Considering buying a commercial or industrial property but have been told by your broker or lender that you need a Phase 1 Environmental Site Assessment? Figuring out exactly what a Phase I ESA is or why you need one is a good starting point.
What is a Phase 1 Environmental Site Assessment?
In simple terms a Phase I ESA is an investigation into the past and present uses of the property and whether there is any evidence of a current or past release of hazardous materials/chemicals or petroleum products. Was your property home to a gas station or dry cleaners 40 years ago? Did a gasoline underground storage tank (UST) leak its contents and contaminate the soil or groundwater? Are there other hazardous materials or chemicals at the site that could pose an environmental risk? These are all examples of questions a Phase 1 Environmental Site Assessment aims to answer.
In more official terms, according to ASTM E1527-13, a Phase I ESA is looking to identify what are known as a REC, or Recognized Environmental Condition, which means the presence or likely presence of any hazardous substances or petroleum products in, on, or at the property; (1) due to any 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.
What does a Phase 1 Environmental Site Assessment consist of?
Historical resources such as fire insurance maps, city directories, and aerial photos are used to ascertain past uses of the property.
Local, state, and federal regulatory databases and records are reviewed for current or past environmental issues regarding the property and surrounding area.
A site visit is made to inspect the property for indications of contamination, spills, or other environmental concerns.
Interviews may be conducted of current owners, property managers, occupants and tenants, government officials, and the prospective buyer for knowledge of the property.
A Phase I ESA report following ASTM E1527-13 is prepared with the appropriate information gathered from the Phase 1 Environmental Site Assessment process.
Why do I need a Phase I ESA?
So you understand the basics of what a Phase 1 Environmental is but do you really need one? The quick answer to that is yes because your lender probably requires it as part of the due diligence process. Regardless, a Phase I ESA is valuable not just for your own knowledge but for the legal protection it can provide. Obviously if you contaminate a site you are going to be responsible for the cleanup and the massive costs associated with that. But did you realize you are also responsible for the cleanup and costs if the site was contaminated before you bought it? Not only that you could be footing the bill for cleanup costs of any neighboring properties contaminated from your site. In some cases you could even be responsible for the cleanup of your site that was contaminated by another property. That might not sound fair but that is the law.
Luckily a properly done Phase 1 Environmental Site Assessment that follows ASTM E1527-13 may provide you with some legal protection.* As the current landowner you may be able to qualify for the “innocent landowner defense”. However in order to do this you must have satisfied the USEPA’s “All Appropriate Inquiries” rule, aka AAI. Essentially you must have had the proper research done into the property before you bought it and show that you had no idea it was contaminated. Guess what is recognized as satisfying AAI standards? That’s right, a Phase 1 Environmental Site Assessment that follows ASTM E1527-13.
What are some common examples of RECs discovered by a Phase I Environmental?
There are a variety of problems a Phase 1 Environmental can unearth but we’ve listed a few common ones below.
The chemical most often used by dry cleaners is called PERC (Perchloroethylene/Tetrachloroethylene). While it does a great job cleaning your cloths it only takes an extremely small amount to contaminate a property. In fact past studies by the EPA have estimated that 75% of dry cleaning properties are or have been contaminated in the past. Discovering that your or a neighboring property once housed a dry cleaner is an important piece of information to know before closing.
Leaking Underground Storage Tanks (LUST)
By far the most common concern that comes up through regulatory searches are leaking USTs. Because they are buried underground it is easy for leaks to go undiscovered for long periods of time. Not only that, underground storage tanks are far more common than you think. Many businesses have petroleum USTs used to fuel trucking operations on site. They also use to be very common on residential properties as a way to store heating oil for furnaces and boilers.
If leaking USTs pose a risk it makes sense that gas stations are of a particular need to pay attention to. By nature a gas station contains an extremely large amount of petroleum products. The gasoline and diesel you use to fuel your automobile is stored in a large system of underground storage tanks on the property. If the property you are looking to purchase use to be a gas station those tanks could still be on the property if they weren’t removed in the past.
How much does a Phase 1 Environmental Site Assessment cost and how long does it take?
A Phase I ESA following ASTM E1527-13 typically takes up to 3 weeks to complete. Why so long? The biggest reason are the records, files, and historical data that needs to be looked at. These take time to be gathered from the appropriate agencies and often consist of thousands of pages necessitating review. So beware the company that tells you they can complete a Phase I in a week. They are likely cutting corners by not gathering the required information or taking the time to review it.
The cost of a Phase I Environmental typically ranges from $1800 for the very simplest and smallest property to $4000 for larger commercial or industrial sites. This is however a general average and is highly dependent on the details of your property and its location. Can you find a Phase I ESA for cheaper? You may be able to get a quote for under $1800 but we caution you to tread carefully. Remember all the records and data that need to be gathered and reviewed? Those cost a lot of money and take a significant number of man hours to review. If someone offers a cut rate price it is likely they aren’t following the spirit of ASTM E1527-13 which could spell trouble for you down the road. Offering a cheap Phase I ESA and then recommending the need for a Phase II ESA is another common scam. Of course the Phase II Environmental will cost you significantly more which will more than make up for whatever money they lost during the Phase I.
What isn’t in a Phase I Environmental?
It is important to know what is in a Phase I ESA and what isn’t. ASTM E1527-13 sets out a specific scope of work for these assessments. The scope of work does not include mold, asbestos, lead paint, radon, regulatory compliance, wetlands, and more. If you feel you need investigations into any of these areas it is best to contract those services separately. If any of these concerns are observed during the Phase I Environmental Site Assessment process most companies will give you a heads up that they should be looked into further. It is also important to be clear that a Phase I ESA does not include any sort of sampling or testing. This normally follows in a Phase II assessment if the Phase I uncovers anything of particular concern to the lender. That being said most properties do not end needing a Phase II. This is good news since they can be extremely expensive.
Hopefully we have helped clear up some of the mystery around Phase 1 Enviromental Site Assessments. If you have decided you would like a quote for a Phase I ESA or have further questions please feel free to contact us or give us a call at (312) 340-5472.
*The following is a general description and shouldn’t be considered legal advice.