My bank says I need a Phase I Environmental Site Assessment.
This is the most common thing we hear from people. Whether it’s a bank, lending institution, legal counsel, or someone else who’s driving the bus while you’re in a purchase or refinancing process, we hear this often.
Usually, it is required with no other reason or purpose given. So when one says a bank required it, do I need it, what they’re really mean is “I do not know what it is and I have no idea what it means to me. I really don’t care about it, I just need to check this item off the list of required documents”.
If this is the case, you will need a Phase I to continue with whatever it is you’re in the middle of. The entity requesting that you get one probably won’t proceed without a Phase I Report regardless of what you do.
The reasons you need a Phase I ESA.
Notwithstanding what you may believe, the entity saying you need a Phase I isn’t saying so just to trick you out of money. If it’s a bank and they’re providing a loan or refinancing, they’re shielding their investment. If it’s legal counsel, they are ensuring you avoid possible liability.
Here is some history to understand what a Phase I ESA really is used for.
In 1980, the Federal CERCLA regulations were passed by Congress and signed into law. CERCLA stands for Comprehensive Environmental Cleanup and Liability Act (note the word liability there). This Act, commonly known as the Superfund act, was created in the wake of Love Canal, one of the most famous cases in the United State’s environmental history. Love Canal was in northern New York. A huge number of drums were buried with industrial by-products. The drums leaked into the ground causing plenty of health and environmental issues to the surrounding community.
It was a man-made disaster. Someone had to clean it all up. Someone was on the hook for the costs of cleanup, remediation, etc. It was a mess with fingers pointing at various entities that were in some way responsible.
So, CERCLA is a law that deals with the cleanup of contaminated sites. It also requires that when possible, responsible parties pay the cleanup costs. In short, the polluter pays. Especially since the cost of cleaning up hazardous materials and remediation to the local environment (could be groundwater contamination, soil contamination, etc.) can be remarkably high, it’s important that the right party pays for the mayhem.
So inherent in CERCLA is the concept of “liability”. Whoever made the mess, is the entity to pay to clean it up. This may involve reimbursing the government for the costs of the cleanup.
The concept of CERCLA liability also stretched past just who made the pollution but also to those who might have retroactive liability. For example, the entity that owns the land after the contamination occurs, or the entity that had (or has) the greatest ability to pay the cleanup costs. No matter how you look at it, there is a lot of liability to go around.
Is the property found to be contaminated? Then someone will pay for it, and it might just be you regardless of whether you caused it or not.
Enter SARA, or the Superfund Amendments and Reauthorization Act. Introduced in 1986, it clarified the concept of the acquisition of a contaminated property without knowledge that it was contaminated. The act required that “the defendant must have undertaken, at the time of the acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial and customary practice.” Take note of the use of the phrase “all appropriate inquiry” since we’ll hear that again soon.