A Phase I Environmental Site Assessment (ESA) report investigates a property’s current condition and historical use. Its purpose is the assessment of the potential liability of a new owner due to the presence of hazardous materials. It serves in real estate transactions such as land and building purchases, leases, and bank loans for commercial real estate.
The Phase I ESA involves an external examination and a review of past ownership and uses records. The report consists of reviewing historical and public documents, conducting site visits and investigations, and interviewing the present and former property owners and tenants. It also involves the review of federal, state, and municipal regulatory records.
Phase I ESA reports must comply with ASTM International (ASTM) Standard E-1527-13. The ASTM standard complies with the Environmental Protection Agency All Appropriate Inquiries Rule, codified into the federal regulations by the EPA (40 CFR Part 312).
The Phase I ESA is part of the new landowner’s due diligence. The report is critical in building the so-called bona fide prospective purchaser and/or innocent landowner defenses. It is crucial that the Phase I ESA complies with the ASTM 1527-13 standard to assert the bona fide prospective purchaser or innocent landowner defenses. Even if one item is missed, a new owner can end up liable for all the historic contamination at a property.
If the Phase I ESA report shows no risks, it frees a new owner from any contamination liability under federal environmental cleanup regulations. An innocent landowner or bona fide prospective purchaser is protected from the federal government pursue them to clean up the property if historical contamination is later discovered.
No matter how comprehensive the environmental regulation is, there are still some common misunderstandings surrounding the ESA Phase I report.
1. Contrary to common perception, the Phase I ESA is not an all-inclusive site assessment. It involves only a visual examination and review of available site records and site history. In the case that a Phase I ESA identifies potential contamination or a recognized environmental condition, environmental experts perform a Phase II ESA, in which they collect soil and groundwater samples, examining different pollutants. That offers a better understanding of the soil’s condition.
2. Furthermore, there is a widely spread wrong belief that Phase I ESA comprise the examination of every contaminant. In truth, it does not deal with certain hazardous materials like asbestos, lead-based paint and mold.
3. In the past, any amount of contamination was considered a barrier. After 2013, it is possible to clear property with a so-called recognized environmental condition.The new regulation allows owners unrestricted use when the contamination is under control. Therefore, a certain amount of contamination is not an obstacle anymore.
4. On the other hand, getting a positive Phase I ESA report does not automatically free the owner from environmental liability. The new owner must nevertheless search for property use restrictions or other evidence of environmental contamination.
5. Performing a Phase I ESA requires special expert knowledge. Only environmental professionals meeting the federal education and experience requirements can conduct environmental due diligence. That is in stark contrast to the common misconception that every building inspector can conduct a site assessment.
Hanis Consulting, Inc. is an experienced environmental consulting firm. Our professionals meet or exceed the federal education and experience requirements. We also possess in-depth knowledge of state and local environmental requirements. With decades of experience, we have earned a reputation as due diligence expert.
If you care about potential environmental liability and wish to get a clear picture of the property you intend to purchase, reach out to us today to schedule your appointment.