Here at Hanis Consulting we get asked a lot, what is a Phase I ESA is and why is it needed? A Phase I ESA must cover specific criteria to be “All Appropriate Inquiry,” (or AAI) compliant. If there are any deficiencies with the Phase I ESA, the User, (or individual having the Phase I ESA performed) may not be protected. This article covers what a Phase I ESA is and breaks down its key parts required to be AAI compliant. Please feel free to go to our first post titled “What is Environmental Due Diligence” to better understand environmental due diligence and why it is needed whether you are a buyer or seller. We also have specific posts available with more detailed information whether you are the buyer or seller.
A Phase I ESA is a real estate assessment typically performed on commercial, industrial, or multi-residential properties by an environmental professional to evaluate the potential for environmental risks or contamination at the property. The assessment reviews government databases, historical information, and involves key site personnel interviews and a visual inspection of the current condition of the property and any onsite buildings and structures if present. The environmental professional will utilize resources to better understand past and current uses at a property to assess the likely risk to human health or the environment from potential environmental conditions originating from past or current onsite uses or from neighboring properties.
If an individual or party is seeking liability protections under the “Comprehensive Environmental Response, Compensation, and Liability Act,” or CERCLA, as an innocent landowner, contiguous property owner, or bona fide prospective purchaser, they must comply with the AAI rule which can be satisfied through appropriate performance of a Phase I ESA. As a buyer, you can be protected under CERCLA through performing an AAI compliant Phase I ESA.
The last thing anyone would want is to purchase a property without the proper environmental due diligence just to find out that they are now liable for millions of dollars due to contamination at the property and surrounding real estate resulting from prior operations at the property. As a seller, performing a Phase I ESA prior to listing the property adds value to marketing your property. It allows you to identify and potentially correct any issues found. Also, it takes unknowns out of the deal, before a buyer even makes an offer, putting you in a stronger negotiating position. Lastly, it can shorten the due diligence period of the transaction allowing you to close faster.