Phase I Environmental Site Assessment: The First Step In Due Diligence

 

Commercial Property Mall

A Phase I Environmental Site Assessment (Phase I Environmental) is the first step in performing environmental due diligence in connection with a commercial real estate transaction. And, if properly conducted, a Phase 1 environmental is the best tool available to help protect real estate investors and lenders associated with a transaction from assuming the environmental liabilities created by prior land owners and/or their tenants.

 

Under the provisions of the U.S. Environmental Protection Agency (EPA) Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980, as amended, and commonly known as Superfund, a tax was imposed upon the chemical and petroleum industries to establish a trust fund that could be utilized to clean up contaminated sites for which no responsible parties could be identified. CERCLA also authorized the EPA to clean up such sites, compel responsible parties to clean up the sites, and/or later to reimburse the government for the costs of EPA clean-up activities.

 

CERCLA provisions assign “Strict Liability” to property owners requiring the cleanup of hazardous substances at properties they either currently own or operate, or had owned or operated in the past; meaning, strict liability under CERCLA can be assigned on the basis of property ownership alone. However, CERCLA does allow for relief from liability for “Innocent Land Owners” who can demonstrate that they “did not know and had no reason to know” prior to purchasing a property that the property was contaminated by a hazardous substance. This concept is commonly referred to as the “Innocent Land Owner Defense.” Its practical application is achieved by exercising “All Appropriate Inquiries” into the environmental history of the property prior to consummating its purchase by an investor and or a finance/refinance transaction, in the case of a lender.

 

All Appropriate Inquiries (AAI) is the process of assessing a property to evaluate the potential for environmental contamination to exist at a property and, if present, to identify the potential liability for any contamination present at the property. Specific reporting requirements for All Appropriate Inquiries are contained in the EPA Final Rule at 40 CFR Part 312. This rule recognizes a Phase I Environmental Site Assessment, prepared in accordance with the standards contained in ASTM E-1527-05 “Phase I Environmental Assessment Process” as satisfying the AAI requirements prescribed in the rule.

 

As noted above, ASTM E-1527-05 “Phase I Environmental Assessment Process” establishes the standard for “Good Commercial Practice” in the United States for conducting environmental site assessments. Considering the significant exposure to assuming potential strict liability for contamination caused by a prior owner or operator, and the potentially devastating cost for cleanup, any prudent investor, lender, or tenant considering a real property acquisition, finance, and or leasehold transaction would be well advised to retain an environmental assessment as a condition-precedent to consummating such transaction. At PCA, our principal management staff and environmental professionals possess extensive experience conducting Phase 1 environmentalSite Assessments throughout the United States and the firm’s reputation for excellence has established PCA as a premier provider of environmental assessments amongst the institutional investment and lending community throughout the country. 

0 Comments

You can be the first one to leave a comment.

Leave a Comment