51 Rustling Ridge Rd., Glasgow, KY 42141, US
After eighteen years of producing due diligence reports, in particular Phase I ESAs, the most often asked question we get is "Do I really need a Phase I ESA?". The quick answer is 'Yes', only a Phase I ESA compiled to meet ASTM E1527-13 Standard Practice and US EPAs All Appropriate Inquiries Rule will protect the user of the report against CERCLA liability. The Superfund law officially known as CERCLA (Comprehensive Environmental Response, Compensation and Liability Act) imposes liability on parties responsible for, in whole or in part, the presence of hazardous substances at a site. The not-so-simple answer is there are Limited Environmental Assessments that are used by the banking and investing community as tools for making business decisions for issuing a mortgage or buying a particular property. Limited Environmental Assessments are generally faster and cheaper than a ASTM E1527-13 compliant Phase I ESA but do not provide CERCLA liability protection. The most common of these Limited Environmental Assessments is the Environmental Transaction Screen (ETS), which has its own ASTM Standard Practice (E1528-14). Most Limited Environmental Assessments can be tailored made to hold down costs. The catch is, if a Limited Environmental Assessment finds a Recognized Environmental Condition, then a full blown Phase I ESA would likely be recommended, which would add to the overall cost and time to completion for the project.
A few key things to consider when trying to decide if you need to start off with a Phase I ESA or if a ETS may be appropriate:
Is CERCLA Liability protection important to you? If so, then a Phase I ESA will be necessary.
What property type is involved? If it is an industrial property or a petroleum retailer, then a Phase I ESA is advisable. If it is an office building, apartment building, shopping center or other low risk property type, an ETS or other Limited Environmental Assessment may be considered. If it is vacant land that has never been developed, then an ETS or other Limited Environmental Assessment may be considered.
Where is the property located? This is completely different than property type because you are looking at all surrounding properties in the area during a Environmental Site Assessment to evaluated the likelihood of an impact to the subject site. If it is an urban property or any commercial property with a long developmental history, then a Phase I ESA is advisable. If the property is in a mostly undeveloped area, then an ETS or other Limited Environmental Assessment may be considered.
Many mortgage holders have their own requirements for ESAs. For example, Fannie Mae, Freddie Mac, and HUD all have their own requirements for due diligence.
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