What is a Phase I and Why Should Recyclers Care?

We would like to start by thanking the Automotive Recyclers of Indiana for putting on such a wonderful Central Midwest Automotive Recyclers Convention.  The event was well-run, informative and we truly enjoyed ourselves.  We met some great people, bought some fantastic things at the auction and ate good food.  The Lincoln Museum was amazing.  My father, Rudy Fields, and I attended the convention and we made the mistake of trying to hang with the recycler folks in the partying arena.  It was an honest mistake – we won’t try that again. 

Secondly, I would like to remind everyone of the upcoming deadline to implement your Spill Prevention Control and Countermeasure (SPCC) Plans.  The United States Environmental Protection Agency (USEPA) gave recyclers a year extension from November 10, 2010 to November 10, 2011 to implement a SPCC Plan.  Additionally, you are now permitted to complete a Tier I Qualified Facility SPCC Plan Template if you meet certain criteria.  In my opinion, the regulation is a little difficult to read and understand; if you have questions please give us a call and we can help interpret. 

Fields Environmental traditionally focused on environmental assessments, investigations and remedies for environmental problems.  We recently became involved with environmental compliance relating to the automotive recycling industry.  Working with recyclers is rewarding and we are working to improve our compliance program.  We have a system that allows recyclers to run their own environmental programs with minimal input from us.  We try to educate our clients as much as possible and provide each with a site and business specific program that is cost effective, user-friendly and exceeds Indiana Department of Environmental Management (IDEM) standards.  Now let’s think about real estate. 

Every once in awhile we get questions from recyclers about Phase I Environmental Site Assessments (ESAs).  A Phase I is a report that is prepared by a qualified environmental professional regarding a particular piece of real estate.  Phase I ESAs are prepared in accordance with the American Society for Testing and Materials (ASTM) Standard entitled Standard Practice for ESAs.  The goal of a Phase I is to identify, based on site walks, neighboring properties, records reviews, interviews, prior land usage, public agency file searches, historical aerial photography, maps and chains-of-title, any potential or existing adverse environmental conditions on a specific parcel or parcels of land.  A Phase I ESA is a paper chase and does not typically involve any type of sampling.    

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980 changed the way that courts view ownership of environmentally impaired real estate.  Based on the way courts interpreted CERCLA, a buyer, lessor or lender could be held responsible for remediation of contaminated real estate even if a prior owner caused the problem.  This was a dramatic regulatory change that necessitated studies on commercial real estate to protect prospective purchasers.  The U.S. government realized the importance of assessing commercial property prior to real estate transactions and passed the Superfund Cleanup Acceleration Act of 1998.

The Superfund Cleanup Acceleration Act serves to lessen the potential liability for purchasers of real estate if the purchaser conducts appropriate inquiries, a Phase I ESA, prior to purchasing the real estate.  Based on CERCLA many facilities that were used for commercial or industrial purposes in the past were being abandoned and not redeveloped due to the fear of liability associated with purchasing such a site.  The 1998 legislation was developed in hopes that many existing abandoned sites would be remediated and redeveloped.  It provided a defense for individuals that are interested in purchasing and redeveloping environmentally impaired real estate.  This defense is commonly known as the “Innocent Landowner Defense.” 

Phase I ESAs are the principal tool for the initial assessment of real estate.  ESAs are extremely important to all parties involved in a real estate transaction.  A purchaser may commission a Phase I to understand what he is purchasing.  A seller may perform a Phase I to protect himself from future liability associated with future land use.  A lender may commission a Phase I to decide whether or not to lend money on a particular site.  A municipality may perform a Phase I to consider changing zoning on a piece of land.  Or, a current owner may conduct a Phase I to better understand the history of his property.

Regardless of the reason for performing a Phase I ESA it is imperative that the Phase I is conducted by a qualified environmental professional according to the ASTM standard.  As an automotive recycler a Phase I ESA may likely be in your future.  If you decide to sell your yard the prospective buyer will likely be required to conduct a Phase I, particularly if a lender will be involved.  If you would like to expand your business buy purchasing a new yard, or add additional real estate, it would be prudent for you to commission a Phase I.  You want to know what you are getting and you want the best price.  A good Phase I sitting on your shelf is a security blanket and/or an effective negotiation and planning tool. 

Auto salvage and scrap yards were not traditionally known as “recyclers”.  They were traditionally known as “junkyards”.  Although there is a push to make the industry friendlier to the environment and more “green” there is still a general mentality that salvage yards are problems.  Some are.  It is important that you understand the Phase I process and what will be evaluated as part of the process.  Prepare yourself now by addressing the issues that will be evaluated as part of a Phase I.  When it is time to sell you want options.  Perhaps you could sell your yard to a residential developer for a larger profit than to another recycler.  In order to have these options a Phase I may be involved.  If you are properly prepared a Phase I is a tool you can use to buy or sell right.               

We will do a follow-up on the Phase I ESA process for the next newsletter.  Stay tuned. 

This article was originally featured in the December 2011/January 2012 issue of ARI Magazine.