September 29, 1991

TO: Environmental Response Division Staff

FROM: Alan J. Howard, Chief, Environmental Response Division

SUBJECT: MERA Operational Memorandum #5 --

Environmental Assessments and Audits (formerly Environmental Response Division Policy ERD005-90)

The following guidance replaces Environmental Response Division Policy ERD005-90 dated December 6, 1990. It has been modified to conform with amendments to the Environmental Response Act (1982 PA 307, as amended) which took effect on July 1, 1991 and to reflect current practices.

Environmental assessments and audits are now commonly being conducted by prospective purchasers of commercial and industrial property prior to property transfers. The primary reason purchasers are conducting such studies is to ascertain if property is contaminated, since under state and federal law, an owner of property is strictly liable for contamination on that property; no causation must be proven to impose cleanup liability.

However, federal and state law provide a defense to liability for a property owner who undertakes all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practices. This pre-acquisition inquiry is known as performing "due diligence" prior to the purchase of property. In other words, if a person purchases property that turns out to be contaminated, but that person exercised due diligence prior to the purchase (and that due diligence investigation revealed no contamination), that person would then have a defense to liability. Statutes that provide for legal defenses to liability through the exercise of due diligence include the Comprehensive Environmental Response, Compensation, and Liability Act, the Leaking Underground Storage Tank Act, and the Environmental Response Act (Act 307).

There are no standards for performing "due diligence" assessments. The laws allow the courts to take into account any specialized knowledge or experience of the buyer, the relationship of the purchase price to the value of the property, the obviousness of the presence of contamination, and the ability to detect the contamination. Each individual is responsible for providing the documentation that due diligence was undertaken.

Environmental Response Division (ERD) staff frequently receive environmental assessments or audits and, in some instances, are being asked to review and provide judgment on the adequacy of the studies and to determine whether the site is clean.

It is the responsibility of the person undertaking the environmental assessment to ascertain whether the property is contaminated. General inquiries to staff regarding the adequacy of environmental assessments or audits should be referred to the private sector (i.e., consultants who routinely do these evaluations). If information is provided to ERD which identifies a site of environmental contamination, the appropriate parties should be advised of their obligations for further investigation and/or cleanup. Because there are no standards for performing an environmental assessment or audit, ERD staff is not to make any statements about whether a party has performed due diligence or otherwise fulfilled their obligations under state or federal law to perform an environmental assessment.

Environmental assessments or audits submitted to ERD shall be handled in accordance with the Division's existing methods for prioritizing work. All assessments provided to ERD which reveal or indicate a site of environmental contamination will be subject to the Act 307 site assessment and listing process. A decision about whether the assessment or audit identifies a site of environmental contamination which should be included in the annual site list will be made in accordance with Rule 299.5211 and Operational Memorandum #3.

This memorandum is intended to provide guidance to Division staff to foster consistent application of the Michigan Environmental Response Act (1982 PA 307, as amended) and the Administrative Rules promulgated thereunder. This document is not intended to convey any rights to any parties nor create any duties or responsibilities under law. This document and matters addressed herein are subject to revision.

Any questions about this memorandum should be directed to Lynelle Marolf at 517-373-9893.