Key Conclusion:  P-2 subsurface investigations should be carefully considered before they are implemented.  A somewhat recent development is the requirement of some lenders to perform P-2 projects regardless of finding a “smoking gun” or any documented significant releases of chemicals.

 

ERAS strongly cautions against random, unfocused P-2 investigations because it creates a bad, unscientific basis for these investigations and is likely to cause TRAGIC CONSEQUENCES for Property owners.

 

The answer to this question may depend on who you talk to.  For years, ERAS has been cautioning the commercial real estate community to carefully consider whether a Phase 2 investigation should be conducted, even when it is recommended by an environmental consultant. 

 

The caution has been based on the following:

 

-          A phase 2 must be clearly justified and focused, otherwise the findings will be suspect.  Buyers should ensure recommendations are clear and supported by evidence. 

 

-          Note there can be Recognized Environmental Conditions (RECs) discovered that DO NOT require P-2 investigation.  See the photographs below that illustrate two examples:  1) a monitoring well that requires proper abandonment and 2) superficial staining that requires cleaning

 

-          ANY detectable contaminants must be reported to the environmental agency, the Environmental Screening Levels (ESLs) are NOT used for this decision.

 

-          A leak case opened by an agency is likely to cause at least a 2-3-year delay for the owner and is liable to cost $50,000 at a minimum.

 

-          Due to the sensitivity of current laboratory analyses, SOME contaminants are likely to be detected in EVERY Phase 2 investigation.

 

Several financial organizations currently require Phase 2 investigations for certain types of facilities, regardless of quantities of chemicals, documented significant spills or known former specific locations of items of concern.  These include auto paint and repair shops, machine shops and commercial printers to name a few.

 

Bankers, brokers and sellers should realize their “simple or routine” Phase 2 investigation to “just make sure” could tie up the property for years or even decades before the property can be sold.

ERAS uses the “ABC” approach, Assertions of problems without Basis are Crap.  Long experience with most regulatory agencies indicates this is the correct and scientifically sound approach.

 

ERAS contends that “willy-nilly” investigations are likely to cause more problems than they solve. 

ERAS previously discussed contamination reporting and how that pertains to California Environmental Screening Levels (ESLs).  Contamination is required to be reported to public environmental agencies by the owner within 30 days of its discovery. In accordance with California Health and Safety Code (HSC) Division 20, Chapter 6.95, Section 25510, et seq., “the handler … shall, upon discovery, immediately report any release or threatened release of a hazardous material to the unified program agency.”  Generally, the California Department of Toxic Substance Control (DTSC) can serve as or provide a referral to the ‘unified program agency’.  The terms handle and handler are defined in HSC 20 Section 25501 paragraphs (l) and (m), respectively.

Contamination found in the subsurface of a Property at any concentration is required to be reported to the appropriate regulatory program, typically the County Environmental Health Department.  ERAS is NOT required to report contamination unless there is an obvious imminent threat to human health and safety or the environment.  No further investigations or work should be done without the proper regulatory oversight.  ERAS always notifies our clients and the Property owner of these legal requirements so that proper decisions can be made regarding Phase 2 investigations and the interested parties are notified of the implications of finding contamination at the Property.

There are many myths about Phase 2 projects that buyers, brokers, lenders and owners should consider when they request or review this data.  

Some are as follows:

  1. Phase 2 projects tell you a property is clean – Sampling locations are often subjective and are based on professional opinions on what samples are representative. Well designed and appropriate investigations still only provide subjective data that lessen the risk that significant contamination is present, they do not tell you a property is “clean”.
  2. There is no problem if the concentrations are below the “actionable” or “cleanup” levels – Unless SPECIFIC defensible locations are sampled (such as below a known UST location), ANY detectable concentration of contamination constitutes a release and is required to be reported to the environmental regulatory agency.
  3. Due diligence Phase 2 investigations can be less stringent and comprehensive than active leak sites – While due diligence investigations are often the initial investigation at a site, ALL phase 2 investigations should be performed to regulatory agency standards of care and practice. It should be assumed that the investigation will be reviewed by a regulatory agency, especially if any contamination is detected.  ALL investigations should be justified by having stated specific targets and written objectives as required by the agencies.

KEY CONCLUSION: Phase 2 soil and groundwater investigations must be overseen and certified by a Professional Geologist (PG).

Under the state of California Business and Professions Code, any subsurface investigation where conclusions and recommendations are made must be overseen by a PG. Historically, lenders and real estate brokers have asked for a quick Phase 2 investigation for due diligence just to see if there is an obvious problem. This approach has become a problem for a number of reasons as follows:

  • Most drilling contractors will not drill without an approved regulatory agency drilling permit. This means that is many cases, the agency will expect a report to be submitted, certified by a PG..
  • Should concentrations of chemicals be detected above regulatory levels, the owner of the property has a legal requirement to officially report it to the appropriate agency within 30 days. The use of a non-legal professional could be a further issue.

The need to conduct an “informal” Phase 2 investigation may result in incomplete or substandard geological work being performed by unqualified individuals.

ERAS employs Registered Environmental Assessors (REA) both Class 1 and 2, a Professional Geologist and a Certified Asbestos Consultant (CAC).

KEY CONCLUSION: Basic minimum costs apply for all Phase 2 subsurface investigations. Read more in this article.

Our clients are sometimes surprised at the cost of even the “simplest” Phase 2 investigation involving only 1 or 2 soil borings. This is due to what is commonly known as “economies of scale”. In this way, the cost of drilling 6 soil borings may only be 10-20% higher than the cost of drilling two, depending on the depth of the borings and laboratory analyses required.

As an example, for the drilling of one 15 foot boring in or near the Bay Area using a licensed driller, current costs are approximately as follows:

  • Drilling subcontractor $1,150
  • Locating subcontractor 350
  • Project setup/coordination 400
  • Drilling permits 300
  • Field equipment 300
  • Field Labor 600
  • Laboratory subcontractor 100
  • Report preparation 800

The total minimum cost of this simple investigation is approximately $4,000. Many of these costs would be the same or only slightly more for 1 boring or 4 for example (depending on the depth). Additional costs may apply if:

  1. the site is out of town
  2. if permit fees are higher
  3. if concrete cutting is required
  4. a work plan is necessary prior to conducting the work
  5. additional laboratory analyses or a larger number of samples is required.

A Phase 2 must also be overseen and certified by a Professional Geologist (PG), adding to the cost.