A Phase I Environmental Site Assessment (ESA) is an investigative tool used in identifying potential environmental liabilities at a property. For the buyer and/or lender of a property, a Phase I ESA is the core product for environmental due diligence. Phase I ESAs are prepared for real estate and business transactions. They assure there is no soil or groundwater contamination present, whether from previous use or nearby sites, that may impact the property value – something you don’t want to learn about after you buy the property.
Generally, a Phase I ESA involves a review of records, a site inspection, and interviews with owners, occupants, neighbors and local government officials. Environmental samples are not normally collected for a Phase I ESA. Nabholz personnel have prepared hundreds of Phase I ESAs over a wide range of properties and client types. Our Phase I ESAs are conducted by an experienced staff trained in various scientific disciplines. Our team members meet the requirements and qualifications of an Environmental Professional. We aim to understand each client’s risk tolerance while ensuring environmental risks have been properly identified and considered. It is our goal to protect our clients’ economic interests by simplifying the decision-making process during the due diligence period.
When is a Phase I Environmental Site Assessment needed?
Almost every commercial real estate transaction requires a Phase I ESA. Phase I ESAs are usually required for land purchases, building purchases, business purchases, new residential developments, and bank loans. If you are buying a property near a commercial area, industrial area, or environmentally sensitive business (like a service station or dry cleaners), you should definitely perform a Phase I ESA prior to taking title.
Why do I need a Phase I Environmental Site Assessment?
One of the biggest risks in purchasing a commercial property can be the potential for costly environmental liabilities. Below are four reasons having a Phase I ESA should be a priority when buying commercial real estate.
- Federal Liability Protections – An appropriately conducted Phase I ESA can protect a prospective purchaser from federal liabilities that could turn out to be financially disastrous.
- Business Risks – Localized contamination issues may easily be identified through a well-executed Phase I ESA. Properties with contaminated soil and groundwater, when brought to the attention of a regulatory agency, could require costly remediation activities.
- Lender Requirements – A contaminated property is hard to sell. The lender wants to know that if the borrower was to default on a commercial real estate loan, they will not potentially be foreclosing on a contaminated property.
- Monetize Environmental Impairments – If a property is contaminated, there is always a solution. A property can be remediated under regulatory oversight and easily transacted once a “closure letter” is obtained. However, other options exist. A Phase II ESA can be conducted to determine the extent of contamination. Then, the cost for remediation can be established and an appropriate discount can be applied to the purchase price or set aside in an escrow account. You are in a much better position if the contamination is discovered when you are the prospective purchaser, not the owner/seller.
What are the elements of a Phase I Environmental Site Assessment?
Our Phase I ESA reports are developed in accordance with the American Society for Testing and Materials (ASTM) Standard E1527-13. The ASTM standard adheres to the Environmental Protection Agency All Appropriate Inquiries (AAI) Rule, which is a statutory requirement to obtain Landowner Liability Protections (LLPs) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).