Whether purchasing a property for business operations or as an income-generating asset, commercial investors have a lot riding on the due diligence process. A key step in protecting your investment—and your liability—is ensuring your Environmental Report is handled correctly.
If Your Name Isn’t on the Environmental Report, You’re Not Protected
A Phase I Environmental Site Assessment (ESA) can limit the environmental liability of the party named in the report. In many transactions, the bank orders the Phase I ESA as part of the loan process. However, if the bank contracts directly with the environmental consultant, the report’s protections—including reliance rights and the consultant’s errors and omissions coverage—apply only to the bank.
That means if an environmental oversight occurs, only the bank has contractual recourse. Commercial investors should ensure their name is listed alongside the bank’s in the report. Without that, you may have no legal standing should an issue arise.
Negotiate for the Seller to Cover the Environmental Report
It’s common—and smart—to negotiate for the seller to pay for the Environmental Report. Not only can this save you roughly $2,000 in closing costs, it also ensures that if the deal falls through before closing, you haven’t invested in a report for a property you’ll never own.
The seller has a vested interest in proving the property is clean. If the transaction fails, they can still use the report in future negotiations—though it’s wise not to give them a full copy if the findings are sensitive. An executive summary should suffice.
Alternatives to a Full Phase I ESA
While a Phase I ESA is considered the gold standard for environmental due diligence, it may be more than what’s needed for certain properties—such as those that are vacant, newly constructed, or lightly used.
Two cost-effective alternatives include:
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Record Search with Risk Assessment (RSRA) – Uses the same environmental database as a Phase I ESA but omits the site visit. Costs are roughly half that of a Phase I ESA.
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Environmental Screen (ES) – A rapid, low-cost environmental risk assessment.
In some cases, these options meet the requirements of commercial lenders and can be a practical choice for commercial investors.
Why Work with A3 Environmental Consultants
At A3 Environmental Consultants, we specialize in removing Recognized Environmental Conditions (RECs) discreetly and in compliance with ASTM Standard E1527-21. Our reports are accepted by all lenders and federal agencies, including SBA, HUD, and USDA.
If you’re a commercial investor in need of a thorough and defensible Environmental Report, call us at (888) 405-1742 or email Info@A3E.com.
