SBA 2018 IMPORTANT CHANGES
Overview:
SBA requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture. The type and depth of an Environmental Investigation to be performed varies with the risks of Contamination. This paragraph provides minimum standards. Prudent lending practices and internal bank policy may dictate additional Environmental Investigations or safeguards.
Need Assistance or Advice on Staying Compliant with the new SBA Environmental Rules?
Our environmental experts are here to help.
SBA 2018 CHANGES TO THE RSRA
(Record Search with Risk Assessment)
The SBA’s SOP 50 10 5 (J) went into effect as of January 1, 2018. This is the first time changes have been made to the RSRA. What’s changed?
- The Scope of Work for the RSRA will now require that the documents to be reviewed should identify property uses back to 1940 or the property’s first developed use, whichever is earlier. This will bring the RSRA in unison with the historical requirements for a Phase I ESA report. The Environmental Professional (EP) has the choice to determine what historical resources they review, for example, aerial photographs, USGS maps, city directories, building records, etc., for any particular site.
- The RSRA report must now identify the name of the EP who performed the risk assessment, and must now include all of the database reports, and historical records relied upon in the report.
SBA 2018 CHANGES TO THE PHASE I & II
(Phase One Environmental Site Assessment & Phase II Investigation)
The SBA’s SOP 50 10 5 (J) went into effect as of January 1, 2018. Several changes have been made to the Phase I and II requirements. The most important changes and/or current requirements are as follows:
- All Transaction Screens, Phase I, and Phase II ESA’s must be performed by an Environmental Professional (EP) and be accompanied by the Reliance Letter (A Reliance Letter is required even if the Environmental Investigation Report is addressed to the Lender.).
- The Reliance Letter and/or Indemnification Letter must use the exact language and be unchanged in anyway by the Environmental Professional and/or their respective Companies.
- Lender must begin by making a Good Faith effort to determine the NAICS code(s) for the Property’s current and known prior uses and compare the NAICS code(s) to the list of environmentally sensitive industries. ERS can do a desk top review for a Lender that will take this responsibility and risk out of their hands.
- Environmental Questionnaire Results. If the Environmental questionnaire reveals it is unlikely that there is environmental contamination at the Property and that no further investigation is warranted, Lender must submit the results of the Environmental Investigation to SBA with recommendations and seek SBA’s concurrence.
- If at any time an Environmental Questionnaire reveals that further investigation is warranted, Lender must obtain, at a minimum, a Records Search with Risk Assessment (RSRA).
- If the Records Search with Risk Assessment concludes that the Property is an “elevated risk” or “high risk” for Contamination, Lender must obtain a Phase I ESA.
- In general, SBA will require compliance with all of an Environmental Professional’s recommendations (including “housekeeping measures,” such as secondary containment, decommissioning monitoring wells, sealing floor drains, etc.).
- SBA requires that any Property with on-site dry cleaning facilities, whether currently in operation or operated historically at the site, that did, do or likely used chlorinated and/or petroleum-based solvents undergo a Phase II Environmental Site Assessment in addition to a Phase I which would be required due to the NAICS code match.
- Environmental Professional (and/or Environmental Professional’s firm, where applicable) certifies that he or she or the firm was covered as of the date of the Environmental Investigation (RSRA, Transaction Screen, Phase I ESA, Phase II ESA) by errors and omissions liability insurance with a minimum coverage of $1,000,000 per claim (or occurrence) and that evidence of this insurance is attached to all reports.
What are the most important takeaways from the new regulations?
- If an Environmental Professional (EP) is required to complete most environmental reports (Transaction Screen, Phase I ESA, Phase II ESA), and the RSRA determines if any of these reports should be completed, particularly a Phase I ESA, shouldn’t the RSRA be completed by an EP?
- Environmental errors and omissions liability insurance with a minimum coverage of $1,000,000 per claim (or occurrence) must be provided and that evidence of this insurance must be attached to all reports. This insurance must cover environmental.
- SBA requires that any Property with on-site dry cleaning facilities, whether currently in operation or operated historically at the site, that did, do or likely used chlorinated and/or petroleum-based solvents undergo a Phase II Environmental Site Assessment. This Phase II Environmental Site Assessment should include at a minimum a subsurface soil gas (vapor) survey. Soil sampling alone (point source) does not cover all potential pathways of subsurface contamination. Soil sampling determines if contamination is present at the exact location of the sample extract location.
How can ERS assist you?
- ERS has staff Environmental Professionals, Environmental Insurance, and can review ALL environmental reports to insure that they are done properly and completely. This includes verifying that their respective insurance policies cover Environmental (most errors and omissions liability insurance excludes environmental).
- ERS completes RSRA’s NATIONWIDE for only $259 each. ERS does not default to High Risk, as many companies do. We work with you!
- ERS can recommend LOCAL environmental firms to complete all your Phase I ESA, and Phase II ESA’s.
Below is a link to the SBAs SOP 50 10 5 (J).
Need Assistance or Advice on Staying Compliant with the new SBA Environmental Rules?
Our environmental experts are here to help.