The Consultant's Report: Scope, Limitations, and the User's Reliance
A Phase I report prepared for a buyer states in its limitations section that the consultant 'assumes no liability for conditions not discovered' and that the report is 'for the sole use of the client.' The report identifies a REC at an adjacent property but recommends no further action because 'the adjacent property is outside the scope of this assessment.' The buyer's lender, who is also relying on the report, is not named as a user. The buyer later discovers contamination migrating onto the property and sues the consultant.
1. Evaluate the report's treatment of the adjacent-property REC and the 'no further action' recommendation.
Read the worked answer
The treatment is internally inconsistent and professionally deficient.
ASTM E1527 requires the environmental professional to identify RECs and to consider off-site sources that could affect the subject property. An adjacent property that is a REC is, by definition, within the scope of the assessment because it bears on conditions at the subject property. Stating that the adjacent property is 'outside the scope' while simultaneously identifying it as a REC is contradictory.
The 'no further action' recommendation is also improper. When a REC is identified, the standard practice is to recommend further investigation (Phase II) or to explain why the REC does not warrant it. A blanket 'no further action' without analysis of the migration pathway, the contaminants involved, and the distance and geology is not a reasoned conclusion.
The report should have recommended a Phase II focused on the shared boundary, with soil gas and groundwater sampling.
2. What is the significance of the 'sole use of the client' limitation and the lender's reliance?
Read the worked answer
The limitation is a contractual attempt to define who may rely on the report. It does not automatically bar a lender's claim, but it weakens the lender's position because the lender was not a named user and did not have a direct contract with the consultant.
ASTM E1527 contemplates that the user may include the lender, and best practice is to name all intended users in the engagement letter and report. If the lender is a named user, the consultant owes it a duty consistent with the report's purpose. If not, the lender may still pursue claims under theories such as negligent misrepresentation, but the 'sole use' clause gives the consultant a defense.
The practical lesson: the engagement letter should identify the buyer, the lender, and any other relying parties. The report should state the intended users and the limitations clearly. A limitation clause cannot excuse the consultant from identifying a REC it actually found, but it can limit who may sue.