At RSB Environmental, we are often asked to explain what is a Phase 1 environmental site assessment. That’s why we would like to provide you with a crash course on Phase 1 ESAs.
In this guide, we discuss what they are and who needs them. We even outline the benefits of booking a Phase I environmental site assessment through a firm such as ours.
What Is a Phase 1 Environmental Site Assessment Anyway?
Phase 1 environmental site assessments are used during commercial real estate transactions. A Phase 1 ESA will reveal the historical use of a piece of land. Inspectors will assess if previous uses have contaminated groundwater or soil.
These ESAs help ensure compliance with the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Buyers who book a Phase 1 ESA before buying a site can protect themselves from CERCLA penalties.
During a Phase 1 ESA, assessors will look for issues and problem areas. These issues are known as recognized environmental conditions (RECs). Examples include chemical spills and underground storage tanks.
Phase 1 ESAs are a preliminary assessment. They will only identify the presence of RECs. If RECs are found, additional testing will be needed.
Who Needs a Phase 1 ESA?
Phase 1 ESAs should be performed before commercial properties change hands. Buyers are typically tasked with booking a Phase 1 ESA. However, brokers may assist with this process.
Lenders usually require that a Phase 1 ESA be completed. If it is not, then the lender will not release the funds.
Buyers should book a Phase 1 ESA even if they are not financing a purchase. Doing so can reveal the presence of environmental contamination. These reports can help protect buyers from liability. They can also assist with determining a fair purchase price.
Who Can Perform a Phase 1 ESA?
Phase 1 ESAs must be performed by an environmental professional (EP). Standards from ASTM define an environmental professional as someone with:
- Ten years of relevant work experience, or
- A state license and three years of relevant experience, or
- A bachelor’s degree in science/engineering and five years of experience
ASTM has written multiple standards for materials handling and testing. The best Phase 1 ESA firms closely follow all relevant ASTM standards. The most notable standard is ASTM e1527-13.
Phase 1 ESAs that are not performed by an EP provide no protection from liability. Buyers will be liable for environmental contamination on their land. The liability applies even if they just bought the site.
The only way to protect buyers from this is to book a Phase 1 ESA with an EP. Otherwise, the report is useless.
Why Schedule a Site Assessment?
There are many reasons to book a Phase 1 ESA, including the following:
Lenders Require Them
Buyers should book a Phase 1 ESA as soon as possible. Failing to do so can delay the deal. Then, any delay could lead to friction between buyers, sellers, and brokers.
Brokers should remind their clients to book a Phase 1 ESA. Booking will expedite the closing process and reduce the risk of last-minute delays.
If Phase 1 ESAs are not completed, the lender will not provide funding. Lenders want to protect their investments. If the buyer defaults, lenders want to know that the land has enough value to offset their losses.
Allow Buyers to Determine Value of Property
Phase 1 ESAs allow buyers to determine a fair market value of a piece of land. Land that has RECs present may be less valuable because it might require remediation.
Remediation efforts can be quite costly. Major remediation projects may cost tens of thousands of dollars. Phase 1 ESAs help buyers account for these expenses when bidding on a property.
Under CERCLA, the EPA can hold landowners accountable for environmental contamination. If no Phase 1 ESA was completed, this liability falls on the most recent buyer.
A Phase 1 ESA allows buyers to prove that contamination was present before they obtained the property. This proof reduces or eliminates their liability.
What Does a Phase 1 ESA Include?
Phase 1 ESAs have broad scopes of work. The exact scope of each assessment will vary. Some factors that influence scopes of work include:
- If the land is developed.
- What the land was used for.
- How large the land is.
- How long the land has been used.
However, most Phase 1 ESAs include a few standard steps, including:
Phase 1 ESA firms will carefully review all relevant property records. The records they will review include the following:
- Federal databases
- State databases
- Title records
- Aerial photographs
- Fire insurance maps
- Topographic maps
- City directories
- Health Department records
The records review will reveal what the site has been used for. Assessors want to determine whether the property was used to store, produce, or manufacture hazardous materials.
On-Site Visual Inspections
Phase 1 ESAs also include visual inspections. During the on-site inspection, assessors are looking for RECs like:
- Gas pumps
- Steel drums
- Underground storage tanks
- Above-ground storage tanks
- Buried piping
- Chemical vats
These are just a few examples of RECs that assessors search for during on-site inspections.
Undeveloped properties can be inspected very quickly. However, developed properties must be inspected more stringently. This need is especially true if the property has housed multiple types of businesses in its history.
The final component of a Phase 1 ESA is the report. This report will detail the assessment firm’s findings. It will list any RECs that were discovered. The report may also recommend additional due diligence steps.
If the Phase 1 ESA reveals no RECs, the transaction can proceed forward. The Phase 1 ESA report should be retained by the buyer and lender. These documents will offer liability protection against all appropriate inquiries (AAIs).
What Happens If a Phase 1 ESA Reveals Concerns?
If RECs are found, then a Phase 2 environmental site assessment should be scheduled. Phase 2 ESAs are more in-depth than Phase 1 ESAs. During a Phase 2 ESA, assessors will collect soil and groundwater samples. They will test the samples to determine whether any contamination has occurred.
If contamination is discovered, site remediation will be needed. Site remediation removes or reduces contamination. These efforts may involve removing affected soil or purifying groundwater.
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