Real estate transactions need to address PFAS during due diligence

BY Sunday, April 14, 2019 08:43pm

Until a couple of years ago, environmental assessments for property transactions did not include checking for PFAS contamination. Now, it has become standard practice in areas that have confirmed contamination with the family of industrial chemicals.

According to legal experts who work in the real estate industry, both buyers and sellers need to complete due diligence when it comes to properties contaminated with PFAS, short for per- and polyfluoroalkyl substances.

Investors involved in property transactions need to test for the currently regulated PFAS chemicals, which have been used for decades in industrial and consumer products. It remains anyone’s guess how many of the nearly 4,700 related PFAS chemicals will be treated as “emerging contaminants” in need of regulation nationally.

Even so, buyers of commercial real estate need to determine previous uses for properties to assess their exposure to risks in the future, said Andy Bajorat, principal and COO of Chicago-based BBJ Group LLC, an environmental engineering consulting firm.

“People are newly becoming aware of the problems and really the pervasiveness of PFAS,” he said.

BBJ Group largely works with private sector clients on environmental due diligence, remediation and support for real estate transactions. Primarily, the company would conduct an environmental site assessment as a starting point in the due diligence process.

Bajorat recommends hiring attorneys and an environmental consulting firm with knowledge of possible contaminants when a property is involved in a transaction. What drives a lot of the investigations of chemicals is the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as the Superfund program.

The act provides broad federal authority to respond directly to releases or threatened releases of hazardous substances that may endanger public health or the environment.

“In that regulation, it specifies what chemicals you’re supposed to be looking out for. PFAS really wasn’t on that list, so it’s what our industry and the regulating industry would term an emerging compound, an emerging issue,” Bajorat said.

The federal government currently does not have plans to add PFAS to CERCLA regulations, Bajorat said.

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Sen. Gary Peters, D-Mich., introduced legislation in March to force the U.S. Environmental Protection Agency within a year to designate PFAS as hazardous under the Superfund law, thereby making sites with PFAS eligible for federal cleanup funds and requiring private polluters to pay for remediation.

For now, investors involved in property transactions should be proactive in cases where PFAS chemicals are found, experts said. That’s especially important if the due diligence indicates PFAS may have been used in manufacturing processes on the site.

Having the chemicals on a property can pose health and safety risks for employees, depending on the current use of the property, industry sources said. If the threat is contained, it might not be a large issue. But, for example, if there’s heavy equipment activity around soil or water contaminated with PFAS, companies need to take steps to protect workers.

Buyers also face some liability risk, so they would need to make sure they’re contractually protected and that the past owner will be liable for cleanup related to the contamination.

That sentiment was echoed by Perrin Rynders, a partner at Varnum LLP.

The Grand Rapids-based law firm is representing clients in several lawsuits against Wolverine World Wide Inc. The Rockford-based footwear and apparel maker is embroiled in legal and environmental disputes regarding the dumping several decades ago of PFAS-laden tannery wastes, which have contaminated widespread areas of surface and groundwater in northern Kent County.

“If you know there’s contamination on your property and you sell it, you would need to disclose what you know,” Rynders said.

Transactions on the residential side also carry certain PFAS-related considerations, especially for companies in known contamination zones.

Still, Kent County does not require the inspection of a well or septic system before a home can be sold, said Sara Simmonds, environmental health division director for the Kent County Health Department.

“Unless we are hired by a resident to do the inspection of the well and the water, we actually have no involvement,” she said, adding the agency refers people to the Michigan Department of Environmental Quality. “It’s up to the integrity of the person selling the property to disclose.”

For buyers, the MDEQ has monitored PFAS testing across the state, so the agency can determine if the property is within a contaminated area and could possibly contain PFAS.

PFAS exposure also extends to residential property transaction, Rynders said.

“If you’re buying, step one is: Is it within one of those boundaries? Step two would be to determine if it is inside the boundary, is it on top of the aquifer that is contaminated?” Rynders said. “Find out from the health department if the well water has been tested, or if the seller has had it tested.

“Then you’re going to have to deal with the fact that there might not be municipal water delivered and what happens if (a filter) stops working and you don’t realize it.”

If the site gets water from a well, an option is to purchase a whole-house filtration system and complete periodic testing to make sure the filter is still working. In Kent County, people are getting water tested about every six months to a year, Rynders said, although some homeowners test as often as weekly.

Above all, Simmonds encourages people with contaminated properties to be vigilant in being informed about their situations and advocating for themselves.

“Do your homework; that would be the biggest thing,” she said.

Read 1437 times Last modified on Sunday, 14 April 2019 20:48
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