Recommendations in Phase I ESAs

Most clients, these days, ask consultants to include recommendations in Phase I Environmental Site Assessments (ESAs), but did you know that there are no standards for the development of these recommendations? The standard which governs most ESAs, ASTM E 1527, suggests (not requires) that the consultant provide an opinion regarding additional appropriate actions to detect the presence of hazardous substances and petroleum products, and specifies that this opinion should only be provided in unusual situations in which greater certainty concerning recognized environmental conditions is desired.

Though this opinion might be construed as a recommendation, it is generally agreed that ASTM 1527 does not require the consultant to provide recommendations. In the absence of guidance, given identical findings, recommendations from different consultants can vary significantly. In fact, given the same fact set, consultants may recommend different actions to different clients, depending on the risk tolerance and objectives of the client. The needs of a client planning redevelopment of a property are significantly different from those of an existing property owner seeking to refinance, or from those of a lender considering a new loan, refinance of a loan already on their books, or even foreclosure.

Since there is no standard for developing recommendations, this variation is not surprising. What is surprising is an assumption among many ESA users that the consultant’s recommendations will be appropriate in all situations, or that the consultant will, somehow, understand their particular objectives and risk tolerance without benefit of discussion. This is particularly true in CMBS transactions in which ESAs may be relied upon by lenders, ratings agencies, and advisors as well as investors and b-piece buyers.

The establishment of a framework for the evaluation of Phase I findings, user-driven assessment of objectives and risk tolerance, development of appropriate recommendations, and documentation of evaluation criteria is an important step in creating transparency in the ESA process. Please let me know if you would like to participate in developing a framework to improve transparency in the ESA assessmnt and reporting process.

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