When considering the acquisition of a commercial property, what is the most crucial factor for a buyer: location, price, timeline? Did you know that completing proper environmental due diligence could impact all three of these, as well as other buyer priorities? “All Appropriate Inquiries” or AAI is the process of evaluating a property’s environmental condition and assessing the likelihood of contamination. All Appropriate Inquiries must be conducted in compliance with 40 CFR Part 312 to obtain certain protections from liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA aka Superfund).
Part of AAI is an inquiry by an Environmental Professional, typically provided as a Phase I ESA performed in accordance with the ASTM Standard E1527-21: “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” This assessment helps to determine the presence or likely presence of hazardous substances or petroleum products in, on, or at a subject property due to a release, likely release, or future release to the environment, otherwise known as a recognized environmental condition (REC). By examining current and historical uses of a subject property, existing information can be used to help understand property conditions and potential RECs.
What if the buyer’s desired property is located downgradient of a current or former dry cleaner, or near a former orchard that utilized lead arsenate pesticides from the 1890s through the 1960s? Or the hottest new spot for revitalization redevelopment is on or near former industrial areas? A competent consultant has the knowledge and means to properly investigate current and past uses of the subject property and nearby properties. Even a location without an obvious risk needs appropriate research to protect the purchaser.
Imagine if the buyer purchased their intended commercial property at what they considered to be a fair market value price and has grand plans for redevelopment only to learn after the purchase that proper environmental due diligence was not completed and that there is evidence of hazardous substances or petroleum products impacting the property. The buyer could be on the hook for thousands or even millions of dollars in cleanup and remediation costs, as well as costs associated with personnel exposures and damages to neighboring properties. In addition, the redevelopment could be delayed, and the property devalued as a result of existing contamination. The risks of having a poorly conducted Phase I ESA, or worse having no Phase I ESA, can be serious.
For the purchasers of a commercial property, environmental due diligence is extremely important. Having a knowledgeable and experienced environmental consultant guide you through your Phase I ESA can provide a purchaser with invaluable peace of mind knowing they are being protected and qualifying for CERCLA liability protection. Rather than considering the Phase I ESA a “check-the-box” step in acquiring commercial property, the purchaser should make sure that it is carefully scoped and completed to fully meet AAI. The potential consequences of an inadequate Phase I ESA far outweigh the time and expense of AAI-compliant due diligence.
Look for our Part 2 of 3 Series on Phase ESA’s next month Potential Consequences, Liabilities and Common Deviations.
This post was authored by Lisa Viviano and Tracy Cooper, Environmental Project Managers at Environmental Advisors and Engineers, Inc. For further inquiry, please contact us at info@eaei.com.
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