A Phase I Environmental Site Assessment (ESA) is a critical tool to understanding and managing environmental risk associated with a real estate asset. But when do you need more than a Phase I ESA? For buyers who want to qualify for defenses to liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) , the answer is always. In order to qualify for such liability defenses, EPA requires property buyers to go beyond hiring a consultant to complete a Phase I ESA.
CERCLA and AAI
Under Federal laws the owner of a property can be responsible to cleanup a property even if they didn’t cause contamination and did not own the property when the contamination occurred. It is possible to qualify for defenses to CERCLA liabilities, but only by carefully following the requirements established by EPA. A Phase I Environmental Site Assessment can be an important tool to protect buyers from the negative impacts to cash flow, value and use of real estate, and ability to sell or finance the property that can result when contamination is present, but it is not enough to allow buyers to claim defenses to liability under CERCLA.
According to EPA’s Rule, buyers who may want to claim CERCLA defenses to liability must perform “All Appropriate Inquiry” (AAI) consisting of two 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 from liability because they rely solely on the ESA, without conducting the additional inquiries required by the Rule. According to the Rule, the defendant is required to consider the following information in addition to the report prepared by the environmental professional:
- Specialized Knowledge or Experience – Does the defendant have knowledge or experience of the subject, adjoining or surrounding the subject properties that indicates a release?
- Fair Market Value – Does the purchase price reasonably reflects the fair market value of the subject property of the property without contamination? If not, is the discount to fair market value due to the presence of releases or threatened releases of hazardous substances?
- Commonly known or reasonably ascertainable information – Does information from newspapers, web sites, community organizations, local libraries and historical societies indicate a release or threatened release?
- Degree of Obviousness – Do findings indicate an obvious release or threatened release?
- Environmental cleanup liens – Have environmental clean-up liens been filed or recorded against the property under federal, tribal, state, or local law indicate
The requirement for review of environmental clean-up liens may be performed by the Environmental Professional on behalf of the defendant, but all other requirements must be met by the defendant.
Most Environmental Professionals ask the client to complete a questionnaire documenting the findings of the required additional inquiries. The Rule does not require the defendant to share the results of their inquiries with the consultant, but in the event of a claim, inclusion of this information in the report provides documented evidence that the required information was considered.