Thursday, May 30, 2013 12:00 AM

Lender Environmental Risk Management: The Phase I Environmental Site Assessment (ESA) – What for? How come?

By: Joseph W. Berlin PE, CFE, EP
Tags: None

As scientists we love our acronyms and geekspeak. Many business people get frustrated with “those pointy heads”. Somewhere in the middle we each need to understand why we do what we do. In essence, the purpose of environmental work is, generally, for a lender to understand the potential environmental impact of a property on a business’s cashflow and collateral value. The purpose of fulfilling “all appropriate inquiry” (AAI) (40 CFR 312) is to meet the Landowner Liability Protections (LLPs) available under CERCLA.

Ok, so the purpose of environmental work (for the bank) is to assess the potential environmental impact on cashflow and collateral value and the purpose from the purchaser point of view is to gain the LLPs under CERCLA. So, what is the purpose of a Phase I ESA?

As set forth in Section 1 of the ASTM document “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” (ASTM E 1527-05), the purpose of a Phase I ESA is to identify recognized environmental conditions (RECs) 1 at the subject property. That means that after we drill down through all of this “stuff” that the purpose of the EDD process is to identify RECs. Yes, RECs can affect property value even if it’s simply the cost to hire an attorney to look over the documents.

The Environmental Professional (EP) is required to determine whether a REC exists or not. However, often in our role as a peer reviewer we find “new” or “amended” terms not present in the ASTM standard. For example, what is a “potential REC”? Is this a REC that could become a REC? Or is it a REC where the consultant couldn’t make up their mind if the condition was a REC or not?

Local custom may make these terms understood in that local context but, as we discussed in a recent ASTM training course, does the use of such non-ASTM terms mitigate Landowner Liability Protections (LLPs)? That’s for others to decide. Our guidance is to stick with ASTM terms and definitions as your baseline.

1 Definition of a REC (ASTM E 1527-05): the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property or into the ground, ground water, or surface water of the property. The term includes hazardous substances or petroleum products even under conditions in compliance with laws. The term is not intended to include de minimis conditions that generally do not present a threat to human health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies. Conditions determined to be de minimis are not recognized environmental conditions.


Blogs by tag

view blog

Connect With Us...