Environmental Data: It’s Rarely Your Friend.
We send these monthly newsletters to our clients, peers and friends to parse pragmatic, topical information to assist you in making more informed business decisions relating to environmental matters, including:
Buying and selling real estate;
Negotiating landlord/tenant lease terms;
Securing land development-related permits/approvals;
Securing or renewing environmental permits;
Complying with regulatory notices of violation, and/or;
Instituting, or being subject to, litigation.
That being said, perhaps no nugget of environmental advice we can provide is more important than this simple statement:
Environmental Data is Rarely Your Friend.
That may seem like a strange statement for an engineer to make, since the common conception to making informed decisions is 'the more data the better'.
But that maxim doesn't always hold true in the environmental field. In fact, we frequently use the analogy of data likened to bullets in a game of Russian Roulette: less bullets increase your odds of survival.
Therefore, no matter what arena you find yourself in (e.g., transactional, development, permitting, litigation) before you or your client generate environmental data, the three primary questions you should be asking are as follows.
Three Important Questions.
Is this data collection exercise mandatory or voluntary? Do I legally need to generate this data, or allow someone else to generate this data, or is the data collection exercise voluntary?
Have you minimized the testing regime — regardless of being mandatory or voluntary? Am I, to the maximum extent possible, limiting/minimizing the data I collect, or allowed to be collected by another party, to minimize my risk?
Have you properly managed data sharing? Have you quantified how the data that is ultimately generated will be shared, and with whom it will be shared?
The answers above will materially affect the nature and course of how you should allow data to be generated on property you own, control, or are in some way responsible. Answering them upfront can, and will, save you both headaches and unexpected costs/delays down the road.
Over the past thirty-plus years, the most complicated and expensive projects our firm has been brought in to fix have been associated with the unwinding and management of bad data decisions implemented by others. Even in 2020, it continues to occur.
Unfortunately, it is quite common in the environmental field to witness consulting and engineering firms generate much more field data (predominantly soil and groundwater data, but also air, surface water and building material-related data, such as asbestos) than is necessary; sometimes this is deliberate, sometimes it is simply a mistake, with firms either being too conservative, naive as to the business implications of their actions, or subscribing to the false maxim that 'more data is always better'. Unfortunately, this excess sampling commonly results in the triggering of mandatory reporting and regulatory obligations by an unsuspecting third party, such as the seller or landlord. Needless to say, that obligation many times comes as an unexpected shock.
Although the 'receiver' of that bad data, such as the seller, might have had no legal obligation to look for, or generate that data, once they have this knowledge, it is many times difficult, or even illegal, to ignore the data and attempt to put the genie back in the bottle. And the obligation to address the data is independent of whether the real estate deal or lease is every actually concluded, potentially adding economic insult to injury.
The trick is to lessen the chance that the genie will ever escape without jeopardizing the deal; it is a delicate balancing act.
To that end, you need to be sensitive to this data management viewpoint in the following common business situations. This list is by no means exhaustive, but identifies some of the common ways in which you may find yourself asking the three important questions above.
Please note, simply because I had to choose a viewpoint, the commentary below is written from the seller/landlord perspective. However, many of our clients sit in different seats around the same table (be it on the buy-side, the financing-side or the regulatory-side), so the viewpoints presented below would need to be amended to account for the often-times contradictory goals of these other entities on a deal — hence the balancing act. And from a litigation-support angle, the plaintiff versus defendant perspective on data management and risk would also, obviously, differ substantially.
Given that disclaimer, the situations below will give you a sense of when you need to be thinking about managing data generation and how to best solve same.
Contractual Controls on Sampling Plans:
It is extremely important, through the use of tight and technically descriptive Purchase and Sales Agreement (PSA) contractual terms, to lay out and manage the acceptable 'dos and don'ts' of collecting intrusive sampling data, either during a Phase I environmental site assessment (ESA), or more commonly during a subsequent Phase II ESA (e.g., soil, groundwater, air and related media sampling). Namely, it is important to have a quantified, contractual say in limiting the extent of sampling to what is: (a) reasonable from an industry perspective, or (b) reasonable from the seller's perspective, or simply requires (c) the unilateral approval of the seller, which will not be unreasonably withheld to avoid buyer-financed 'fishing expeditions' looking for large purchase price set-offs or some other end-goal. A common and classic 'end-goal' where problems frequently occur is a buyer's redevelopment plans — which may involve significant site reworking and demolition activities which are certainly legitimate to the buy-side, but would never be implemented by the sell-side. In such situations, if the buyer generates this redevelopment-related extraneous data, and the deal tanks because of it (or for any other reason), and damning data is presented to the seller, the seller is left holding the bag, with no sale in the works. This situation happens all-to-frequently, and many times the scenario is not anticipated on the sell-side during PSA clause negotiations. Seller counsel needs to be cognizant of this fact, and those terms need to be tight and technically/factually accurate, to ensure no extraneous data finds it way into the seller's hand without their consent.
Data Sharing Controls:
This is another important PSA contractual term issue. Namely, tightly controlling with whom the Phase I/Phase II sampling data can be shared — typically limited to the buyer's team of professionals/banks — with no regulatory sharing and no sharing with the seller team without express written authorization from the seller. I can't stress enough how important this 'don't show me the data unless I ask to see it' clause is, since it helps to avoid unwanted data from being dumped on the seller's lap, who then has knowledge, and must address it, regardless of whether the deal survives. This is by far one of the greatest risks we see time and again for our seller clients. And if the clauses are vague, this situation commonly morphs into some form of contractual or cost-recovery related litigation. If not managed properly at the outset, it can quickly devolve into a complicated and expensive mess.
Generating Excess Due Diligence Data:
By way of example, one of the most common methods we see of excess data being generated is when consultants, especially in urban settings, sample soils and groundwater simultaneously during Phase II due diligence work — many times finding a groundwater issue that should never have been pursued, because the soils data came back clean and would have never warranted a corresponding groundwater study. This is a problem that is easily avoided at the onset, but extremely costly and difficult to unwind after-the-fact. In urban areas, many of the contaminants found in groundwater are ubiquitous (e.g., petroleum-based, solvent-based, historic fill-based), and could have originated from a myriad of urban sources — groundwater does not recognize, nor limit itself, to property boundaries. But if a property owner is the first to find the contamination in a geographic area (i.e., the first one in the pool), it can become an extremely expensive and time-consuming exercise to prove you are not the source of the contamination (in the environmental field, the regulatory adage is commonly 'guilty until proven innocent' when you try and say 'that bad data is not coming from me/my site'). This situation alone, which happens all-too-often, should be the poster-child for ensuring you pay close attention to data management at the front end of your deal.
Limiting the Data Reported by the Laboratory:
This is complementary to No. 3 above and a common sin among many consulting firms. The suite of contaminant compounds that are analyzed at the laboratory for a variety of the most widely employed testing regimes (volatile organic [VO] compounds, base neutral [BN] compounds, heavy metals, etc.) are usually quite large and varied. By way of example, when you are looking to remediate a single VO, such as benzene, from a gasoline or fuel oil spill, you only need to sample/analyze that one compound. But the laboratory, when reporting the benzene, will, unless told otherwise, de facto send you the entire VO run, which will include the benzene results and dozens of other VO compounds that you weren't necessarily looking for. Clients commonly get in trouble when the entire VO suite is reported during each sampling round, as opposed to only sampling for/reporting the compounds of concern, in this example, benzene. This many times leads to a whack-a-mole situation, whereby one compound may decrease/behave, yet another compound, which wasn't required to be sampled/reported, now unexpectedly shows up, and needs to be addressed. This situation can be avoided by careful data management and reporting controls at the laboratory reporting level.
The Role of the LSRP:
For New Jersey-based transactions, we typically recommend excluding the Licensed Site Remediation Professionals (LSRPs) from conducting or reviewing the transactional work to avoid the need to balance regulatory reporting obligations incumbent on LSRPs. Rather than getting into a legal or regulatory tussle about what a LSRP won't report, can report, should report or must report — it is simply easier to excise that professional from the due diligence process — there are plenty of non-LSRP professionals who can perform this type of work to avoid negotiating the mandatory or professional reporting process required of LSRPs.
Lease Pre-Audits and Post-Audits:
With regard to originating and terminating lease agreements — many tenants will desire to implement a pre-lease environmental baseline environmental assessment, and/or a post-lease termination assessment to quantify potential liability during their onsite operations. This is a smart and reasonable process, and commonly employed; but again, the testing by the tenant should be limited to areas the tenant operated/would be responsible for and not beyond. Also, as a property owner/landlord, many times these pre-lease baseline Phase II inspections will sample underlying soils beneath the lease space, even though the tenant may have no viable method to impact these soils. If historic contaminant issues are discovered during this process, again, it becomes data that wasn't necessary to generate, but must now be addressed by the landlord. This process can, and should, be tightly managed in the lease terms and conditions prior to any intrusive audit work.
Third-Party Offsite Access Agreements:
In a prior newsletter, we touched upon data generation and data-sharing issues as they pertain to Access Agreements (AA) that a neighbor may ask you to sign allowing them to come onto your site, in an attempt to delineate a spill on their parcel that has, or may have, impacted yours. Again, that AA has to have very specific terms and conditions with respect to what can be sampled, and how that data is shared. This issue gets a bit more complicated, because there is usually a regulatory component in play (i.e., the neighbor is usually trying to delineate a plume as part of a known spill/discharge, in which case regulators have a seat at the table, as likely does the LSRP for the party requesting access [for New Jersey sites]). Here is a link to the AA article featured in our April 2020 newsletter, if you missed it, or want to take a fresh look.
Data management is a vitally important aspect to address,
especially if you are in the seller/landlord/property owner seat, since you are the party most likely to be handed bad news when the music stops, whether you wanted it, or not. You need to plan as best you can to avoid unwanted data from landing in your lap.
If you need any assistance on any of the matters discussed above, please do not hesitate to contact us, or feel free to email Glenn Brukardt at glenn.eikon@gmail.com.