Proactive due diligence can positively impact real estate dealings. Knowledge is power. Understanding data, risks, environmental controls and liability issues offer all parties a more efficient path towards timely sales transactions.
A Phase I ESA studies into past and current uses of a property and is a non-intrusive way to evaluate the potential existence of hazardous substance or petroleum contamination on or migrating from the property.
- For the Buyer and Seller
Phase I ESA are conducted to qualify the purchaser for the “innocent landowner defense” provisions of the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, of 1980. These provisions allow the buyer who performs adequate due diligence a way to avoid inheriting liability for a property’s past environmental sins. The findings of a Phase I ESA are especially useful to the seller as well. There are times where it is more time efficient and cost effective performing a Phase I ESA before the property is marketed so the seller is well informed of any contamination or compliance issues that need to be addressed prior to listing.
- For Lenders and Underwriters
Commercial lenders conduct some type of environmental due diligence before extending credit tailored to the specifics of the deal, such as loan amount and past and planned uses. Due diligence permits a lender to assess whether contingent environmental liabilities may impair a borrower’s ability to repay the loan or damage the borrower’s credit rating. It also enables the lender to identify any issues that could affect the lien, the desirability of foreclosing on property, or create potential environmental liabilities or adverse publicity for the lender.
- For Real Estate Investors and Brokers
Armed with due diligence knowledge, brokers can better determine whether a property will make a good deal for their clients and lending partners, identify potential CERCLA liability risks and allow for a stronger negotiating position. Proactive real estate professionals often conduct some level of environmental due diligence in advance of taking a property to the marketplace, even if a property doesn’t seem vulnerable. This helps to better evaluate the relative value of potential bids and make informed decisions regarding indemnities.
What if you need more? Further Due Diligence….
Other factors, such as business environmental risk, defined by ASTM E1527 as “a risk which can have a material environmental or environmentally-driven impact on the business associated with the current or planned use of a parcel of commercial real estate,” may also be considered beyond the Phase 1 in the due diligence process. Issues that can have an environmental effect on the business or property may be suspect asbestos-containing building materials, lead-based paint, radon, mold, historic resources, floodplains, and ecological resources including wetlands and endangered species.
Here are additional methods used:
- Environmental Peer Review: A review of reports performed by other environmental firms, with a comparison of the report to applicable ASTM International Standards and documents report compliance and any possible deficiencies. A summary letter of the review includes the environmental risks associated with the property and potential clean up costs.
- Phase II Environmental Site Assessments – testing of soil/groundwater to determine whether the property is, in fact, impacted.
- Site Inspection Reports: Various environmental and/or industrial hygiene reports would include the performance of a site inspection, interview of site personnel, and the documentation of potential Recognized Environmental Conditions (RECs) . Report includes narrative, description and photographic log.
- Transaction Screen Environmental Site Assessment (TS-ESA): An environmental assessment conducted in general accordance with the protocols as set forth in the Standard Practice for Environmental Site Assessments: Transaction Screen Process, E1528-06, prepared by ASTM. The TSESA is conducted in order to determine if any past and/or current use of the site, adjacent and/or abutting property and nearby off-site operations have affected or have the potential to adversely affect the environmental quality of the subject site
- Records Search with Risk Assessment (RSRA): The Records Search with Risk Assessment is conducted in accordance with SBA’s accepted Protocol and generally consists of database and comprehensive historical records review.
For more information contact Kristin Heimburger, Director of Environmental Consulting, at email@example.com