As a nationwide provider of environmental and engineering duediligence reports, including Phase 1ESAs, I often get asked the question from my clients “Do Ireally 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 theEnvironmental Protection Agency’s (EPA) All AppropriateInquiry (AAI) standard can protect the User of the reportagainst CERCLA liability. HOWEVER, there aremany other limitedenvironmental assessments that are used in the industry as abusiness decision tool for buying and/or lending on properties. These assessments, being limited in nature are generallyfaster and cheaper than a Phase 1 ESA. This is because theseassessments are, for the most part, “pieces” of the Phase 1. For instance the Environmental Transaction Screen (ETS), which isso 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 limitedhistorical review. Other assessments combine one or two ofthe Phase 1 Environmental scope items to tailor make thelimited report. Prices range from $250 to $1400 depending onwhat is included, the site visit portion being the biggest driverof cost.

When deciding ifyou “need” a Phase 1 or not, consider a few key questions:

  1. Is CERCLA liability protection important to you? If yes,then only a Phase 1 will do
  2. Property type
  • If it is an industrial property or another high risk typeproperty, a Phase 1 ESA is advisable
  • If it is an office building, apartment complex or other lowrisk property type, limited environmental due diligence could beconsidered
  • If it is Vacant land that has never been developed, limitedenvironmental due diligence could be considered
  1. Property location (remember you are not only looking at yourproperty during the environmental assessment but also surroundingproperties and how they might have an effect on your property)
  • If the property is in an urban, highly developed area that hasbeen so for a long time, a Phase 1 ESA is advisable
  • If the property is in a mostly undeveloped area, limitedenvironmental due diligence could be considered
  1. What does your lender require? This might be the mostimportant question of all. Many lenders have their own scopesof work that they require depending on the loan type (for instancea FannieMae, Freddie Mac, or HUD loan all havetheir own requirements for due diligence), property type or otherrisk factors.

Of course, if any of these limited environmental assessmentsfind something of concern that would need to be investigatedfurther, a full Phase 1 Environmental Site Assessment or other stepwould be recommended which can add additional cost and time to theproject.

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