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The Importance of a Phase I Environmental Site Assessment (ESA)

The Importance of a Phase I Environmental Site Assessment (ESA)

When it comes to environmental contamination of real estate, the legal principle of “you break it, you buy it” does not apply – in fact, the reality is much worse!

Under the federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA) legislation (commonly known as Superfund), as well as state laws like Massachusetts’ C. 21E, legal liability for environmental contamination is “strict.” This means that the property owner is per se responsible for any contamination at that property – period. It does not matter if the owner caused or contributed to the contamination. It does not matter if the contamination occurred prior to the owner’s purchase of the property. It does not matter if the owner is even aware of the contamination.

In other words, the owner does not have to “break” anything or do anything wrong; simply by virtue of owning a property at which environmental contamination exists, the owner becomes responsible for dealing with the contamination. Furthermore, these legal principles also apply to the site “operator” – so a tenant (lessee) can also be held responsible for contamination at a property in the same manner as an owner.

Therefore, as a prospective buyer of a commercial property, it is critical to have a firm understanding of the environmental condition of a property prior to purchase. “Environmental due diligence” is the term used to describe the investigations typically implemented to mitigate the risk of being stuck with the costs and responsibilities of environmental contamination.

Most commercial lenders require at a minimum a transaction screen or a “Phase I” Environmental Site Assessment (ESA), sometimes also referred to as a “21e”, to be performed on a property prior to lending. This is because the lender also has potential liability under law for potential cleanup costs associated with a property. Even if you are a cash buyer without lender financing, a Phase I provides important information in assessing the true value and potential of your investment in the property. A proper Phase I investigation conducted in accordance with current ASTM standards provides certain liability protections and potential benefits (such as Brownfields tax credits) to a bona fide purchaser when cleaning up and returning a property to beneficial use.

An ASTM Phase I that complies with the Environmental Protection Agency’s All Appropriate Inquiry (AAI) rule, is performed by an environmental professional to evaluate the complete history of a property through owner interviews, a search of town/city records, examination of historical Sanborn fire insurance maps, aerial photographs, and numerous environmental databases. The environmental professional will also visit the property to examine potential sources of contamination and the condition of surrounding properties and the subject property with a practiced eye.

Why should you choose Cooperstown Environmental to conduct your ASTM Phase I?

The subject property will receive our dedicated attention and we apply our decades of experience to uncover any recognized environmental conditions (RECs). Our conclusions and recommendations, if any, are carefully laid out in a manner which is easily understood by a layperson. Every report is reviewed by a Massachusetts Licensed Site Professional (LSP) prior to being finalized and sent to our clients.

The identification of a recognized environmental condition does not mean that a property is contaminated, but indicates the environmental professional has identified something in the property’s history or current state that should be investigated through further due diligence. If contamination is identified on the property through due diligence activities, you can still purchase the property but you come to the purchase from a position of power by having knowledge of the environmental condition of the property and possible cost implications associated with contamination.

Some purchasers view the Phase I requirement as a “hoop to be jumped through” and select a firm that provides only a bare bones assessment. A Phase I investigation that includes “All Appropriate Inquiry” and due-diligence is short money –wisely spent considering the significant investment made in most commercial properties, and especially compared to the potentially catastrophic loss that could accompany purchase of a contaminated site. Let Cooperstown’s Environmental Professionals and Brownfields Tax Credit experts help you with your prospective purchase.

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