Often the first step in the environmental due diligence process, a Phase I Environmental Site Assessment, or ESA, is a report completed in commercial real estate transactions. The purpose of an ESA is to identify any potential or existing threats of environmental conditions, such as soil contamination from a release of hazardous substances or petroleum products. If any issues are discovered, the environmental burdens carry a potentially exorbitant pricetag and often the owner is held liable simply because he or she owns the property.
The sole purpose of a Phase 1 ESA is to determine whether there is the presence or likely presence of contamination, so physical samples are not typically collected. Phase 1 ESAs are performed according to the American Society for Testing and Materials (ASTM) E1527-13 and generally include the following:
Although not required by law, a Phase 1 ESA prior to purchasing a property protects you against the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). CERCLA can require the removal of hazardous substances at the owner’s expense even if he or she is not responsible for the contamination. Most, if not all, lenders will also require that a Phase I ESA be completed before providing financing.
The costs involved with a Phase I ESA can vary considerably. It’s important to keep in mind that a properly conducted Phase I ESA can be the catalyst to avoiding thousands or even hundreds of thousands of dollars in liabilities. Hiring an expert environmental consultant to conduct a proper and thorough Phase I ESA is critical.
A Phase I ESA can take anywhere from one week to one month, and sometimes longer, depending on several factors such as the complexity of research and location of the property.
The ASTM dictates that a Phase I ESA is valid for six months. Assessments completed between six months and one-year prior need a comprehensive update and those conducted over a year ago are not valid.
Environmental due diligence is the formal process in which commercial real estate is assessed for possible risk of environmental contamination. It is designed to protect innocent landowners and prospective buyers from potentially devastating environmental liabilities. The Environmental Protection Agency (EPA) mandates the standards for conducting environmental due diligence.