2 May 2014
When a seller or lender gives a prospective buyer a phase I environmental site assessment (ESA) and it concludes there are no recognized environmental concerns, that means you’re “good to go,” right? Well, not so fast. There are some things to check on which include:
1. When was the ESA performed and to what standard? Standards have changed over the years and if the ESA is 6 months old or older, parts of it will need to be updated. Sometimes ESAs done for lenders don’t include all the elements a buyer must include to satisfy the All Appropriate Inquiry standard. It is also possible for much older ESAs, that circumstances may have changed and you’re better served just starting over.
2. For whom was the ESA prepared and can you rely on it? Most ESAs were prepared for a specific client and often include a limit on who can “use” them. There’s no certainty on whether a use limit actually prevents you from relying on an ESA to assert the innocent landowner defense but it is likely that such a limit would prevent you from seeking recourse from the consultant that prepared it, if it turns out to be inadequate.
3. Even if you can rely on it, will the consultant stand behind it? Often, consultants will “let” you rely on their old ESAs for a fee. The question to ask is – is it worth it? I have seen consultants attempt to contractually limit their exposure to $50,000 or their available insurance or their fee whichever is less! I have also seen consultants say that they will only be liable for direct losses and will not be liable for so-called consequential losses such as lost value or revenue. This means that the consultant will only be liable for the actual harm (breaking things or hurting people) they cause and not for any errors or oversights they make in actually doing their work!
In short, there are many pitfalls to relying on a so-called “clean” prior phase I and the list above only scratches the surface. We still live in a caveat emptor world and you, as buyer, need to take steps to beware.