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Real Property & Development Review

Legal Implications of Vapor Intrusion for Owners, Developers

Posted in Environmental

Authored by: Peter Sergienko

As published in the Daily Journal of Commerce

Vapor intrusion is defined in Oregon Department of Environmental Quality guidance as the migration of volatile organic compounds from the subsurface into buildings. Common examples of VOCs are gasoline, diesel and solvents used to clean metals, thin paint, and dry-clean clothing. VOCs are sources of carcinogens such as benzene and trichloroethylene. Semi-VOCs and other hazardous substances also can be sources of toxic chemicals that can migrate into buildings and compromise indoor air quality.

In recent years, the mechanisms for vapor intrusion and the potential chronic health risks from long-term exposure to carcinogens in indoor air have become identified. In response, the private sector and state and federal regulatory agencies tasked with environmental protection and worker health and safety have all taken steps to better understand and manage these risks.

Legal concerns related to vapor intrusion also have become clearer. VI can subject developers, property owners, employers, investors, lenders and parties responsible for cleanup of hazardous substances to statutory and common law liability, tort claims, employee and tenant complaints, and remedial action costs. With this increased regulatory focus, VI has clearly become an issue that demands attention in real estate and business transactions involving real property.

Historically, indoor air quality issues in commercial buildings have been regulated by the Occupational Safety and Health Administration. However, the hazardous substance releases that can give rise to a VI issue have been and are regulated by environmental protection agencies, such as the Environmental Protection Agency and the DEQ. This has led to some confusion and uncertainty in the process of assessing VI risks in commercial real estate transactions.

Vapor intrusion is not specifically addressed in the environmental site assessment process. The current ASTM standard for ESAs defines a recognized environmental condition as the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release or a material threat of a release into structures or into the ground, groundwater or surface water of the property. Thus, while the conditions that can give rise to VI will generally be identified as a REC in a phase I ESA, VI is not evaluated as a REC.

To address this issue and the growing concern with potential VI liabilities, ASTM in 2008 approved a standard practice (E 2600-08) for assessing VI into structures in real estate transactions. Almost as soon as this standard was adopted, confusion arose between this practice and its role in the ESA process. Although Practice E 2600-08 was intended to be used on a voluntary basis to supplement a phase I ESA, commentators questioned whether the new standards would be interpreted to alter, expand or redefine both the ASTM standard for ESAs and the “all appropriate inquiry rule” under the federal superfund law. Additionally, it was not completely clear if the new practice was a VI screening standard or an assessment standard.

In response to these issues, ASTM re-titled and modified practice E 2600-08 last year. The current standard (E 2600-10) is entitled “Standard Guide for Vapor Encroachment Screening on Property Involved in Real Estate Transactions.”

It is clearly and unequivocally a screening standard. Its express purpose is to provide practical guidance for conducting a vapor encroachment screen, either independently or in conjunction with a phase I ESA. The standard guide explicitly states that RECs are identified only through the performance of a Practice E1527 phase I ESA.

As an assessment tool, the Standard Guide is divided into two tiers. The information needed to complete Tier 1 screening overlaps with the information needed to complete a phase I ESA, with customized search distances for potential sources of VOCs and other contaminants of concern. Tier 2 screening, if necessary and if pursued, applies numeric screening criteria to existing or newly collected soil, soil gas and/or groundwater testing results to evaluate whether a vapor encroachment condition exists. Tier 2 screening can be non-invasive or, similar to a phase II ESA, can require invasive sampling and analysis.

The process and requirements for performing site specific VI assessments are also changing. The DEQ last year issued final Guidance for Assessing and Remediating Vapor Intrusion in Buildings. The EPA is in the process of updating and revising draft guidance for VI screening and assessment originally adopted in 2002, with final guidance to be completed no later than November 2012. The EPA also is holding stakeholder meetings to consider adding a new screening mechanism to the hazard ranking system enabling sites with vapor intrusion contamination to be evaluated for placement on the national priorities list.

Some commentators believe that the standard guide will soon be used concurrently with the ASTM standard for ESAs as a standard industry practice. However, environmental professionals in Oregon are not yet seeing high demand for its use. At present, VI issues in real estate transactions here are still more likely to be addressed through the traditional phase I/phase II ESA process than through use of the standard guide.

Industry standards for best practices around VI screening and assessment are evolving. Because of the market force of a published ASTM standard, use of the standard guide will likely become more commonplace in coming years, especially as the market improves and the number of transactions trends upward.

Because there are serious liability concerns associated with VI, including the risk that properties with “no further action letters” may have VI issues either not addressed at all or not addressed adequately, real estate professionals should be on the alert in any deal where the subject property or a neighboring property has a history of VOC use. Real estate professionals, especially in these transactions, should carefully coordinate their due diligence with counsel and their environmental consultant to ensure that VI risks are evaluated appropriately.