Phase I ESA - Environmental Site Assessment

An environmental site assessment is a report prepared for a real estate holding that identifies potential or existing environmental contamination liabilities. The analysis is called an Environmental Site Assessment, or ESA. It typically addresses both the underlying land as well as physical improvements to the property.

 

  • What is a Phase I?

    Phase I Environmental Site Assessment (ESA)
    A Phase I property site assessment is a due diligence procedure that both buyers and sellers conduct to identify past and present environmental liabilities.   A Phase I can prevent future litigation over a real estate transaction by openly disclosing environmental issues.
    Phase I Environmental Site Assessment A Phase I ESA is meant to identify the potential for impacts by hazardous or toxic materials and to identify other possible environmental constraints on the site. No environmental sampling or analysis is conducted under the Phase I scope of work. The form and content of an ESA will follow the form and content as outlined in ASTM standard E 1527-13. The results of the Phase I ESA will be used to evaluate whether or not further study (such as a Phase II ESA) is warranted. To obtain and develop the information required for the Phase I ESA of a property in a timely and efficient manner, the following scope of work is typically conducted as indicated by the availability, relevancy, and adequacy of the background information, and by the environmental consultant's best field judgment.

     

    The Phase I is a property assessment that includes a walkover of the property and associated structures; a review of historic property information including maps, aerial photographs, deeds, telephone or address directories, etc.; a review of potentially impacted properties in the vicinity; a summary of knowledgeable party information and review of prior reports; and the review of local, State and Federal files pertaining to the property address.

    Items evaluated in the Phase I report include: tanks, drains, pits, spills, in-ground and aboveground equipment, petroleum and chemical use, and environmental liens.  Additional issues which may be included in the Phase I at the lenders or clients request include: wetlands, radon, asbestos, lead-based paint, and drinking water.   The Phase I report is typically research only.  Unless otherwise specified as part of the scope of work, testing or surveys are outside of the typical Phase I requirements.

     

    What Does A Phase I Environmental Site Assessment Include?

    What Does A Phase I Environmental Site Assessment Include

    The two items that will save any real estate buyer money are a low interest rate on the mortgage and a thoroughly conducted Phase I ESA.  The Phase I for all practical purposes can save more money than shopping interest rates as a Phase I can find that environmental problem BEFORE you purchase the liability.

    A Phase I Environmental Site Assessment (ESA) is meant to identify the potential for contamination of a site by hazardous or toxic materials and to identify other possible environmental constraints on the site. The results of the Phase I ESA will be used to evaluate whether or not further study (such as a Phase II ESA) is warranted, based on the background information gathered and the results of the site inspection. 

    Off Site Review
    Obtain and review Federal and State databases of suspected and confirmed contaminated sites and contact State and local agencies, as applicable to evaluate if environmental monitoring or enforcement activities, investigations or claims have occurred on or near the site, and if industrial or waste water discharges to surface waters have occurred near the site.

    Past and Present Uses of the Site and Surrounding Land
    Review title information and Sanborn Maps to obtain information on past uses of the property pertaining to the storage, treatment or disposal of hazardous substances. Conduct interview regarding present and previous uses of the property and surrounding area.  Examine readily-available historical aerial photographs and/or maps for indications of historical uses of the property, and for any evidence of potential on-site contamination, such as dumping or land filling.  Investigate whether the site or surrounding land is being or has been used for agricultural land, landfilling, tank storage, industrial/manufacturing, oil/gas exploration, chemical waste, military installations or fill.

    Walking Inspection of Property
    A qualified Environmental Professional will conduct a walking inspection of the property in order to evaluate potential impacts.

    Final Report


    Review the data developed from the field reconnaissance, agency contacts, and records for technical accuracy and corroboration. Analyze and assemble the data into a final report stating conclusions and recommendations either that no further study of the site be undertaken or that a Phase II Environmental Site Assessment be initiated.

    Why is a Phase I Needed When Buying Property?

     

    Who requires a Phase I ESA?
    Traditionally, a Phase I was contracted by the bank or lending institution on properties where financing was being arranged.  The Phase I was primarily conducted for the protection of the banks, who were concerned that if they loaned money for an impacted property they may be held liable for the site cleanup.  Today, many banks with loans under a million dollars and borrowers supplying a down payment do not require a Phase I.  However, there has been an industry shift over the past several years as banks have come to understand where their limit of liability stands.
     
    Why complete a Phase I if my bank does not require one?
    Although many banks are not requiring a Phase I, the environmental regulations leave the burden of environmental responsibility on the property owner.  Conducting a Phase I, allows a purchaser to complete the necessary due diligence.  It is this due diligence that enables a purchaser to obtain environmental information prior to taking possession of a property.  Buyer beware is relevant more than ever in real estate transactions.  If a property is purchased without a due diligence evaluation and subsequent environmental issues are found in association with the property, the property owner is now burdened with the cost of remediating the issue. Conducting a pre-purchase Phase I could alleviate the potential for finding environmental issues in the future and thereby holding up future transactions.  As a potential purchaser, the evaluation of environmental issues on a property could be used as leverage for the seller to remediate the concern prior to purchase or could be used to negotiate the property value.

    If I don’t do a Phase I and buy a property how would I find out if there was an environmental problem?
    The most common way is when you go to sell and the potential buyer completes a Phase I and discovers environmental issues that you are now responsible to address.  

    I own a property, never had a Phase I and I am now thinking of selling.  Do property owners have Phase I’s conducted?
    One of the largest shifts in the real estate market today is that many land owners are having a Phase I conducted to root out environmental issues before they become an issue when a buyer is found.   It is also possible to do a limited screening with historical research and not a full Phase I for less money.  It can be related to a homeowner having a home inspection completed to address issues that a purchaser might find during their inspection.

    If an environmental issue is found in a Phase I report on a property I am buying, can I still purchase the property?
    If the issue is fully disclosed to the lender (if one is involved) and the buyer is willing to accept the liability and cost of addressing the issue, then yes you can buy the property.  But the real question is should I address the issue before buying the property?

     

    Phase I - Frequently Asked Questions

  • Is a Phase I required by law in a real estate transaction?

    No it is not required by law.  A Phase I is meant to protect the purchaser from environmental liability, as any environmental issue found will reduce the value of the land.

    The bank is not requiring a Phase I so I don't need one?

    Again a Phase I is for the buyers protection, banks are not responsible for contamination found on a property where they hold a mortgage. Banks are not so much concerned about a Phase I being conducted but that a borrower has the ability to repay the loan.

    A Phase I is expensive and not needed.

    Most Phase Is cost under $2,000.00, less than a flood insurance policy at the beach. We tell clients to look at a Phase I costs as a one-time insurance policy premium to ensure you not buying someone else's problem.

    I am getting different prices to complete a Phase I, why are some companies more expensive?

    All Phase I's follow a protocol ASTM E1527-13, which outlines how a Phase I is conducted. So on a level playing field everyone should follow the same recipe. Depending on who is conducting the Phase I, veteran or more experienced environmental professionals will typically provide a better product based on their foundation of conducting many Phase I's over the years, which can account for price differentials. Bottom line you should ask the experience level of the company personnel that conducts the Phase I.

    The Phase I was reasonable, but identified issues that need investigated. The cost for the Phase II is thousands of dollars, why?

    Well depending on what the Phase I found, i.e., what issues would require investigation (more issues, more cost) dictates the cost.

    The property is low risk i.e., residential, car wash, store or vacant so I don't think an environmental audit is needed?

    We have found residential properties that were once commercial and had environmental problems. Unless you are an experienced environmental professional you are not qualified to render an opinion. We have found most property uses are not the same as past uses. Car washes and stores have been found to have been gasoline stations. An environmental professional would only lend an opinion after a Phase I is completed.

    The owner of the property didn't conduct a Phase I, so why should I?

    Because you shouldn't make the same mistake as the previous buyer! What happens when you sell and the new buyer has a Phase I and finds a problem that predates your ownership but you are responsible to cleanup? Besides complain, you will pay for to fix the problem or take a significantly lower asking price for the site.  The number one compliant about a Phase I is from a seller saying they wished they conducted a Phase I before they bought the property. This is typically said when the buyer has a Phase I completed and find a problem the property owner didn't know existed.

    Who pays for the Phase I?

    Typically the buyer, but sometimes the seller and buyer will split the cost. In these arrangements, if the buyer backs out, the seller still retains the rights to use the Phase I for another buyer. 

    I am selling my property, the buyer did a Phase I, issues were identified and they backed out of the sale. The buyer will not give me a copy of the Phase I, am I entitled to a copy since I am the owner?

    If you did not pay for the Phase I, you do not own the report. Many people who pay for a Phase I and do not buy the property tend not to want to share the Phase I with the owner. Up front you may ask to be included in the reliance during development of the Phase I.

    I am selling my property, should I do a Phase I?

    Aside from the outlay for the cost of the Phase I, there is little downside to the owner conducting a Phase I and the upside is very large. When an owner conducts a Phase I they have the opportunity to address any environmental issue BEFORE a buyer is found. Some people also use a Phase I as a marketing piece for the property.

    Phase I Questions Answered

    If you still have questions, please feel free to contact our office at 410-354-8030. We offer a free consultation to discuss your questions, either by phone or in person, free of charge.

  • More Questions?

    If you still have questions, please feel free to contact our office at 410-354-8030. We offer a free consultation to discuss your questions, either by phone or in person, free of charge.