Phase I Environmental Site Assessments for Data Center Land

Under the federal Superfund law, CERCLA, current owners of contaminated property can be liable for cleanup even if they did not cause the contamination. CERCLA provides defenses for buyers who did their homework before acquiring the property, including the bona fide prospective purchaser, innocent landowner and contiguous property owner defenses. To qualify, the buyer must conduct “all appropriate inquiries” before acquisition, as defined in EPA’s rule at 40 CFR Part 312.

ASTM E1527-21 is the standard practice that EPA recognizes as satisfying All Appropriate Inquiries. A Phase I ESA performed under it is the routine first step in commercial real estate environmental diligence. Lenders usually require one, and buyers rely on it to understand what they are taking on.

Qualifying for a defense also involves continuing obligations after purchase, such as complying with land use restrictions and taking reasonable steps to address any releases. The Phase I is necessary but not the whole story.

The assessment is performed by an environmental professional, as defined in the AAI rule, and has four main parts:

• Records review: federal, state, tribal and local environmental databases for the property and surrounding sites within set search distances, plus historical sources such as aerial photographs, fire insurance maps, city directories and topographic maps.
• Site reconnaissance: a walk of the property looking for tanks, drums, stained soil, stressed vegetation, pits, dumps, wells, transformers and other signs of past or current use of hazardous substances or petroleum.
• Interviews: with the owner, occupants and, where useful, local officials such as fire and health departments.
• Report: findings, opinions and conclusions, including identified data gaps and whether they affect the conclusions.

The user, meaning the buyer or lender commissioning the work, also has responsibilities: searching for environmental liens and activity and use limitations, sharing any specialized knowledge, and considering whether the purchase price reflects a reduction in value due to contamination. Skipping these can weaken the AAI record even if the consultant’s work is complete.

E1527-21 tightened several definitions, clarified how historical records should be reviewed for the property and adjoining sites, and asks the report to state the date of each component so that shelf life is clear.

Many data center sites are former farmland, timberland or open land, and their Phase I findings are often limited. Typical issues still come up:

• Farm fuel storage: underground or aboveground tanks for diesel and gasoline at farmsteads and equipment yards.
• Pesticide and herbicide mixing and storage areas, and old chemical sheds.
• On-site dumps, burn pits and buried debris, common on rural properties.
• Former industrial, manufacturing or power generation uses, especially on brownfield sites near transmission infrastructure.
• Old pipelines, oil and gas wells, or pole-mounted transformers on the property.
• Adjoining or upgradient sources such as gas stations, dry cleaners, landfills or industrial plants, which can affect groundwater or vapor.

Vapor migration is within the scope of the standard, so nearby sources of volatile contaminants deserve attention even when the property itself looks clean. Brownfield and former industrial sites can be attractive for power access, and contamination there is often manageable through state voluntary cleanup programs, but it needs to be understood before price and layout are fixed.

If the Phase I identifies RECs, the usual next step is a Phase II Environmental Site Assessment, typically following ASTM E1903. A Phase II collects soil, groundwater, soil gas or building material samples to confirm whether contamination is present and how extensive it is.

Results can lead to several outcomes: no further action, a cleanup before or after closing, enrollment in a state voluntary cleanup or brownfield program, a price adjustment, an indemnity or escrow, or a revised site layout that keeps buildings and deep excavations away from the affected area. Sampling and lab turnaround take time, so a Phase II has to fit inside the diligence period.

Under the AAI rule, the inquiry must be conducted within one year before acquisition, and several components (interviews, lien searches, government records review, the site visit and the environmental professional’s declaration) must be completed or updated within 180 days before acquisition. On long land deals and multi-phase closings, plan for updates.

The standard scope also leaves out several issues that matter to a data center buyer. These can be added as non-scope considerations or handled separately:

• Wetlands and streams, covered in wetlands and data center development.
• Endangered species and cultural resources.
• Asbestos, lead-based paint, radon and mold in existing structures.
• Emerging contaminants such as PFAS, whose regulatory status has been changing.
• Industrial hygiene, health and safety, and regulatory compliance for current operations.

A Phase I is one line in the site due diligence checklist. It is usually quick and inexpensive relative to the land price, which is why it should be ordered early enough that a Phase II, if needed, still fits.