Understanding Environmental Liability Issues in Real Estate Transactions

Doing one’s due diligence is now more important than ever. Some view this step with trepidation, while others recognize it for what is – a vital and necessary part of the commercial real estate transaction. It is the final step in protecting your, and your clients’, legal environmental liability. In order to understand the liability issues associated with a Phase I ESA, one must fully understand what is involved in the process.

A brief explanation of a Phase I ESA is “a thorough, non-invasive investigation of past and current actions or situations that have an adverse and / or potentially adverse impact on the future occupants of the property.” In other words, the Environmental Professional does the research that measures the real and / or perceived environmental health of the property.

A Phase I ESA must be performed by an Environmental Professional, or EP. To be qualified as an EP, one must have the appropriate level of education in applicable areas and a predetermined amount of relevant experience. This level of qualification is important in that the EP is responsible to form and report his or her opinions and conclusions regarding and Recognized Environmental Conditions (REC) associated with the site.

A thorough investigation includes –

•  Historical data of the site and outlying areas. (Were there any reported releases? Where are nearby underground storage  tanks located? Any leaking storage tanks? Are there any gaps in the data? – among other things.)
•  Aerial photos or other historical information source references.
• A physical walk of the site.
• Interviews with past and present owners, operators and tenants, as well as neighbors if property is abandoned.
• A User Questionnaire to be filled out by the potential buyer.
• It is important to note that ASTM guidelines state that the EP should be given 20 business days to complete this  investigation.

All these things lead to a well-informed opinion on the part of the EP. Should any of the ASTM guidelines not be followed, and a property is found to have been contaminated, all involved parties may be at risk for legal action.

Considering the liability issues involved, it is of the utmost importance to choose the right EP for the job.

Understanding Environmental Liability Issues in Real Estate Transactions
-by Jude Horton