Environmental property inspections started with Superfund. The first standardized Phase I Environmental Site Assessment (ESA) was published by the American Society for Testing and Materials (ASTM) in 1993 as ASTM E1527-93. While informal environmental audits emerged in the 1980s following the 1980 CERCLA/Superfund legislation, the industry-standardized practice was formally developed to meet "all appropriate inquiries" requirements desired by lenders.
In theory, commercial properties bought and sold since the 1990’s would have had a Phase I or Phase II completed. Since Phase I has a shelf life of 180 days or 6 months, many properties would have had a few environmental inspections under their belt. Following this logic, as long as the operation of the property did not have an environmental impact to the property, subsequent inspections should not encounter issues.
Unfortunately, what I wrote is wishful thinking; environmental evaluations have gotten better over the years, and it is fairly common to find that older reports missed things. 1030 exchanges often circumvented environmental due diligence and old school purchases (read we did no environmental) side-stepped a Phase II ESA and therefore missed any Phase II testing. Curren Environmental is coming across an endless stream of properties that have never had environmental inspections performed, due to negligence. These sellers are taken back by buyers who want environmental inspection and associated testing. The rub is in today’s environment, lenders and buyers require environmental inspections, and anything that is found is the responsibility of the seller, even if historic contamination is found that was caused by a long-gone owner/operator of the site.
Environmental regulations are unfair and place environmental cleanup on the owner of the property, not the one who caused the contamination. Of the sites we come across with contamination, the owners who step up and address their obligation, however unfair, get their properties sold faster. The owners who bury their head in the sand, drag out transactions, and buyers walk away.
Bottom line, if the property you are selling doesn’t have a recent Phase I or has never had recommended Phase II testing, you would be best served to get ahead of things and complete an environmental evaluation. The huge advantage of this approach is that you will sell the property faster. You can also price the property sale, taking into account the money you spent on environmental evaluation and cleanup. You can’t do that after a property goes under contract.
If you have real estate-related environmental questions, Curren can provide answers and guidance.
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