Is a Phase I ESA Even Necessary?

Environmental due diligence for real estate transactions can be costly, time consuming, and confusing. One of the primary reasons entities conduct Phase I Environmental Site Assessments (PESAs) is to obtain protection from costly Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) liability.  However, CERCLA contains an exclusion for lenders that hold an indicia of ownership to protect their security interest, as long as they don’t participate in the management of the site.  There are similar exclusions in the NC groundwater rules (15A NCAC 2L) and the Inactive Hazardous Sites Branch Statute (NCGS 130A-310 et seq.). With these protections in place, what if you could get the information you needed cheaper and faster? A more thoughtful approach to your due diligence activities can make this happen for certain sites. Here are a few examples.

  • If you or your client has enough knowledge about the history of the site, could you proceed directly to a Phase II ESA (eliminating the time and expense associated with a PESA) to get the data you need to make decisions?
  • Could a regulatory review of environmental incidents and/or a file review provide enough information on the environmental conditions at the site, eliminating the need for a PESA or Phase II ESA?

PESAs have their place and always will. In fact the majority of sites can benefit from such a study. However, for certain sites a well thought out approach to due diligence could tip the scales in your favor when a client is choosing a lender. Make sure you are working with a firm that is providing a true consultative approach for your due diligence projects.

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