Do Environmental Consultants Hate The Transaction Screen Assessment?
Transaction Screen Assessments (TSA) are a step between a Records Search with Risk Assessment (RSRA) and a Phase I Environmental Site Assessment (ESA). Did you know that environmental consultants hate doing them for clients? To understand why, you need to know more about the TSA, RSRA and Phase I ESA.
Record Search with Risk Assessment (RSRA)
A Record Search with Risk Assessment (RSRA) report is a faster, less expensive form of environmental due diligence which was developed by the Small Business Administration (SBA) for lending money on commercial properties. Lenders wanted to lower the substantial transaction costs they felt were a barrier to lending. The SBA recognized that there are different levels of risk regarding commercial properties depending on the historic use. For example; a building that was used for retail, built in the last ten years on a plot of land that was formerly a cornfield. In this case, it doesn’t seem to make sense to spend several thousand dollars to have a full Phase I ESA when something far less expensive like a RSRA will do.
A RSRA has the benefits of price and speed over the Phase I ESA. However, with those benefits come limitations. A Phase I ESA offers a limitation of liability from previous owners contamination. A RSRA does not. This distinction is important because the RSRA is also less thorough than a Phase I ESA. The lender or buyer is taking more risk based on a lower level of scrutiny. Even the environmental professional’s responsibility is diminished to only what is knowable based on the information in the databases. Learn everything there is to know about RSRAs by clicking here.
Phase I Environmental Site Assessment (ESA)
A Phase I ESA is a comprehensive review of the environmental risks past, present and future with regard to a commercial property. They are typically done during a change in ownership of commercial property. Buyers, sellers or banks commission them. Ultimately, reasons to perform an environmental site assessment are to protect the value of the collateral for a loan for the buyer and lender. Environmental issues can be very expensive. It is not impossible for a property value to become negative due to environmental impacts from previous owners or neighboring businesses. The bank doesn’t want to lend on a property it might get back in a foreclosure. They really don’t want a property they can’t resell without mitigating the environmental liability.
If a property is purchased without a Phase I ESA, the liability of the environmental impacts are transferred to the new owner. When a bank takes back a property through foreclosure they’ll inherit the environmental liability too. So banks often won’t take possession of their own commercial foreclosures without a Phase I ESA. Learn everything there is to know about Phase I ESAs by clicking here.
Transaction Screen Assessment (TSA)
A Transaction Screen Assessment (TSA) has similarities to the RSRA in they are less expensive than a Phase I ESA. They use the same databases and historical records as the RSRA. Unlike the RSRA they include a site visit by an environmental professional just like a Phase I ESA. Then why, you ask, do environmental professionals hate the Transaction Screen Assessment (TSA)? The TSA does not protect the buyer from environmental liability like the Phase I ESA does but it requires the extra step of a site visit and all the time and labor required to do the site visit. With the labor comes the added expense but none of the liability protections. In our opinion, the buyer should decide if the RSRA is enough. If the answer is no, they should do a Phase I ESA.