What Is a Phase 1 Environmental Site Assessment?
ramaker insights
What Is a Phase 1 Environmental Site Assessment?
environmental consulting + compliance
An introduction to Phase 1 ESAs
Imagine this. Your business is growing, and you’ve just bought land for what will be the perfect brick-and-mortar location.
A bustling neighborhood. Walkable. Lots of space.
It’s an exciting time—until you find out that your perfect location isn’t, well, perfect. What happened? The lot was once home to a dry cleaning operation that leaked hazardous chemicals into the ground you purchased.
Yikes.
Here’s the good news: Situations like this one can be avoided by investing in the appropriate environmental due diligence services.
Phase 1 Environmental Site Assessments help potential buyers and lenders gauge if environmental hazards are present before ownership is transferred—because the truth is that not all properties have a clean bill of health.
In this post, we detail what you need to know about Phase 1 Environmental Site Assessments. What are they? What do they cover? When should you consider a Phase 1 ESA? We’ll address all these questions—and more—over the course of this blog.
What is a Phase 1 Environmental Site Assessment?
Is this property contaminated? Who’s liable to address this contamination? These are the big questions a Phase 1 Environmental Site Assessment (ESA) seeks to answer.
A Phase 1 ESA is a report that examines a given property for existing and potential environmental issues. A common environmental due diligence practice, a Phase 1 Environmental Site Assessment determines whether a property is likely to have any Recognized Environmental Conditions (also known as RECs). RECs—like the presence of hazardous substances or underground storage tanks—can be dealbreakers for commercial and industrial real estate purchases.
Phase 1 ESAs help buyers and lenders determine exactly what they’re investing in. They can also protect buyers from assuming liability for environmental conditions that predate their purchase. In other words, if you don’t conduct a Phase 1 ESA and discover hazards after your transaction is completed, you could have to cover the remediation costs—even though you didn’t cause the damage! Because of this, Phase 1 ESAs have become an essential step in commercial and industrial property transactions.
What’s included in a Phase 1 ESA?
Phase 1 Environmental Site Assessments may vary in scope depending on the site and procedural requirements of the developer, lending institution, or government-backed program requiring the assessment. However, Phase 1 ESAs typically include an on-site property inspection, an examination of relevant records, and interviews with current owners, prospective purchasers, and/or the report “user” (i.e., the lending institution or funding agency).
During this process, Environmental Professionals (also called EPs) follow guidelines set forth by ASTM International and the EPA’s AAI Rule. Additional non-scope considerations can be added to fit the needs of a deal. The investigation typically takes between 2–3 weeks and results are delivered in an official report.
A Phase 1 ESA is just the first step in investigating potential environmental hazards. Therefore, the report does not determine the full extent of contamination. If a Phase 1 ESA finds likely risks, a Phase 2 ESA may be required to verify suspected contamination.
When do you need a Phase 1 ESA?
Is it time to schedule a Phase 1 ESA? Phase 1 ESAs are common in many situations, especially before commercial property transactions. Phase 1 ESAs can help shield buyers and lenders from potential liabilities and remediation costs. They also provide deeper insights into a given property’s real value. That’s why many banks will refuse to approve commercial real estate loans unless an environmental professional has assessed the property’s contamination risks.
In addition, Phase 1 ESAs are typically required when ownership of commercial real estate is transferred. They are also common when local governments plan on purchasing brownfield properties or have received EPA brownfield assessment grants and need to conduct All Appropriate Inquiry (AAI).
Phase 1 ESAs may also be necessary when:
- A property owner wants to take a closer look at the property’s history.
- A property transaction involves a site that is located near commercial or industrial operations.
- A transaction involves commercial or industrial properties where regulated hazardous materials were used.
- Toxic conditions are suspected.
Environmental due diligence services
The Phase I ESA has evolved from being an industry best practice to being the standard minimum due diligence for meeting AAI standards.
Ramaker’s environmental due diligence team has prepared Phase I ESAs in a variety of settings, including residential, commercial, industrial, military, municipal, abandoned, and rural properties across the nation.
Need an experienced team of environmental professionals? Learn more about Ramaker’s environmental consulting experience and schedule a call here.
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