Legal Briefs

Clear the Air

Property owners can take steps to avoid vapor intrusion risks.

From asbestos to lead-based paint, environmental problems and their associated risks always have been a concern in the commercial real estate industry. Today, property owners and investors can add vapor intrusion to that list of worries. An indoor air quality issue, vapor intrusion is compromising and even killing deals nationwide. As the risks associated with this emerging environmental concern are becoming better understood, regulators in at least three states are re-opening formerly closed properties to examine their vapor intrusion potential — and forcing worried site owners to foot the bill.

Because the issue is so new, there is a lack of vapor intrusion case law to help guide the commercial real estate industry. However, as a high liability issue, vapor intrusion should not be ignored. Until the outcomes of several pending lawsuits help to shape how commercial property owners and investors address vapor intrusion, it’s wise to know what the risks are and what can be done to mitigate them. Prospective and current property owners need to be aware of the issue and take steps to protect themselves from vapor intrusion-related risks, including rent losses and third-party liability.

Vapor Intrusion Risks

Vapor intrusion occurs when rapidly evaporating, or volatile, chemicals in contaminated soil and groundwater make their way into the indoor air of overlying buildings, similar to the way radon enters homes. Exposure symptoms can include dizziness, eye irritation, respiratory problems, headache, and nausea, and long-term exposure can elevate cancer risks.

Sites that use or have used volatile organic compounds, such as chlorinated solvents or petroleum products, and semi-VOCs, such as naphthalene, PCBs, and pesticides, have the highest likelihood of vapor intrusion occurrences. These include dry cleaners, industrial-type operations, manufacturers, and operations with underground storage tanks such as gas stations. Because contamination can migrate, the problem also may exist in adjacent properties.

Concerns about vapor intrusion can lead to liability from lessees and rent losses as a result of tenants claiming they are in an unsafe work environment. A property with a vapor intrusion condition can become both devalued and stigmatized, making it difficult, if not impossible, for property owners to attract new tenants or sell the property.

ASTM Standard Developed

Property owners and investors should be aware that typical Phase 1 environmental assessments don’t screen for vapor intrusion. Like mold and asbestos, vapor intrusion is considered to be outside the assessment’s scope. However, like other non-scope considerations, a vapor intrusion assessment can be added to the first phase of due diligence. Qualified environmental professionals can determine if there is potential for an intrusion problem, or vapor intrusion can be addressed in a stand-alone investigation.

Because the issue is relatively new, there has been a great deal of uncertainty over how to test for vapor intrusion, what levels are acceptable, and how to mitigate it. Environmental Protection Agency guidelines are outdated and policies published in approximately 26 states are inconsistent.

In March 2008, ASTM International developed a national standard for vapor intrusion assessment. The four-tiered standard is designed to indicate a property’s potential for an intrusion. The first and second tiers quickly and inexpensively identify the existence of a potential vapor intrusion condition. If an intrusion can’t be ruled out, the third makes use of more site-specific investigations and refers users to applicable federal or state regulatory agency guidance to confirm if vapor intrusion exists. The fourth tier describes mitigation alternatives such as chemical vapor barriers and sub-slab depressurization.

When to Screen

While some experts advise screening on every property deal, others recommend it only when the site in question has a prior use associated with petroleum or chlorinated solvents, sits in proximity to other sites that have such exposures, or if there are regional problems involving VOCs and shallow groundwater.

Property owners or managers also should consider screening brownfields and other similar sites even if they have received closure letters. Many of these properties may have been subject to risk-based cleanup methods, which allow residual contamination to remain on site. At the time of closure, vapor intrusion may not have been addressed, or if it was, current regulatory screening levels could exceed concentrations that were allowable at the time.

When deciding whether to screen, property owners and their potential buyers or tenants should discuss plans for the site’s use along with its history and risk tolerance. While ASTM International’s vapor intrusion assessment standard does not create a legal duty of disclosure from sellers to buyers and from landlords to tenants, existing federal or state vapor intrusion guidance could include notification requirements.

“Vapor intrusion is of particular concern to real estate investors because it not only can impair a property’s value, result in significant cost, and potentially create a financing issue, but it also creates concerns for tenants and operational issues,” says Susan Phillips, an environmental attorney with Mintz Levin in Boston. “An investor assessing the environmental condition of a property would want to include vapor intrusion,” she says, adding that if a Phase 1 is completed, the consultant already has the information to determine whether vapor intrusion is a potential issue.

“If vapor intrusion is a possibility, the consultant can look to ASTM’s vapor intrusion standard to determine what, if any, further inquiry is needed. The benefit to ASTM’s screening process is that it provides a mechanism to rule out vapor intrusion concerns in many cases so that further investigation is unnecessary.”

Phillips cautions investors not to stick their heads in the sand when it comes to vapor intrusion, especially since it is an increasing focus of regulatory agencies nationwide. For example, the state of New York just enacted a law requiring property owners to notify tenants of data suggesting a vapor intrusion concern. “It is clearly something investors need to take into consideration,” Phillips says.

Dianne Crocker

Dianne Crocker is senior economist and managing director of EDR’s Market Research Group in Milford, Conn. Contact her (800) 352-0500 or dcrocker@edrnet.com.

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