediation.
The regulations describe the requirements for four acceptable BCTs: subslab depressurization, submembrane depressurization, membrane barriers and vented raised floors. The IPCB states that these technologies are all “economically reasonable and technically feasible.”
As with other pathways under TACO, if the concentrations of certain contaminants are substantial, or if the contamination is close to the building footprint, BCTs may not be employed as the sole remedial measure.
The new Illinois vapor intrusion rule will, at many sites, impose additional remediation obligations, which may be onerous, on the large number of parties who, practically, must obtain an NFR to transfer contaminated commercial or industrial property. NFR applicants must now address the impact of volatile organics on indoor air quality at all sites, most notably former gas stations, dry cleaners, other sites with tanks or sites that used chlorinated solvents such as trichloroethylene and perchloroethylene.
The Illinois EPA justifies the new rule on grounds that it protects the public from potential health risks due to vapor intrusion. Furthermore, according to the Illinois EPA, in issuing NFRs under the new rule, it will have determined that vapor intrusion does not pose a health threat; hence, NFRs will provide site owners with expanded protection. The Illinois EPA also states that the new rule will facilitate real estate transactions as the rule relies on industry-accepted ASTM vapor intrusion standards.
In an important and positive development for the real estate community, the Illinois EPA states that it has no intention of requiring most sites that have already obtained an NFR to meet the new indoor inhalation rules. Instead, the Illinois EPA explains that it “would take action only if new site-specific information indicates a vapor intrusion problem.”
As many buyers and lending institutions will be satisfied with pre-existing NFRs, the new rule will not, as a practical matter, impose the new vapor intrusion requirements on most sites that have already secured NFRs.
The Illinois EPA’s fact sheet on the indoor inhalation amendments, which includes a link to the new rule, is found here. Additionally, on April 16, 2013, the United States EPA issued final draft guidance documents for conducting vapor intrusion evaluations, which can be found here.