On October 1, 2010, the U.S. Small Business Administration adopted SOP 50 10 5(C), its updated policy for 7(a) and certified development company (CDC) loan programs and there is still a lot of confusion about the level of environmental investigation the agency requires for its various loans. Here is what you need to know about the agency’s newest environmental due diligence tool, the Records Search with Risk Assessment (RSRA).
What is vapor intrusion? Vapor intrusion is a way that chemicals in soil or groundwater can get into indoor air. (see figure at right) Sometimes, chemicals are spilled on the ground at a factory or leak from an underground storage tank. These chemicals can seep down into the soil and groundwater. Some chemicals can also travel through soil as vapors. These vapors may then move up through the soil and into nearby buildings, contaminating indoor air. Homes in the same neighborhood and right next to each other can be affected differently by vapor intrusion. Vapor intrusion is similar to how radon, a naturally occurring radioactive gas, can enter a home through cracks in the foundation. Vapor intrusion is uncommon, but should be considered whenever there is a known source of soil or groundwater contamination nearby.
Companies that perform shoddy pre-purchase investigations can end up with the environmental liabilities of the entities they acquire. They can also miss out on the opportunity to set up a cleanup liability defense, to renegotiate the purchase price if significant contamination is discovered, and to benchmark contamination so that liabilities can be contractually allocated among stakeholders.
When it comes to environmental due diligence, it pays to dig deep. It’s also a good idea to avoid these common mistakes.
Mistake #1: Leaving due diligence until the last minute.
Despite the numerous advantages of performing environmental due diligence early on in a transaction, many investors schedule it too late in the deal to do much good. It takes one to two weeks to complete a Phase I environmental site assessment, and two to four more weeks to conduct further testing if necessary. If investors wait until the last minute to order a Phase I environmental site assessment, the assessor may not be able to complete the investigation prior to closing because of long wait times associated with Freedom of Information Act requests.
Vapor Intrusion standards over the past several years has become a hot-button issue among regulators and private parties as both sectors have attempted to come to terms with a lack of consensus on how best to assess and manage the risk posed by vapor intrusion. Caused by the migration of the impacts of soil or groundwater contamination into indoor environments, vapor intrusion has stymied parties dealing with the issue due to a lack of uniform assessment and mitigation standards as well as competing theories on migration patterns of subsurface vapors.