KEY CONCLUSION: While an ETS does not provide protection under the innocent landowner defense it may still be appropriate for certain types of properties.
In practice, banks and other financiers of property should realize the innocent landowner defense is designed to protect a landowner from catastrophic financial loss. Because an important goal would be to avoid even having to defend, the ESA project can be considered insurance against this loss. The decision to perform an ETS must be considered an initial process to decide whether to buy the comprehensive policy. The lending institution must be able to depend on a good environmental consultant to help evaluate a specific property for environmental risk whether an ETS or complete ESA.
The Environmental Transaction Screen (ETS), referred to by SBA as a Transaction Screening Analysis (TSA) should be performed under the new standard ASTM 1528-06. The standard specifically states that this project does not provide protection under the CERCLA “innocent landowner defense”. That is because qualifying for the innocent landowner defense requires All Appropriate Inquiry (AAI). This condition is met by performing the scope of work outlined in the new standard for Environmental Site Assessment (ESA) projects (ASTM 1527-05). The use of the ETS will be guided by 1) the type of Property; 2) the expertise and risk tolerance of the user and perhaps most importantly, 3) the information developed in the course of the inquiry.
The innocent landowner defense appears to be subject to interpretation on a case-by-case-basis in the judicial system. The courts have generally ruled that an owner of a contaminated site becomes a potentially responsible party (PRP) simply because they are the owner. Generally the courts have upheld the innocent landowner defense if 1) a prior party was the sole cause of the contamination; 2) the previous owner is a liable party; 3) the new owner did not know about the contamination and undertook appropriate inquiry at the time of purchase and 4) the owner took due care once the contamination was discovered.