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Changes to Phase I Environmental Site Assessment standards may change federal environmental due diligence requirements.

At both the state and federal levels, purchasers of commercial property are required to perform certain environmental investigations in order to shield themselves from liability for contamination found after the purchase. This process is known as “environmental due diligence.”

Under the federal Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as “CERCLA,” the industry standard for completing due diligence is conducting what is known as a Phase I Environmental Site Assessment (ESA). The goal of a Phase I ESA is to identify “recognized environmental conditions” (RECs), or areas where environmental issues are present. The standard for what encompasses a Phase I ESA is updated every 8 years, and the most recent amendments are set to be voted on in April 2021. One of the most notable proposed changes amends the definition of an REC. The definition clarifies that RECs include both confirmed releases of hazardous substances, as already required, as well as likely releases of hazardous substances, creating a broader scope for what Phase I ESAs must identify.

The New Jersey Spill Compensation and Control Act (“Spill Act”) provides similar protections for purchasers who complete environmental due diligence under the “innocent purchaser” defense. In order to assert this defense against liability for contamination discovered after the purchase, the purchaser must show they completed environmental due diligence. In New Jersey, this typically involves obtaining a Preliminary Assessment Report and potentially completing follow up investigations, depending on the results of the initial report. Due diligence under federal law may not provide protection from liability at the state level and vice versa. Therefore, prospective purchasers should be thorough in being sure they have done all that is required to provide them with the necessary protections.

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