Is it Required to use the Bank’s Phase 1 Environmental Consultant?
No, commercial loan applicants (Borrowers) are NOT required to use the Bank’s Phase 1 Environmental company. In fact, all loan applicants can use their own Phase 1 Environmental Site Assessment Company, as well as for a Phase 2 ESA (if needed), which offers the benefits of lower prices, higher trust, and favorable Client-Consultant privileges.
It’s a Free Country! Loan Applicants (Borrowers) Can Use Any Environmental Site Assessment Company They’d Like
When a financial institution requires a Phase 1 Environmental Site Assessment for a real estate transaction, chances are the Bank will present its own “preferred environmental vendor.” Some may even allude to there being a requirement to hire their affiliated firms, which report in favor of them, above all else. But this isn’t true! The borrower can hire any firm they want, for the price and relationship that benefits them.
Borrower Pays for the Report, but the Bank’s Consultant Prioritizes the Bank Ahead of the Borrower
Typically, commercial lenders require an environmental due diligence report to clear the environmental risks and liabilities before approving a loan. In doing so, they’d usually present a third-party consultant to the Borrower, mentioning its status on the “Bank’s approved list of consultants.” In fact, there may be dozens of other environmental consultants that the Bank has previously worked with and have qualified as vendors. Nonetheless, the Borrower pays for this service at a premium price, and the consultant honors its pre-established relationship with the Lender and prioritizes the Bank before anyone else.
But, it’s important to clarify that the Bank’s “recommended vendor or consultant” is not the only option. It’s just one of many companies that are legally allowed to perform this work for the Borrower.
The Borrower Must Know They Can Decide Which Company to Hire
So, does one have to work with the bank’s recommended due diligence consultant, or even a company that is already “approved” by the bank? The answer is simply, no. The Borrower is ultimately in control of the company to perform environmental assessments on a property. When a Phase 1 ESA is required, the Borrower should select any company that they feel comfortable with.
The Same Rule Applies to Phase 2 Environmental Site Assessments (If Needed)
Not all properties undergoing a Phase 1 Environmental Site Assessment will be subject to a Phase 2 Environmental Test. In many cases, a Phase 1 ESA that finds no environmental liabilities will recommend “no further action.” A Phase 2 ESA is never a requirement. But it may become a recommendation on the Phase 1 ESA, if a documented source of contamination is discovered during the research process. If a Phase 2 Report is recommended, and the Borrower chooses to move forward, it is important to know that the same rules apply. Borrowers are not required to use the Bank’s Phase 2 Environmental company.
Borrowers can Hire Any Firm They Want for a Price and a Relationship that Benefits Them
The liability assumed by purchasing a property with a possibility of environmental contamination would be largely the buyer’s burden to bear. Thus, it is crucial the Borrower selects a company with their interests as a priority, over any other party or entity.
In addition to better pricing and communication, Borrowers who order Phase 1 and Phase 2 Environmental reports directly from their own, independently-selected, company can trust that there will be honest and accurate results on the true potential environmental risks associated with a property.
Qualifications of an Environmental Site Assessment Company
When searching for a company, one must know that there are mandatory qualifications and criteria for an environmental engineering company to legally perform this work. All work must be in accordance with State and Federal standards, and the licensed professionals must be qualified to perform environmental engineering and geology investigations.
Must be Licensed, Insured, Bonded & Reputable
It is absolutely necessary that the consultant meets the industry standard definition of Environmental Professional as defined in §312.10 of 40 CFR Part 312]. This will ensure that the consultant has the specific qualifications based on education, training, and experience to assess the nature, history, and setting of the target property. Beyond that, the bank will probably have a few other requirements that must be met in order for a company to be listed as an approved vendor. These additional requirements may include things like general liability insurance and a business license, bonds, and proven experience in the industry.
Lenders Accept Proper Reports From Qualified Companies
Sometimes, the Borrower’s independantly-selected company will already have performed work for the Bank, and has already been qualified as an approved vendor from past projects. For example, Geo Forward is a qualified vendor and a trusted environmental consultant for most lending organizations across the nation. Nonetheless, a qualified company can easily submit the necessary documents to the bank for lender authorization. And at that point, the bank will concur with the results of the assessment.
Conclusion
It is important to remember that just because the Bank requires a Phase 1 ESA, it doesn’t mean that they get to choose the consultant. Borrowers, Buyers, and Property Owners should always feel empowered to hire the environmental consultant of their choosing for better pricing, higher trust, and a favorable Client-Consultant relationship.
Written by: Michael J. Sabo & Adam A. Kaligi
