We take telephone calls everyday from prospective
property purchasers that "because of the bank" have to get a Phase
I Environmental Site Assessment (ESA) on the property they are looking
at purchasing. More often than not, these prospective purchasers
think this is a bank-imposed process that simply costs them more
money and is a hurdle that can only stop the deal from happening.
Accordingly, the implication of the telephone call is, "Give me
a clean Phase I ESA so I can get my loan and move on with business
as usual."
The Phase I ESA is not simply a bank-imposed process.
It is a tool that has evolved since 1986 to provide prospective
property purchasers an "innocent land owner defense" to environmental
liabilities imposed under the federal Comprehensive Environmental
Response Compensation and Liability Act (CERCLA) and associated
state laws. Without conducting a Phase I ESA (or adequate environmental
due diligence), a purchaser of environmentally impaired property
can be held solely liable for its cleanup, even if they did not
cause the contamination. The Phase I ESA process has developed into
a nationally recognized standard that has been written and issued
under the American Society for Testing and Materials (ASTM) designated
E 1527-00, Standard Practice for Environmental Site Assessments:
Phase I Environmental Site Assessment Process (ASTM Standard).
As an environmental consultant, we would be remiss
to take a laissez faire attitude such as "It is just a Phase I ESA."
Although every Phase I ESA should be based on the ASTM Standard;
therefore, be similar in format, every Phase I ESA is very different.
Phase I ESAs are not off the shelf products; they are a relatively
complex evaluation of information that is specific to the property
of interest and are designed to identify (if present) "recognized
environmental conditions" (RECs). It is the identification of these
RECs that allows a prospective purchaser to make an informed business
decision and limit potential environmental liabilities.
Often, the consultant is viewed as "the bad guy"
when RECs are identified during the Phase I ESA (not a clean Phase
I ESA). In reality, the user of the Phase I ESA should be thanking
the consultant. Prior to the conduct of the Phase I ESA, the buyer
assumed the property was "clean," therefore, worth every penny of
the sale price. Depending upon the materiality of the REC, the knowledge
of the REC allows the buyer to make a more informed decision about
the transaction. Should the transaction continue? Should the price
of the property be adjusted? Is it worth the price of additional
investigation? Knowledge of the RECs, allows the buyer to determine
the potential risks associated with owning and operating a business
on the property.
In the same manner that a prospective purchaser
wants to know the impact of a leaky roof or a broken furnace on
the worth of a building, it only makes sense that one would want
to know the impact of a REC on the worth and usability of a property.
This is just a good business practice.
The identification of RECs (i.e., Phase I ESA)
and confirmation of RECs (i.e., Phase II ESA) does not necessarily
mean that the property cannot be purchased. Many states have legislated
mechanisms by which prospective purchasers can buy property without
taking on the liabilities associated with the cleanup of impacted
soil and groundwater. Specific to Michigan is the Baseline Environmental
Assessment (BEA) and Due Care process under Part 201 of the Natural
Resources and Environmental Protection Act (NREPA; P.A. 451 of 1994,
as amended). In addition, brownfield monies may be available through
state and federal resources to facilitate the transaction.
The bottom line is that the more you know about
the property prior to purchasing it, the more informed business
decision you can make and the better your risk management decision.
The currently recognized method of conducting basic environmental
due diligence on a property is the ASTM Standard (Designation E1527-00).
This process, when conducted as a positive aspect of the transaction
should be a deal maker not a deal breaker.
If you have any questions regarding the information
contained in this article, please contact Mr. Clifford Lawton at
248-932-0228 or at clawton@dragun.com
The Dragun Corporation 30445 Northwestern Highway, Suite 260 Farmington
Hills, Michigan 48334 Phone: (248) 932-0228 Fax: (248) 932-0618
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