Recently, I wrote about a seller doing their own Environmental Site Assessment (ESA) priort to putting a property up for sale. There were some specific reasons for doing this, including: there was no other prior report, the type of property, and the type of tenants. Now, I’m going to the other side of the seesaw; should the buyer accept the seller’s Environmental Site Assessment? When the seller’s report comes from a reputable consultant that they are familiar with, then perhaps, the buyer can rest a little more easily about relying upon the report. However, the buyer should always be wary of a consultant that might make a report “look good” in order to help the seller out.
Here’s a negative example of what can happen when the ESA comes from the other side of the table:
I was in charge of physical due diligence for a pension fund real estate advisor. An acquisition, in the early 1990s, was close to the final stage when the business people pressed my boss and I to accept the seller’s Phase I ESA for an industrial park and forgo doing one ourselves. The only issue noted in the report was the asbestos-containing tile in the buildings’ office areas. The consultant had talked to a state environmental representative who had said that there were no notices on file for the property. While I was against the idea of accepting the seller’s Phase I ESA because of the property type, the business people prevailed.
Keep in mind, this transaction was in the very early days of Environmental Site Assessments. The ESA industry was in its infancy. The ASTM E50 committee on Environmental Site Assessments and the database company, Environmental Data Resources (EDR), had just been founded in 1990. People didn’t use reliance letters.
Six months after closing, one of our senior partners received a notice from the state’s Environmental Department inviting him to attend a meeting for owners in the area to discuss the regional groundwater contamination. This was a complete surprise and my boss asked that I look into the water contamination concern.
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