Tips For Evaluating NFR letters and the Vapor Intrusion Effect

*This article originally appeared in the Illinois State Bar Association (ISBA) Newsletter, Real Estate Law Section, August 2017.*

For 20 years now, the Illinois EPA (or Agency) has utilized a risk-based program (35 IAC Part 742 [415 ILCS 5/58.5]-known as TACO) to evaluate contaminated properties and has issued regulatory closure letters or No Further Remediation (NFR) letters for thousands of sites. Many of the NFR letters issued over that time have allowed residual contamination to remain in-place by relying upon the use of site-specific objectives, engineered barriers and institutional controls to minimize exposure to soil and/or groundwater impacts, as allowed by the TACO regulations. While this has proven to be a very practical and effective approach to achieving regulatory closures, it has also created some confusion within the real estate community as many people misinterpret the letter to signify that the site is “clean”.  Whereas if the NFR letter was issued after 1997, it is more likely that the site is still contaminated, but just not dirty enough to warrant further action from a regulatory standpoint.  Therefore, it is important to understand this distinction when evaluating potential liability and other regulatory and practical considerations in the transfer of real estate with existing NFR letters.

The Agency issues NFR letters under various regulatory programs including the mandatory Leaking Underground Storage Tank (LUST) section and the voluntary Site Remediation Program (SRP). The LUST program issues NFR letters that only apply to a specific LUST incident (and only that portion of the property associated with that incident) and only for the contamination related to the tank(s) that had a reported release. In contrast, NFR letters issued by the SRP can be “comprehensive” and apply to an entire site for all Agency-regulated contaminants of concern (COCs) or deliberately “focused” to only cover certain areas of a site and/or certain COCs. A NFR letter provides the best form of state certification available to demonstrate that a site is in compliance with environmental regulations and does not represent a threat to human health or the environment. Pursuant to the SRP regulations and 415 ILCS 5/58.10-the NFR Letter signifies a release from further responsibilities under the Act in performing the approved remedial action and shall be considered prima facie evidence that the site does not constitute a threat to human health and the environment and does not require further remediation under the Act if utilized in accordance with the terms of the No Further Remediation Letter. A LUST NFR letter has different but similar statutory language (415 ILCS 5/57.10).

When active remediation/cleanup at a site is not warranted from a risk-based perspective, a site may be issued a “conditional” NFR letter that is subject to specific site use restrictions, including but not limited to, an industrial/commercial deed restriction, a groundwater use prohibition, or the requirement to maintain engineered barriers such as concrete or asphalt pavement, and/or the concrete floor slab of an existing building. All these Illinois EPA-approved risk-based conditions are common components of NFR letters issued since 1997 and directly imply that some degree of contamination still remains on the site. Understanding the nature of that residual contamination which required the use of such conditions for closure is key for a proper risk evaluation of a site with a conditional NFR letter.

The current vapor intrusion regulations in Illinois officially became effective on July 15, 2013 (as amendments to the original TACO regulations docketed as R11-9). The amended TACO regulations now require the assessment of the “indoor inhalation pathway” (aka vapor intrusion) in addition to the existing pathways that have always been a part of the Agency’s risk-based approach to closure (i.e. soil ingestion, soil inhalation, soil migration to groundwater, and groundwater ingestion).

Vapor intrusion is essentially an indoor air quality issue and occurs when volatile chemicals migrating from contaminated soil and/or groundwater (through processes called advection and/or diffusion) make their way into the indoor air spaces of overlying buildings. A very common and cost-effective remedy is the installation of vapor mitigation systems which prevent vapors from entering structures and becoming an exposure risk to building occupants.

Prior to July 2013, it was common practice to use building slabs as engineered barriers to prevent exposure to underlying contamination, including impacts from volatile organic compounds (VOCs), as a means of complying with the State’s TACO regulations in effect at that time. The Illinois EPA has issued more than 3,500 NFR letters pursuant to the TACO regulations since their adoption. The once commonplace practice of allowing VOC impacts to remain below buildings has now led to an unintended consequence for buyers and owners of such buildings. Luckily, however, the Agency specifically stated that the new vapor intrusion regulations would not be used as an automatic “reopener” trigger by regulators for previously closed sites. This is actually a less conservative, more business-friendly position than other states where the recent adoption of vapor intrusion regulations is being used as a reopener by regulators (i.e. New York, New Jersey, California, and others).

One of the most common situations that does arise involves the buying, selling or refinancing of debt on properties with previously-existing NFR letters where VOCs were allowed to remain on site. This situation can be found at sites as mundane as strip malls with current or former dry cleaning tenants to auto repair and machine shops to large manufacturing operations that utilized chlorinated (or petroleum-based) solvents in their daily operations. The NFR letter is still valid but now owners or prospective purchasers of those sites are forced to consider potential vapor intrusion concerns as part of their due diligence and overall risk evaluation given the prevailing regulatory climate.

While, at the end of the day, the presence of a conditional NFR letter may not substantially limit the ability to use the site as-is or to get financing from a lender, it does represent another factor to consider in the overall risk tolerance calculation. An understanding of this important aspect of risk-based regulatory closures and NFR letters is critical to a proper evaluation of the environmental liability and practical considerations associated with buying or selling real estate with a conditional NFR letter.

To view a sample NFR letter, click here.

-Wayne Smith is a licensed Professional Geologist in Illinois and Principal Consultant with Pioneer Engineering & Environmental Services, LLC where he has worked for the last 25 years.

-Pioneer has investigated more than 20,000 sites and has successfully obtained more than 560 NFR letters for its clients through the Illinois EPA. This accomplishment ranks Pioneer as the #1 firm in the entire state (out of over 700 total firms) when it comes to NFR letter success.

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