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Pros and Cons of Environmental Transaction Screens

Pros and Cons of Environmental Transaction Screens

What is an Environmental Transaction Screen?

An environmental transaction screen (ETS) is a limited due diligence method that identifies potential environmental concerns (PECs) for low-risk commercial real estate.

Commercial property purchasers often use an ETS as an alternative to Phase I Environmental Assessment (ESA) because of its simplicity, time, and cost-effectiveness. It involves a site visit, available historical data review, and an environmental questionnaire for the owner. As a limited assessment method, an ETS is only suitable for commercial real estate with enough historical information.

An ETS determines historical use back to 1940, relying on aerial photographs, Sanborn maps, or city directories.

Who Can Perform an Environmental Transaction Screen?

Unlike Phase I ESA, which can be conducted only by an environmental professional, the owner or a potential purchaser can perform an ETS.

However, performing an environmental transaction screen by the user is not subjected to relevant standards defined by 40 CFR 312.10(b) (Standards for Conducting All Appropriate Inquiries or AAI). In addition, owners or potential owners who conduct an ETS do not enjoy the benefits such as Landowner Liability Protections (LLPs) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The owner is safe against liability only after completing AAI, including a Phase I ESA.

The Difference between an Environmental Transaction Screen and Phase I ESA

The environmental transaction screen and Phase I ESA help potential purchasers determine whether their investment in commercial property makes sense. However, these two environmental due diligence methods differ in scope, objective, and purpose.

  • Scope of investigation. In contrast to the limited range of the environmental transaction screen, Phase I ESA is a comprehensive method involving a thorough approach. It includes an in-depth analysis of past and current use of the land. The investigation comprises interviews with current and former owners, a detailed review of historical documents, site visits, and relevant regulation analysis.
  • Type of property. Another difference between the two methods is related to the property condition. While users perform an ETS for low-risk commercial property with available historical information, the Phase I ESA is conducted at real estate with an existing contamination potential (with or without sufficient historical data).
  • Purpose. Unlike Phase I ESA, an ETS is future-oriented. Instead of focusing on the past use and the potential liability of current and past owners, an ETS estimates future financial viability. The analysis comprises the projection of market trends, economic conditions, and future financial performance of commercial real estate, helping the purchaser assess the risk level associated with investing in a specific property.
Environmental Transaction Screen

What Are the Advantages of Environmental Transaction Screen?

  • Time effectiveness. An environmental transaction screen is a quick and effective way to assess potential hazards before purchasing commercial real estate. It does not involve an in-depth historical analysis, which makes it a convenient due diligence method helping the transaction process run faster and smoother.
  • Lower costs. Because it does not require the participation of third-party environmental professionals, the ETS results in lower costs, improving the overall transaction efficiency.
  • Business-friendly. Commercial transactions require fast and efficient due diligence. Waiting for comprehensive Phase I ESA reports can complicate matters, compromising the deal. That is why environmental transaction screens proved an effective way of assessing the property’s condition and financial viability without going into deep and time-consuming analysis.

The Downsides of Environmental Transaction Screen

  • Limited scope. Although time-effective, an ETS does not result in a full environmental assessment because of its limited reach. The analysis does not involve interviews, extensive regulation analysis, and in-depth historical investigation. Its extent is limited to available historical data and narrow-scope questionnaires.
  • Partial results. Due to a limited extent, the environmental transaction screen does not provide sufficient information for an informed decision. Potential purchasers relying solely on this method must be aware that the ETS report does not answer all the questions related to potential environmental and health risks associated with the property they intend to buy.

What Does the ETS Report Contain?

Environmental transaction screen report offers information about potential health and environmental hazards in commercial real estate. The document includes a description of groundwater or soil contamination and hazardous materials at the site. It also provides a brief analysis of the relevant zoning regulation. However, an ETS report is not a comprehensive document offering in-depth environmental analysis and liability details. ETS reports do not fall under the CERCLA (The Comprehensive Environmental Response, Compensation, and Liability Act) standards. Therefore, potential investors should be aware of ETS’s limited scope when purchasing commercial property. Getting a complete picture (including landlord liability estimation) requires performing Phase I ESA.

Choose Comprehensive Environmental Due Diligence

Choose Comprehensive Environmental Due Diligence

Hanis Consulting is an Illinois-based environmental consulting company specializing in environmental due diligence, site investigation, remediation, litigation support, and fractional management.

We know that compliance with environmental regulations and ensuring a risk-free environment is one of your top priorities when purchasing commercial real estate.

To help you perform comprehensive due diligence, we offer both environmental transaction screens and Phase I environmental site assessment. The choice between the two depends on property conditions, your preferences, and transaction dynamics. Whether you choose a quick ETS assessment or an in-depth Phase I ESA, we have your back.

We are available for clients in Chicago and Milwaukee areas. Reach out today to schedule your appointment.