Do I Really Need a Phase 1 Environmental Site Assessment?
As a nationwide provider of environmental and engineering due diligence reports, including Phase 1 ESAs, I often get asked the question from my clients “Do I really need a Phase 1?”. The answer may surprise you. Of course, the simple answer is YES, only a Phase 1 ESA to ASTM E1527-05 and the Environmental Protection Agency’s (EPA) All Appropriate Inquiry (AAI) standard can protect the User of the report against CERCLA liability. HOWEVER, there are many other limited environmental assessments that are used in the industry as a business decision tool for buying and/or lending on properties. These assessments, being limited in nature are generally faster and cheaper than a Phase 1 ESA. This is because these assessments are, for the most part, “pieces” of the Phase 1. For instance the Environmental Transaction Screen (ETS), which is so common it has its own ASTM standard (E1526-08), is a “mini” Phase 1 ESA of sorts. It includes a lot of the same elements, such as the database review, site reconnaissance and some limited historical review. Other assessments combine one or two of the Phase 1 Environmental scope items to tailor make the limited report. Prices range from $250 to $1400 depending on what is included, the site visit portion being the biggest driver of cost.
When deciding if you “need” a Phase 1 or not, consider a few key questions:
- Is CERCLA liability protection important to you? If yes, then only a Phase 1 will do
- Property type
- If it is an industrial property or another high risk type property, a Phase 1 ESA is advisable
- If it is an office building, apartment complex or other low risk property type, limited environmental due diligence could be considered
- If it is Vacant land that has never been developed, limited environmental due diligence could be considered
- Property location (remember you are not only looking at your property during the environmental assessment but also surrounding properties and how they might have an effect on your property)
- If the property is in an urban, highly developed area that has been so for a long time, a Phase 1 ESA is advisable
- If the property is in a mostly undeveloped area, limited environmental due diligence could be considered
- What does your lender require? This might be the most important question of all. Many lenders have their own scopes of work that they require depending on the loan type (for instance a Fannie Mae, Freddie Mac, or HUD loan all have their own requirements for due diligence), property type or other risk factors.
Of course, if any of these limited environmental assessments find something of concern that would need to be investigated further, a full Phase 1 Environmental Site Assessment or other step would be recommended which can add additional cost and time to the project.
Foreclosures are another matter however, nearly 100% of the time when a lender is considering taking back a property CERCLA liability coverage is of utmost concern and an AAI compliant PH 1 is conducted. In fact often additional non-ASTM scope items are also added to the scope of work as a “Phase 1 plus” so to speak (see my previous Globe Street blog on Foreclosure Due Diligence).
For MORE engineering insights on GlobeSt.com, check out Partner Engineering and Science, Inc.'s "Science of Real Estate" blog, which provides Thought Leadership positions on a variety of commercial real estate-related issues.
About Partner Engineering and Science, Inc.
Partner Engineering and Science, Inc. (Partner) is a full-service environmental and engineering consulting firm completing projects nationwide. We specialize in evaluating properties in connection with real estate transactions, development or management.