New Standard Will Help Clarify Environmental Conditions For Homebuilders

by Bilzin Sumberg
Contact

When you are buying raw land to build homes, you need to know what you are buying. A 100-acre tract of farmland may look pristine to the untrained eye, but an environmental professional may discover a leaking underground storage tank, illegal landfilling, or pesticide spills next to the maintenance shed. Pre-acquisition environmental due diligence helps homebuilders uncover such environmental problems before buying land, helping builders determine the value of the land, whether the land is suitable for the planned residential development, and additional costs that may be incurred to address environmental issues. Environmental due diligence is also important to establish certain federal liability defenses.

Phase I ESAs are the backbone of environmental due diligence for commercial real estate, including large-scale residential development projects. In November 2013, ASTM (an international standards organization) issued a new standard for Phase I ESAs. The new standard, ASTM E1527-13, was prepared by a technical committee made up of environmental consultants, real estate and environmental attorneys, regulators, builders, lenders and insurers. The purpose of the Phase I ESA is to identify the presence of Recognized Environmental Conditions (RECs) at the subject property, including any historical or controlled RECs.

The last revision to the Phase I standard was made in 2005 in response to legislative amendments which created new liability defenses under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). To take advantage of these defenses, homebuilders need to undertake pre-acquisition environmental due diligence that satisfies the “all appropriate inquiries” requirement. The Phase I standard provides a checklist for meeting the requirement.

Do I Have to Use The New Standard?

Not yet. The United States Environmental Protection Agency (EPA) issued a final rule recognizing the new Phase I standard, stating that, effective December 30, 2013, compliance with the new Phase I standard will satisfy the requirement to conduct “all appropriate inquiries.” EPA also announced that it intends to publish a new proposed rule in the near future that would remove reference from its regulations to the prior Phase I ESA standard (ASTM E1527-05) as satisfying the “all appropriate inquiries” requirement. In the interim period, a Phase I ESA that conforms to either the prior standard or the new standard meets the requirements for “all appropriate inquiries.”

Why Should I Use the New Standard?

For one thing, your lender may require that you do. Some lenders already require use of the new standard, and most of them will in the near future.

More importantly, the new Phase I standard provides homebuilders with more information about the property than the prior standard. For example, under the new standard, the environmental consultant will:

  • evaluate the potential for hazardous vapors to migrate onto the property, based on existing data about any known contaminants in the surrounding area.
  • conduct additional review of regulatory agency files if the subject or adjoining properties are listed in public regulatory databases, giving the property buyer more in-depth and updated information about environmental enforcement actions and incidents such as spills.
  • identify controlled RECs affecting the property, meaning conditions that have been resolved with the use of engineering and/or institutional controls. These controls may restrict the use or future development of the property, such as by prohibiting residential uses, prohibiting use of groundwater for irrigation, or requiring that an impermeable cap remain over contaminated areas.

While we think the new Phase I ESA standard will assist homebuilders by providing a clearer picture of current and historical environmental conditions of the prospective property, homebuilders should note that these changes may also add to the cost and time for an environmental consultant to perform a Phase I ESA. This may be particularly true in the early days of adoption of the new standard. Homebuilders should take this potential delay into account when negotiating due diligence time frames with land sellers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bilzin Sumberg | Attorney Advertising

Written by:

Bilzin Sumberg
Contact
more
less

Bilzin Sumberg on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.