The Dry Cleaner Next Door: Vapor Intrusion and the Phase I Conclusion
You are conducting a Phase I ESA on a 1970s strip mall for a lender. The subject property is a 4,000 sq ft retail unit. Two units down (approximately 120 feet away, same building, shared slab) an active dry cleaner has operated since 1985. The site is served by municipal water; no groundwater wells are within a mile. The Phase I identified no spills, no stains, no odors, and no reported releases at the dry cleaner. The lender's underwriter asks whether the file can be closed with no REC because 'there is no evidence of a release.' The transaction closes in 10 business days, and the borrower refuses a Phase II. Soil in the area is sandy with a shallow water table at 8 feet.
1. Is the dry cleaner a REC, an HREC, or neither? Justify your conclusion using the ASTM E1527 definitions.
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It is a REC, not merely an HREC.
An HREC is a past release that has been addressed to the satisfaction of the regulatory authority. Here there is no evidence of any release at all, let alone a closed one, so HREC is unavailable.
A REC is (1) the presence of hazardous substances or petroleum products in, on, or at the property due to a release or likely release, (2) the presence of hazardous substances or petroleum products under conditions indicating a likely release, or (3) the presence of a release that poses a material threat of future release.
A dry cleaner 120 feet away in the same building, sharing a slab and operating since 1985, is a classic de minimis condition question. The key point the exam tests: absence of observed staining or reported spills does not defeat a REC. Chlorinated solvents used by dry cleaners are dense, mobile, and migrate through slabs and utility trenches. The absence of a visible release is exactly why a Phase II is recommended, not why a REC is omitted. The correct file conclusion is a REC with a recommendation for subsurface investigation, especially given sandy soil and an 8-foot water table that favor vapor migration.
2. The borrower refuses a Phase II. Draft the reasoning you would give the lender about what the REC means for its collateral position and what the Phase I report should say.
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The Phase I must not be softened to accommodate the borrower. The report should state the REC plainly, describe the basis (adjacent dry cleaner, shared slab, sandy soil, shallow water table), and recommend a Phase II with soil gas and soil sampling near the shared wall and utility penetrations.
For the lender: a REC does not mean the property is contaminated. It means the environmental professional identified a condition requiring further inquiry. The lender's decision is a business decision, but it should be made with the REC on the record. If the loan proceeds without a Phase II, the lender bears the risk that a later vapor intrusion finding triggers a costly response and impairs collateral value. The report should also note that the borrower's refusal is a transaction fact, not an environmental finding, and should not be characterized as eliminating the REC.