Liability Protection

Feb. 1, 2009
Learn how environmental site assessments can protect you from financial liability

By Jana J. Madsen 

Lead-based paint, asbestos, and other chemical hazards aren't always visible to the naked eye. To reveal a property's contaminants, a thorough evaluation of the site should be conducted. "An environmental site assessment (ESA) is an assessment and report prepared for a property to identify environmental conditions that may have negatively impacted the property," explains James Thomas, president, Peak Environmental Consulting Inc., Loveland, CO.

There are two phases of an ESA. "Phase I, which often includes a review of aerial photographs, assesses the impacts of surrounding properties and involves researching historic insurance maps, among other documents, to provide a thorough site inspection," explains John W. Colagrande Jr., vice president of engineering, Whitman, East Brunswick, NJ. A look back at a property's history can be revealing. "Thirty years ago, it wasn't really even considered a bad thing to dump a chemical into the soil. And, 40 years ago, there were almost no laws on the books prohibiting such things," says Joseph P. Derhake, president, Partner Engineering and Science, El Segundo, CA. "We find, in the practice of environmental site assessments, a need to really focus on what happened on the site a long time ago; two out of three concerns we find were created then."

While a Phase I ESA documents a property's past, a Phase II assessment involves in-depth testing. "This portion of the environmental site assessment consists of locating underground storage tanks and areas of chemical discharges, and collecting soil samples, groundwater samples, and interior samples for asbestos, lead paint, and other hazards," says Colagrande. "These tests can determine what kinds of contaminants are present and where they're present." Depending on the findings, remediation may be necessary.

These assessments are conducted for a variety of reasons. The following list, provided by Thomas, contains the most common:

  • Due diligence for buyers. During property transactions, environmental site assessments are typically performed to help the buyer assess if there are environmental conditions at or near the property, such as soil and/or groundwater, that may be affecting the property's value.
  • Lender requirement. Lenders typically require environmental site assessments to be performed relative to a property acquisition or a refinance.
  • Innocent land-owner defense. Environmental site assessments can be performed as a defense against financial liability associated with environmental clean-up of U.S. Environmental Protection Agency Superfund sites.
  • Rental property baseline conditions. Environmental site assessments are oftentimes performed during tenant entry and exit at commercial/industrial rental properties to determine whether the tenant may have caused contamination or other environmental conditions at the property.

"Purchase, sale, and lease transactions are the largest reasons people engage in environmental site assessments. Another reason is liability management," Derhake says. The purchaser of a property will not qualify for the innocent landowner defense under the Comprehensive Environmental Response, Compensation, and Liability Act's All Appropriate Inquiry (AAI) if a Phase I ESA is not completed. "Absent a Phase I [ESA], they really accept unlimited liability," summarizes Derhake.

When hiring a professional to conduct an assessment, make sure he/she is experienced and will conduct the process according to ASTM Method E 1527-05, which is considered the industry standard, according to Thomas. "Additionally, if a lender is involved, the client should check to see if the lender has included any additional requirements of the environmental professional or the environmental assessment scope. And, finally, the client should confirm that the environmental professional has the appropriate insurance," he says. "Many fly-by-night companies offer cheap rates, but fail to mention that they don't carry the appropriate insurance, which oftentimes forces the client to hire another firm to perform the environmental assessment over while delaying the project." Still not sure what qualifications to look for? The U.S. Environmental Protection Agency established minimum criteria for an environmental professional under its AAI ruling, adds Derhake. Start there.

Jana J. Madsen ([email protected]) is editor at Buildings magazine.

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