Sometimes you may need to know if there are hazardous substances or petroleum products that may have adversely impacted a site. Often this information is useful when a property is being refinanced or purchased by a new buyer. In this instance, a Phase I Environmental Site Assessment (ESA) is conducted. The Phase I evaluation determines if there are Recognized Environmental Conditions (RECs) associated with the subject property. The Phase I scope includes a site walk, interviews, and review of historical information. The Phase I Environmental Site Assessment is mainly a desktop investigation.
What is a Phase I? A Phase I Environmental Site Assessment (ESA) is a desktop evaluation of a site utilized in an effort to protect a buyer, lendor, or trustee prior to a commercial property transaction. Performance of a Phase I provides “all appropriate inquiry (AAI) into the previous ownership and uses of the property consistent with good commercial and customary practice.” In order for a Phase I to meet the Innocent Landowner Defense (ILD), the Phase I should be performed in accordance with the applicable American Society of Testing and Materials (ASTM) or Environmental Protection Agency (EPA) standards as they apply to the site. During Phase I activities, environmental samples are not collected from the air, sediments, soil or groundwater. See article on Assessment Phase II ESAs or Site Assessment for additional information on soil and groundwater sampling.
Why must I pay for a Phase I? The Phase I inquiry must be conducted, or supervised, by an Environmental Professional as defined by ASTM or EPA AAI. Without a Phase I, commercial lenders will not typically loan funds for a property transaction. In both a commercial and a cash transaction, the Phase I can offer Landowner Liability Protection (LLP) to the buyer, lendor or trustee and protect them from financial obligations should contamination be discovered on the site or on a neighboring site. If AAI is not met through performance of a Phase I ESA, the new buyer, lender or trustee could be held liable for the full cost of cleanup activities in a court of law. LLP can be complicated by affiliations with the responsible party (RP) for a release, or cause, contribution or consent to a release. When in doubt about LLP, an environmental attorney should be consulted prior to performance of a Phase I ESA and any property transaction. It should be noted that completion of a Phase I ESA does not provide a guarantee, or completely eliminate risk.
How much does a Phase I ESA cost? Cost is primarily dependent upon the type of property. A large acreage property will generally cost more than a small vacant property. A small vacant property in an industrial area of an old city will likely cost more than a small vacant property in a rural, undeveloped area. Cost is dependent upon the historical and current use of the property, the historical and current use of the neighboring property, and the size of the parcel.
What should I expect when I order a Phase I ESA? Your selected consultant should request information from you in order to meet the due diligence requirements of the Phase I. Key information that the owner, seller, or operating manager might provide includes, but is not limited to, the following:
Prior Phase I ESA’s
Compliance Audits
Environmental Permits
Underground Storage Tank (UST) Registration documents
Aboveground Storage Tank (AST) Registration documents
Safety Data Sheets (SDSs), formerly Material Safety Data Sheets (MSDSs)
Knowledge that property may be selling for below market value due to environmental conditions; and / or
Notification of pending or past litigation or administrative proceedings.
Due diligence is met by the performance of four main elements: a records review, site reconnaissance, interviews and preparation and submittal of a report. The Phase I ESA will identify any Recognized Environmental Conditions (RECs) in, on or at a property. A REC is defined as “the presence or likely presence of any hazardous substance or petroleum products in, on or at a property:
1. Due to release to the environment; 2. Under conditions indicative of a release to the environment; or 3. Under conditions that pose a material threat of a future release to the environment.
De minimis conditions, “condition that generally does not present a threat to human health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies,” are not considered RECs.
The latest version of the ASTM standard defines three types of RECs as follows:
Controlled RECs, or CRECs, include properties where a release of hazardous substances or petroleum products has been addressed to the satisfaction of the applicable regulatory authority through a No Further Action (NFA) letter, or equivalent, or risk-based criteria. With this type of REC, hazardous substances or petroleum products “are allowed to remain in place subject to the implementation of required controls.” Properties with property use restrictions, activity and use limitations (AULs), institutional and engineering controls would not fall in this category. Limitations and controls placed on a property might include restriction residential development of a property, limiting of the installation of monitor or irrigation wells, requirements to maintain an impervious cap on portions or the entirety of the property, or restrictions on construction activities that might occur.
Historical RECs, or HRECs, includes the release of hazardous substances or petroleum products in connection with the property that have “been addressed to the satisfaction of the applicable regulatory authority.” The regulatory authority must have placed no restrictions on the use of the property and no controls are placed on the property. Properties with property use restrictions, activity and use limitations (AULs), institutional and engineering controls would not fall in this category.
What if I already have a Phase I? If the Phase I ESA is less than 180 days old, the document and due diligence efforts can be presumed valid. Phase I ESAs are typically prepared for use by one party. If the Phase I you have was prepared for an entity other than the buyer, lender or trustee, a Reliance Letter may be obtained from the original consultant who prepared the Phase I. The Phase I consultant will likely charge a nominal fee for issuance of a Reliance Letter.
If the Phase I ESA is over 180 days old, but less than one year old, portions of the Phase I may be utilized to perform due diligence. Interviews, research on environmental liens, government records review, and site reconnaissance will all need to be performed to update the Phase I.
What about mold, asbestos or lead? The Phase I ESA document should only include the required due diligence items as required by the ASTM or EPA AAI standard. A list of potential non-scope considerations that the client may wish to investigate with regard to the property are listed below. It is recommended that non-scope considerations be provided under separate cover from the Phase I ESA report.
Asbestos-Containing Building Materials (ACM)
Biological Agents
Cultural and historic resources
Ecological resources
Endangered species
Health and safety
Indoor air quality
Industrial hygiene
Lead-Based Paint
Lead in Drinking Water
Mold
Radon
Regulatory compliance
Wetlands
The information provided above should in no way substitute for the advice of an attorney.
If Recognized Environmental Conditions (RECs) are identified, an intrusive investigation may be considered appropriate. This Phase II Environmental Site Assessment (ESA) may consist of sampling of soils, sediment, groundwater or vapors from the property. The samples collected are sent to a Florida certified laboratory for analysis of constituents of concern. The scope of the Phase II is based upon information obtained from the Phase I investigation and provides additional information about the condition of the property.