What Lenders Need To Know About Soil Vapor Intrusion

Over the past few years standard environmental due diligence practices have changed. A new issue - the potential for vapor intrusion to impact buildings - must now be addressed in evaluating the environmental condition of real estate.

Lenders need to carefully consider their liability and assess risk when financing transactions. A lender who is providing financing for a real estate transaction must determine whether the underlying property is affected by vapor intrusion. In addition to review of property for recognized environmental conditions ("RECs"), the Phase I Environmental Site Assessment, the cornerstone of environmental due diligence, must now include an assessment for the potential for a vapor encroachment condition ("VEC"). While a Phase I conducted several years ago may have been a "clean report," it may well not have assessed potential liabilities associated with vapor conditions.

If an updated Phase I determines that vapors may be present at a property, further assessment including sampling may be required. If testing shows vapors are present under a building slab above state standards, mitigation may be needed to prevent vapor intrusion. Corrective mitigation measures designed to prevent vapors from entering into a building may be required.

What Is Soil Vapor?

Soil vapor originates from sites where there have been releases of contaminants on or beneath the ground surface. Leaking underground storage tanks or drums, hard to detect cracks in sumps or trenches, careless or inadvertent spills to the ground surface and even releases of chemicals to concrete surfaces within buildings where those releases have escaped the building structure all may result in releases of hazardous substances.

In Minnesota, with groundwater found fairly close to the surface, spills or releases of contaminants. such as trichloroethylene ("TCE") or tetrachloroethylene is also known as perchloroethylene ("PCE"), to soils can often reach groundwater. Once contaminants are present in groundwater, hazardous substances may move away from a source area and form a contaminant plume in groundwater. Contaminants may then be released in vapor form from the groundwater plume. The released vapors migrate through microscopic fissures in soil particles toward the ground surface. Soil vapors may accumulate or pool under concrete building slabs. Over time soil vapors may follow preferential pathways and enter into structures through cracks and joints in the slab. Vapor intrusion may affect the quality of indoor air where it poses a health and safety risk to building occupants.

Why Is Soil Vapor a Concern?

Federal and state environmental and health authorities have expressed concerns about potential exposure of building occupants to soil vapors. Occupants of structures in commercial, industrial or residential settings may be at risk of exposure to harmful TCE or PCE vapors through inhalation.

Because the soil vapor and vapor intrusion issues are relatively new, many federal and state authorities are taking a conservative, highly protective approach and requiring corrective measures to limit or prevent exposure. Long-term exposure to vapors that have entered into buildings may affect public health. Federal and state agencies have established exposure standards for the residential and commercial/industrial settings.

Why Should Lenders Be Concerned About Soil Vapor?

If a lender is financing a property where a release has occurred and that release has created a soil vapor issue, the borrower and the lender may face liability risks. Regulatory agencies may be notified of or become aware of the presence of the release and the soil vapor concern. It is possible that a property that is subject to financing may be near the site of a release and that nearby release has resulted in soil vapor impacts on the borrower's property.

Determining the source of soil vapors can be complicated. TCE and PCE were used widely in a number of applications. It is possible that there may be multiple sources contributing to a vapor plume. Federal or state authorities may require the borrower to conduct an investigation on its property, and in some cases on neighboring properties, to determine the extent of impacts. Corrective measures may be required. If soil vapor impacts have spread off-site, state and federal authorities may require the borrower to pay for mitigation of neighboring structures. The costs of investigation and mitigation may be significant and could impair the borrower's financial condition. Vapor plumes also raise the specter of potential third party claims.

How Have Federal and State Authorities Incorporated Soil Vapor and Vapor Intrusion Into Existing Regulatory Frameworks?

The U.S. Environmental Protection Agency ("EPA") recently added subsurface vapor intrusion to its screening mechanism for adding new sites to the Superfund National Priorities List ("NPL").

In Minnesota, the Minnesota Pollution Control Agency ("MPCA") has issued "Best Management Practices for Vapor Investigation and Building Mitigation Decisions" that specifies when mitigation is required.The MPCA did not follow standard rulemaking processes and issued the Best Management Practices as guidance. Nonetheless, the MPCA considers the guidance to be an enforceable standard and it is being applied across the MPCA's Superfund, Site Assessment and Brownfields or Voluntary Investigation and Cleanup Programs.

In a previous post we noted that in the fall of 2016 ten new sites were added to Minnesota Superfund Permanent List of Priorities ("PLP"). At most of these newly listed sites soil vapor and vapor intrusion were identified as releases that triggered Superfund liability.

Best management practices for vapor investigation and building mitigation decisions

What Technical Steps Are Needed Take to Address Soil Vapor?

When soil vapor is identified as a concern and the levels are above either the commercial/industrial or residential standards, federal or state environmental authorities may require certain actions to protect building occupants.

The first step is an assessment of the extent of soil vapor impacts. Soil vapor samples may need to be collected in areas near the building. Samples may also need to be collected from indoor air and from beneath building slabs. Sub-slab sampling involves entry into structures and drilling small holes through slabs and the collection of vapor samples immediately under the slab. If levels above standards are detected, corrective measures may be required.

In an existing structure it is often possible to install active venting systems through the building slab designed to vent the vapors from underneath the building. These systems are similar to those used to address radon mitigation in residences. The investigation and required building modifications, depending on the number of vapor collection points and size of the structures involved, can be costly. In the case of new construction, vapor controls can be installed at a site as part of the new building's foundation construction.

In addition to a site investigation and installation of corrective measures when soil vapors are detected, regulatory authorities may seek to identify and clean up the source of the vapors. In cases where an old leaking tank or documented past release may be the source of the vapors, regulators may review and decide to reopen past cleanup decisions. Federal or state authorities may ask a party that is responsible for the release to conduct an expanded investigation to determine the extent of the vapor impacts. Further work may be required to remediate the source area. Chemicals used in manufacturing, plating, vehicle repair and dry cleaning operations all could have been released into the environment, caused groundwater impacts and resulted in the release of soil vapors. Because of the prevalence of use of certain chemicals such as TCE or PCE and petroleum products, it is possible that there may be multiple releases and sources for the vapors that are contributing to a soil vapor concern.

Concerns about soil vapor and vapor intrusion are changing the environmental due diligence practice. Lenders need to exercise due care to ensure proper assessment of these emerging issues.

Please see the disclaimer at the bottom of this page that relates to limitations on this blog and to legal advice. Joseph Maternowski, an attorney practicing in the area of environmental and real estate law, is viewed by clients and counsel as trusted legal adviser. For advice on limiting liability for soil vapor, vapor intrusion or for counsel in responding to government or third party requests related to soil vapor and vapor intrusion issues please contact:

Joseph G. Maternowski

Hessian & McKasy, PA

T: (612) 746-5754