Environmental Due Diligence & Risk Management

The voltility in current commercial real estate lending has led us to see an increase the in the requests for "reliance letters" on Phase 1 Environmental Site Assessments (ESA).  So what is a reliance letter? 
 

Although whomever commissions the Phase 1 Site Assessment should also carefully consider any limitations a consultant may impose on who may use or rely on the report and explicitly provide for reliance by investors, lenders or others, this doesn't always happen. This is usually discussed in the ASTM All Appropriate Inquiry (AAI) Phase I report itself or if the  report has been prepared before the entities who may rely on it are fully known (or the user decides to change lending institutions), it can be identified through a “reliance letter” signed by the  consultant and consenting to reliance by third parties to whom the report was not originally directed.

However, "users" of Phase I reports need to be aware that if the AAI report is more than 180-days old, or will be more than 180-days old at the time of closing, an update to the ESA will likely be required. In this case, the user may want to discuss with their consultant as to whether it is more cost effective to update the report or to prepare a new Phase 1 Environmental Site Assessment report altogether.