When preparing to purchase a property, potential buyers and lending institutions attempt to evaluate the potential environmental risks associated with the property. The mechanisms most often used are the Transaction Screen and Phase I Environmental Site Assessment (ESA). The Transaction Screen process is an alternative to the Phase I ESA for low risk environmental due diligence, where there is no perceived need for the protections provided by the All Appropriate Inquiries (AAI) requirements as outlined within the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for commercial real estate. Satisfaction of the AAI requirements allows the new property owner to take advantage of the innocent landowner defense outlined within the CERCLA. Transaction Screens are often chosen in lieu of a full Phase I ESA since they can be completed much quicker and at a much lower cost, but the specific differences between a Transaction screen and a Phase I ESA must be understood by the end users. Point to Point environmental can be your resource for understanding these differences, and our experienced Environmental Professionals can complete both Transaction Screening and Phase I ESAs for your property.
A Transaction Screen only involves the review of a very limited amount of historical resources, and does not make a determination if recognized environmental conditions (RECs) exist at the site as is key within a Phase I ESA. Conversely, a Phase I ESA aims to review all reasonably ascertainable historical records for a subject property and is specifically designed to seek out RECs. A Transaction Screen is meant to identify a “potential environmental concern” only, as opposed to “recognized environmental conditions.” These are the main reasons why the Transaction Screening does not satisfy the AAI requirements. During a Transaction Screen, the lack of historical data available for a subject property is considered to be a potential environmental concern, but not a recognized environmental concern. The Transaction Screen process may be completed by the lender, end user or current property owner, but a Phase I ESA must be conducted by an environmental professional. A Transaction Screen is much less comprehensive than a Phase I ESA, but may still be an appropriate level of inquiry in some circumstances. The result of a Transaction Screen and a Phase I ESA should be similar in scope: a conclusion must be made that either no additional inquiry into potential environmental conditions are needed, or further inquiry is required to assess the potential for recognized environmental conditions in an appropriate and thorough manner. If a Transaction Screen process results in determination that additional investigation is required, the assessment process should proceed to a more comprehensive Phase I ESA. However, if a Phase I ESA determines that additional investigation should be completed, a Phase II ESA is recommended.
The Transaction Screen begins with completion of the Transaction Screen questionnaires and conducting limited research using a single historical or governmental record sources. The questionnaire is accompanied by a guide to assist the person with proper completion of the questionnaire. The questions pertain to generally available knowledge available to property owners, tenants, and lenders who have a working knowledge of the property and its historical uses.
An example question from the Transaction Screening process is “Did you observe evidence or do you have any prior knowledge that any adjoining property has been used as a gasoline station, motor repair facility, commercial printing facility, dry cleaners, photo developing laboratory, junk yard or land fill, or as a waste treatment, storage, disposal, processing or recycling facility?” . Another example question is “Do you have prior knowledge that the well has been designated as contaminated by any government environmental/health agency?” As exemplified by these questions, an answer of yes would trigger additional investigation into the property.
Though Phase I ESAs have become standard practices for most every commercial property loan in recent years, the use of Transaction Screens has become more prevalent as purchasers of property are looking for quicker, more cost effective alternatives to Phase I ESAs. Lending institutions and their legal representation are also reassured that they maintain limited liability for potential environmental concerns per the Secured Creditor Exemption in CERCLA. However, in all cases, the future marketability of a property can be directly affected by the level of due diligence completed today. If you would like to discuss these options for limitations of liability protection or solicit the assistance of experienced Environmental Professionals for your Transaction Screening, please contact Point to Point Environmental for assistance at 678-565-4435.