Environmental Site Assessments

Key Point. Under Federal law, owners of commercial real estate are liable for hazardous materials cleanup costs even if they did not contribute to the contamination release.

Owner Liability For Cleanup

The Comprehensive Environmental Response, Compensation and Liability Act[1], better known as CERCLA, passed by Congress in 1980, is aimed at cleaning up sites contaminated with hazardous waste, as well as preventing contamination of future sites by assigning liability to parties involved.  Liability under CERCLA requires parties to pay damages for the cleanup of the sites.  U.S. courts have held that a buyer, lessor, or lender may be held responsible for remediation of hazardous substance residues, even if a prior owner caused the contamination. As a broad concept, if you own it, you are responsible for cleaning it up unless you can establish a defense.

The Innocent Landowner Defense

Although CERCLA establishes strict liability, amendments to CERCLA known as the Superfund Amendments and Reauthorization Act (SARA), include a defense for innocent landowners who "undertook all appropriate inquiries" before purchasing the land, and "had no actual or constructive knowledge" of the hazardous substance.

Phase 1 Environmental Site Assessment

A Phase I Environmental Site Assessment, often referred to as a Phase 1 ESA, completed before closing a real estate transaction, can be used to satisfy the requirements of CIRCLA’s innocent landowner defense under the All Appropriate Inquiries (“AAI”) test. A Phase 1 ESA is completed to research the current and historical uses of a property.  The intent of the report is to assess if current or historical property uses have impacted the soil or groundwater beneath the property and could pose a threat to the environment and/or human health. If these issues are found, it presents a potential liability for the owner and/or lender, as well as affecting the value of the property. American Society for Testing and Materials (ASTM) sets the standard for what constitutes an environmental risk or "recognized environmental condition" (IREC). The Phase 1 ESA usually follows the criteria set forth by ASTM E1527-13 which provides guidelines to meet industry standards.

A Phase 1 ESA typically includes the following:

a. A site visit to observe current and past conditions and uses of the property and adjacent properties;

b. A review of federal, state, tribal, and local regulatory databases including, underground storage tanks, aboveground storage tanks, known or suspected release cases;

c. A review of historical records, such as historical aerial photographs, fire insurance maps, historical city directories, and historical topographic maps;

d. A review of state and local agency records, including state environmental agencies, building departments, fire departments, and health departments;

e. Interviews with current and past property owners, operators, and occupants, or others familiar with the property.

f. Interviews with the report user for title or judicial records for environmental liens.

It is the User responsibility to provide this information to qualify for the innocent landowner defense.

The environmental professional then evaluates the findings of the report to make recommendations of what must be done to address any concerns. Finding of a recognized environmental condition (“REC”) will often include a recommendation for a Phase II Environmental Assessment.

Phase II Environmental Assessment

A Phase I ESA assesses the likelihood that a property is environmentally contaminated through visual observations, historical use reviews and regulatory records, and visual inspections whereas a Phase II ESA assesses whether contamination is in fact present. Typically no testing is done in connection with a Phase I. Testing is done at the Phase II level. If a Phase I ESA reveals a REC, the Phase II can determine whether a condition exists that exceeds allowable EPA levels, and indicate the process of eliminating the contamination and the remediation expense. Cleaning up a contaminated property may require a substantial outlay in cash and time thereby reducing the property’s value.

Phase II testing often includes:

  • Additional files reviews not included in the Phase I ESA
  • Soil and groundwater sampling
  • Soil vapor surveys
  • Asbestos and/or lead based paint surveys

The scope of work needed for a Phase II assessment is specifically designed for each property. Boring by various means is usually required using a variety of equipment. The purchase and sale agreement between seller and buyer should allow the buyer to make those borings and samplings and require the buyer to restore the property to its pre-tested condition if the sale does not close.

Properties likely to need a Phase II assessment are:

  • Gas stations
  • Dry cleaning establishments with cleaning equipment on site
  • Industrial properties that used hazardous materials or chemicals
  • Automobile repair facilities
  • Properties with a history of spills or release of hazardous substances or oil products
  • Properties that have any of the above nearby.

The Next Step – Cleaning It Up

Once contamination is determined to be significant and/or to exceed federal, state or local cleanup standards, a further site assessment is required, in order to help establish the vertical and lateral extent of the contamination. In these situations, agency consultation is usually required in order to pursue closure from an oversight agency. A "no further action" letter is pursued for the property in order to bring the property into compliance and make it “sellable”. For regulatory-mandated cleanup and/or monitoring, the client can apply to available cleanup funds, when available, in order to recover moneys spent.

For gasoline stations, Georgia has a program for partial payment of cleanup costs under the Georgia Underground Storage Tank program (“GUST”) [2].

The Georgia Environmental Division, through its Land Protection Branch manages the disposal and treatment of solid waste through the permitting of municipal and industrial solid waste landfills. The branch also oversees underground storage tank registration and remediation, scrap tire cleanups, certification of lead-based paint and asbestos removal contractors, and surface mining permitting and reclamation. [3]


[1] It is codified in 42 U.S.C. Chapter 103
[2] See : https://epd.georgia.gov/about-us/land-protection-branch/underground-storage-tanks
[3] See the Georgia EPD Land Branch Division website at https://epd.georgia.gov/about-us/land-protection-branch

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