Phase I ESAs: Your First Line of Defense Against Environmental Liability

When I tell clients that they could be held responsible for cleaning up contamination they didn’t cause, the reaction is usually disbelief. But under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund, that’s exactly how the law works.

CERCLA imposes strict, joint, and several liability. Translation: if you own a contaminated property, you can be on the hook for the entire cleanup — even if someone else caused the release decades ago. That liability can run into the hundreds of thousands (or millions) of dollars.

Fortunately, CERCLA doesn’t leave landowners completely exposed. There are defenses to liability — but here’s the key point most people miss: you only qualify if you did your environmental due diligence before purchasing the property. And in nearly all cases, that means obtaining a Phase I Environmental Site Assessment (ESA) conducted to ASTM E1527-21 standards and EPA’s All Appropriate Inquiry rule.

Skip that step, and the defenses vanish.

The Three CERCLA Liability Defenses

1. Innocent Landowner Defense

This defense applies if you buy a property not knowing — and with no reason to know — that it’s contaminated. A compliant Phase I ESA is what proves you had “no reason to know.” Without it, courts and regulators assume you should have known.

Misconception: Some buyers think they can claim innocence just because contamination wasn’t obvious or disclosed. Not true. Unless you commissioned a Phase I before purchase, you can’t claim the Innocent Landowner defense.

2. Bona Fide Prospective Purchaser (BFPP) Defense

This one’s a game-changer for developers and investors. It allows you to purchase property with known contamination and still avoid CERCLA liability — provided you:

• Conducted a Phase I ESA before purchase,

• Took “appropriate care” to prevent future releases, and

• Cooperate with any cleanup.

Misconception: Many believe that if they know about contamination, they’re automatically liable. The BFPP defense proves otherwise — but only if you did your due diligence before closing. You can’t skip the Phase I and try to claim BFPP later.

3. Contiguous Property Owner Defense

This applies when contamination has migrated onto your property from a neighbor’s land. To use it, you must show that:

• You didn’t cause or contribute to the release,

• The contamination came from elsewhere, and

• You conducted all appropriate inquiry (again, the Phase I).

  
  

Misconception: Property owners sometimes think they’re automatically protected if the contamination is from next door. Not so. Without a Phase I documenting your due diligence, regulators can argue you failed to act responsibly and saddle you with liability.

The Hard Truth About Timing

Here’s where many buyers go wrong: the Phase I ESA must be completed before you acquire the property. If you close on the deal first and commission a Phase I later, it’s too late — you’ve already lost access to the defenses.

In other words, you don’t get a second chance to establish liability protections. The timing is everything.

Why This Matters for Developers and Lenders

Every real estate transaction has risk. But the liability tied to contamination is unique because it’s retroactive and uncapped.

I’ve seen deals where:

• A developer bought land without a Phase I, only to discover old underground storage tanks — and no Innocent Landowner defense.

• A lender accepted a subpar report that missed a leaking petroleum site — and found themselves indirectly financing cleanup.

These aren’t rare edge cases. They’re the kinds of mistakes that cost clients hundreds of thousands of dollars — mistakes that could have been avoided with a $2,000–$3,000 Phase I ESA.

The Bottom Line

A Phase I ESA isn’t just a box to check. It’s your ticket to legal protection under CERCLA. It opens the door to the Innocent Landowner, Bona Fide Prospective Purchaser, and Contiguous Property Owner defenses — but only if you commission it before you buy the property.

So the next time someone suggests skipping a Phase I to save money or time, remember: what you’re really skipping is your legal safety net.