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Business Observer Friday, May 23, 2003 19 years ago

Every Property Scrutinized

Given the litigious climate of the day, every site considered for expansion must undergo rigorous inspections.

Every Property Scrutinized

Given the litigious climate of the day, every site considered for expansion must undergo rigorous inspections.

By Richard G. Steele, P.G.

Contributing Writer

Before 1980, few entities involved with commercial developments paid much attention to environmental concerns when buying or selling their property. Since then, environmental statutes and regulations at the state and federal levels have become so significant that no property escapes environmental scrutiny - by the sellers, buyers, lenders, attorneys and regulators.

A purchase of a commercial property frequently involves questions of compliance with current regulations and potential liabilities. A buyer wants to know if he is purchasing a contaminated site, and lenders want to know if they are lending money to a site that could be a "RECRA" or Superfund site. The possible presence of contaminated soil, groundwater, solid waste, hazardous waste, underground storage tanks or a seemingly endless list of other pitfalls significantly affects the worth of the property.

Therefore, many buyers, lenders and insurers require a Phase I Environmental Site Assessment be conducted at an early stage in most commercial sites, because of the risk of incurring either strict liability or joint and several (individual) liability under the Superfund regulations.

The Superfund legislation allows the U.S. Environmental Protection Agency to clean up a hazardous waste site and undertake emergency response actions with regard to releases or threatened releases of hazardous materials in the environment. Superfund also defines strict joint and several liabilities. These liabilities are broadly imposed, but there are three basic exceptions, or defenses, to the liability that can accompany a contaminated site. First and second are acts of God and War, respectively. The third is an act or omission of a third party, even though the property owner took all appropriate precautions. This defense is also known as the "Innocent Landowner Defense" and is applicable when the owner has used due diligence in the determination of whether the site is contaminated before the purchase of a site.

In most cases, to avoid liability, the buyer must, at the least:

× Inquire into the current and previous ownership and uses of the property.

× Investigate the environmental compliance records of all prior owners, including a review of all available public and/or government records regarding compliance.

× Conduct, either itself or through a qualified environmental consultant, a thorough environmental inspection of the property.

The newest Superfund amendment, known as "SARA," clarifies the scope of lender liability for environmental cleanups. SARA also identifies the level of inquiry required of lenders on a foreclosed property with potential environmental cleanup liability. SARA spells out how a lender can foreclose on a property used as collateral and not incur the liability to conduct an environmental cleanup.

Most lending institutions have recognized and incorporated the American Society of Testing Materials (ASTM) standards into their environmental policies for property transactions. Usually, only environmental professionals who are fully qualified and licensed are hired by lenders to perform Phase I Environmental Site Assessments.

The purpose of a Phase I is to investigate a property by evaluating existing information that discloses a site's environmental condition. The Phase I must be conducted by a qualified environmental professional. There are four important sections:

× Historical review and owner/operator information/interviews

× Visual site visit of the property and nearby properties.

× Environmental database and regulatory review.

× Written report

The report is usually conducted using extensive background review and site visits that contain the following components:

× History of actual site operations.

× Review of available materials (historical and environmental database).

× Site reconnaissance of the property and adjacent properties to assess the presence of sources of on-site and nearby adjacent off-site contamination with the potential to impact the subject property.

The final report should include (at a minimum) the following data:

× Data to support the analysis, opinion and conclusions made in the report.

× A detailed description of all recognized environmental conditions at the property.

× Photographs of the site.

× A detailed statement of the consultant's findings, conclusions and recommendations.

It should also be noted in the report that any conclusions reached in the Phase I cannot reasonably confirm the presence or absence of potential environmental hazards at the site, because the purpose of a Phase I is not to conduct discrete environmental sampling. These investigations are normally conducted in the next stage, known as a Phase II.

The price for most traditional Phase I ESAs ranges from $1,000 to $3,000, depending on site conditions.

Richard Steele is president of Steele Environmental Consulting Inc. in Sarasota and is a certified environmental assessor; (941) 378-3714.

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