MEbiz Real Estate Insider – ABC 123: AAI, ESAs and VRAP – When to utilize DEP’s Voluntary Response Action Program
Last time around, we mentioned that if you are going to buy a commercial property, you should investigate the existing environmental conditions of that property. It is helpful to address both the costs and timing associated with this environmental due diligence in your Purchase and Sale Agreement.
In order to give you the maximum benefit under the law, that investigation must include an ESA (Environmental Site Assessment) that meets the federal standards for AAI (All Appropriate Inquiry). The first step of AAI is to perform a Phase I ESA to determine whether there are any indications of a release of hazardous substances on the site. An environmental professional will conduct a site visit, review public records, and consult with the current site manager (or some person with personal knowledge of how the site has been operated). The result of the Phase I ESA is a report that identifies any RECs (Recognized Environmental Conditions) on the site. If RECs are identified, a Phase II ESA is typically recommended to perform appropriate sampling to determine whether hazardous substances have been released on the property.
If a site is contaminated, you will want to understand whether the contamination impacts the safe operation or redevelopment of the property, and how to ensure that your new property doesn’t come with a side order of environmental liability. This is where the Voluntary Response Action Program (VRAP) comes in. While you will always want to consult a lawyer and an environmental consultant about the specifics, there are three general steps to a VRAP.
- Submit the data. You will submit the Phase I and Phase II reports, along with a work plan to the DEP for its review and approval. Depending on your intended use of the property, the extent of the contamination, and the proximity of the property to natural resources or drinking water wells, the work plan could range from leaving the contamination in place all the way to full remediation.
- Perform the work plan. If the DEP approves the work plan it will issue a NAA (No Action Assurance) letter, indicating that if you properly implement your plan, the DEP will not take any enforcement action with regard to the contamination described in the Phase I and Phase II reports. Once complete, report the details of the completion of the plan to the DEP.
- V-Wrap it up. Upon completion of the work plan, the DEP will issue a COC (Certificate of Completion). The COC includes liability release provisions that apply to those named applicants to the VRAP, along with their successors and assigns, lenders, etc. It is important to note that the release from liability in the COC is solely a release from liability to the State, and applies only to the known contaminants at the time the Certificate is issued. Enforcement of non-delegated federal laws or third party suits are not addressed by the program. Any conditions contained in the COC (typically relating to use restrictions) must be memorialized in a Declaration of Environmental Covenant to ensure future potential purchasers are on notice of any applicable restrictions.
In summary, in your P&S, make sure you reserve the right to perform your AAI by completing a Phase I ESA, and if necessary a Phase II ESA. If the Phase II ESA indicates contamination, you may protect yourself from liability to the State by completing a VRAP. These acronyms may sound daunting, but an ounce of prevention can be worth a pound of cure when it comes to buying contaminated property in ME.