A Phase I Environmental Site Assessment (ESA) is a critical toolto understanding and managing environmental risk associated with areal estate asset. But when do you need more than aPhase I ESA? For buyers who want toqualify for defenses to liability under the ComprehensiveEnvironmental Response, Compensation and Liability Act (CERCLA) ,the answer is always. In order to qualify for suchliability defenses, EPA requires property buyers to go beyondhiring a consultant to complete a Phase I ESA.




Under Federal laws the owner of a property can be responsible tocleanup a property even if they didn't cause contamination and didnot own the property when the contamination occurred. It ispossible to qualify for defenses to CERCLA liabilities, but only by carefully followingthe requirements established by EPA. A Phase I Environmental SiteAssessment can be an important tool to protect buyers from thenegative impacts to cash flow, value and use of real estate, andability to sell or finance the property that can result whencontamination is present, but it is not enough to allow buyers toclaim defenses to liability under CERCLA.


According to EPA's Rule, buyers who may want to claim CERCLAdefenses to liability must perform “All Appropriate Inquiry” (AAI) consisting oftwo things:

  • An inquiry (Phase I ESA) by an environmental professional,and
  • Additional inquiries defined by the Rule

Going Beyond the Phase I ESA


Unfortunately, many buyers do not qualify for protections fromliability because they rely solely on the ESA, without conductingthe additional inquiries required by the Rule. According to theRule, the defendant is required to consider the followinginformation in additionto the report prepared by the environmental professional:

  • Specialized Knowledge or Experience – Does the defendant haveknowledge or experience of the subject, adjoining or surroundingthe subject properties that indicates a release?
  • Fair Market Value – Does the purchase price reasonably reflectsthe fair market value of the subject property of the propertywithout contamination? If not, is the discount to fair market valuedue to the presence of releases or threatened releases of hazardoussubstances?
  • Commonly known or reasonably ascertainable information – Doesinformation from newspapers, web sites, community organizations,local libraries and historical societies indicate a release orthreatened release?
  • Degree of Obviousness – Do findings indicate an obvious releaseor threatened release?
  • Environmental cleanup liens – Have environmental clean-up liensbeen filed or recorded against the property under federal, tribal,state, or local law indicate

The requirement for review of environmental clean-up liens maybe performed by the Environmental Professional on behalf of thedefendant, but all other requirements must be met by thedefendant.


Most Environmental Professionals ask the client to complete aquestionnaire documenting the findings of the required additionalinquiries. The Rule does not require the defendant to share theresults of their inquiries with the consultant, but in the event ofa claim, inclusion of this information in the report providesdocumented evidence that the required information wasconsidered.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Bill Tryon

As Director of Strategic Development, Bill Tryon focuses on advancing key risk management initiatives from an environmental, engineering and construction risk standpoint. Bill has a long track record of innovation, and hopes to educate the industry on best practices to control risks, reduce costs and create a competitive advantage. Through The Science of Real Estate forum, Bill will provide regular updates from across the CRE risk management world.