Environment Due Diligence: Part Two

You have a Phase I ESA report and it indicates possible contamination. What's next?

It depends on the situation. Is the intended use of the subject property residential or commercial where "sensitive receptors" may be present (e.g., children, elderly or infirm) or commercial or industrial? Are you the buyer or seller? There are differences in clean-up regulations and site "closure" standards for different types and uses of sites. For instance, the standards for a pre-school playground are more stringent than a paved-over industrial site. Working with a qualified and experienced consultant can answer these questions and help solve the problems for you.

Another answer to "What's next?" depends on the type and degree of the environmental impact on the property, the value and amount of equity one has in it and the intended use for the property by the targeted buyer. In most states, the buyer and seller can come to an agreement and the buyer can purchase an "impacted" property. In other states, the property transfer is "locked" until the clean-up is complete.

Also, the findings in an assessment report will provide information allowing lending institutions to continue the loan approval process, require additional information or even, in rare cases, pass on the loan.

What are my options if I get a Phase I ESA that indicates that there are "environmental conditions"?

It is important to understand that, depending on historical and current local land use, environmental site assessments typically are not "deal killers". If assessment findings indicate regulatory deficiencies or environmental conditions, often some type of routine or straightforward corrective action is all that is necessary. The discussion below addresses more serious findings of environmental conditions.

If you are a potential buyer, there are several options if you receive a "negative" assessment, including:

• Walk away. This option is open to anyone who has not entered into an unconditional contractual obligation to buy. To keep this option open, you must make any offer conditional upon receipt of an ESA report with no adverse findings.
• Have a Phase II ESA performed. This option offers the buyer much more leverage. Once can confidently make an offer factoring in the cost of site remediation.
• Buy the property. If you are satisfied with the ESA report provided by the seller and convinced that the property is worth the asking price (including the environmental issues reported), you can go with this option. Extreme caution should be exercised in this case. Consultation with environmental professionals is strongly advised before any action is taken.


If you are a potential seller, you must deal with a negative assessment with several options, including:

• Do nothing. Although Federal and state laws require you to disclose known environmental problems with your site to prospective buyers, you may decide not to offer the property for sale in its present condition. However, you may be contacted by a buyer willing to purchase the site "as is". Do not proceed without the advice of counsel, as you may be legally required to take further action. The other side of the "do nothing" option simply is to do nothing at all. This may inevitably lead to escalating costs and serious future problems. This option is the primary reason for the existence of "brownfields"; defined by the U.S. EPA as "abandoned, idled or under-used industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination."
• Have a full Phase II ESA performed. Depending on the extent of the indicated liability, it may be prudent to go forward with a full Phase II investigation. With the results of the Phase II in hand, you can make a more confident estimate of the net value of the property.
• Have both a full Phase II ESA and Phase III Investigation and Remediation performed. Depending on the value of the property in contaminated condition versus its remediated value, this option may make sound business sense.
• In some states, there are options to avoid liability exposure for contamination which are generally based on the Phase I/II approach outlined herein.

Mr. VerSluis is a 20-year veteran of the environmental industry, and is a Registered Environmental Property Assessor (REPA), a Certified Environmental Strategist (eS), an NSF Certified On-Site Wastewater System Inspector, a NEHA Certified On-Site Wastewater System Installer, and is the Vice President of the Michigan On-Site Wastewater Recyclers Association. Mr. VerSluis is a frequent speaker and advisor on behalf of MHPS.com & RVPS.com clients, specializing in MH & RV communities nationwide.