The FAQs of Environmental Assessments & Due Diligence:
Updated: Mar 23, 2022
What is a Phase 1 ESA: is a common requirement today for most commercial real estate transactions. Typically, the purchaser or the bank that is financing the purchase will require a Phase 1 assessment of the property to qualify for the CERCLA “Innocent Land Owner Defense”, which is designed to allow the owner of contaminated property to defend against liability for hazardous substances that were put on the property by an unrelated third party. A Phase I Environmental Site Assessment identifies potential for existing environmental contamination liabilities of a property and surrounding properties. The investigation searches for Recognized Environmental Conditions (RECs). This analysis is typically is used to hedge investment risk for a buyer or bank lender.
What is a Recognized Environmental Condition (REC)?
ASTM E1527-13: "(1) the presence or likely presence of any hazardous substances or petroleum products in, on, or at a 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.” Naturally occurring chemicals or substances are not identified as a “REC.” Examples are : Crude oil and natural gas. Other items not considered a REC per Phase I ESA scope include asbestos & lead paint.
How long does an ESA Take?
Project typically takes 7-15 days.
What is a failed Phase I ESA?
A Phase I ESA that has discovered Recognized Environmental Conditions and the report recommends having a Phase II ESA performed.
What is a Phase II Environmental Assessment?
A process which collects soil samples by drilling the ground up to 50 feet, then testing the soils for contaminants in a certified laboratory. Project typically takes 3 to 4 additional weeks.
Controlled Recognized Environmental Conditions (“CRECs”):
The new 2013 ASTM Standard defines a Controlled Recognized Environmental Condition (“CREC”) as “a recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority (for example, a historic leak or spill that has been remediated to something less than “clean,” so that the property may not meet residential use criteria.
Historical Recognized Environmental Conditions (“HREC”):
The new ASTM Standard defines a Historical Recognized Condition (“HREC”) as “a past release of any hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority or meeting unrestricted use criteria established by a regulatory authority, without subjecting the property to any required controls (for example, property use restrictions, activity and use limitations, institutional controls, or engineering controls)”.
What do site inspectors look for during site visit?
Interior ground stains or corrosion
Strong, pungent or noxious odors
Discolored drains or sumps
Pits, ponds or lagoons
Stained soil or pavement
Improperly stored solid waste
Onsite wells or septic systems
Drains, sumps or clarifiers (oil water separators)
Presence of Underground Storage Tanks
What happens if I fail a Phase 1 ESA?
A failed Phase 1 ESA generally results in a recommendation to have a Phase 2 ESA performed.