What happens when the Phase 1 Environmental Site Assessment (Phase 1 ESA) report finds a problem or a “recognized environmental concern”? For many clients a REC is the dreaded conclusion, because it can pose a roadblock to their deal or require spending more money to assess the situation.
Some assume that if a Phase 1 ESA finds a REC, that the next step is automatically to do Phase 2 Subsurface Testing. Sometimes that is the case, but not always. There are several options beyond the Phase 1 ESA that can help mitigate environmental risk.
The first thing we do when we find a recognized environmental concern is contact our client to discuss the issue and try to find a solution.
Sometimes we can do additional research or interviews to find enough information to show that the REC doesn’t represent a significant risk, or has already been resolved. We do this research as part of the Phase 1 ESA automatically, but information sometimes has a way of surfacing when a potential environmental concern is called out – owners may suddenly be more willing to provide additional documentation or point us to other individuals to interview to try to mitigate the concern. It is surprising what crawls out of the woodwork at this stage of the due diligence!
Other options in between the Phase 1 and Phase 2 include
- Environmental insurance- Some insurance providers have policies for commercial properties with potential environmental risk.
- Holding funds in escrow to cover the estimated cost of cleanup (though this can be hard to estimate without subsurface testing)
- Environmental indemnity clauses – For high risk properties or properties where there is a known concern (on-going remediation for instance) often the seller or even the tenant (for instance a large petroleum company) may indemnify a buyer/future owner from any environmental liability associated with the known release or high risk use.
- For specific operations, there are ways to further assess environmental risk without doing a Phase 2. For instance with gas stations, you can run tank tightness testing or tracer gas analysis to determine if the tanks are leaking.
If the concern is significant enough, then Phase 2 Environmental Testing will likely be recommended, but this process can be made less painful by keeping the scope of work very focused. I’ll discuss more about Phase 2 Environmental Testing in my next blog.