By Joseph Berlin, PE, EP and Nichole Mason
November 6, 2018
To comply with environmental regulations in real estate transactions, most environmental due diligence (EDD) begins with completion of a Phase I Environmental Site Assessment (ESA). If recognized environmental conditions (RECs) are identified in the Phase I ESA, further investigation in the form of a Phase II ESA is commonly conducted. Michigan regulation provides the opportunity to complete a Baseline Environmental Assessment (BEA) as the means to mitigate environmental liability if the property is contaminated. As of this writing there are no fees levied by the State of Michigan for the completion and/or submittal of any of the above-mentioned environmental reports. However, that may change in the upcoming 2018 legislative lame duck session.
Here is the latest structure for these new proposed Michigan environmental fees – note that the amounts for these fees has not been finalized and is subject to change:
• Phase I ESA: $500 fee
• Phase II ESA: potential $500 fee
• Baseline Environmental Assessment (BEA): $1,500
These new State of Michigan fees would be in addition to the cost of the consultant EDD fees and would apply to every Phase I ESA and BEA conducted in the State of Michigan, regardless of whether RECs are identified in the Phase I ESA or not. It appears that these fees will be required to be paid within a certain timeframe of completing the reports. Payment of the fee outside of the to-be-determined filing dates would likely incur additional fees. The liability protections available under Michigan law would become dependent upon payment of these new fees by the purchaser.
What about other jurisdictions – transactions for properties outside of Michigan?
Although many states have various fees under their Voluntary Cleanup Program (VCP), this proposed Michigan fee for the completion of a Phase I ESA is an outlier. However, this type of fee for Phase I ESAs can be seen as complementary to a VCP, especially for a Bona Fide Prospective Purchaser (BFPP) demonstration within a VCP. Time will tell whether such fees for Phase I ESAs is a trend or not.