Property Transaction: Do I Need a Phase I Environmental Site Assessment?

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People contact us all the time asking about Phase I Environmental SIte Assessments. Mostly, they just ask about cost, but sometimes they ask if they really need one. For those folks I ask, “What happens if you buy a property and find it has an environmental problem?” I usually go on to explain there are two cases depending on whether you have a Phase I ESA or not.

I Have a Phase I Environmental Site Assessment 

If you have a Phase I Environmental Site Assessment (Phase I ESA), you have a document that can be used to identify site conditions that are or could impact the environmental conditions of property. The assessment determines whether current or historical uses of a property and nearby properties have caused conditions that may negatively affect the environment and/or human health. For example, consider a strip mall on the corner of a busy intersection that was once the location of a service station. Someone interested in buying the strip mall, or loaning against it, will want to know that in the past there was a service station at the site because that use may have resulted in contamination. Most folks don’t want to buy or finance a contaminated site and take on the associated liability.  

So how does a Phase I ESA help? If a Phase I is completed according to ASTM International (ASTM) Standard E1527-21 prior to close of escrow, the buyer will have liability protections under the law if an environmental problem is discovered after the property transaction has been completed. In other words, a Phase I adhering to the requirements in ASTM E1527-21 protects a new property owner (or their lender) from being held liable for environmental problems that come to light after the property was transferred. This is important. If that's not enough, consider the Sunferfund Cleanup Acceleration Act of 1998 requires that purchacers of commercial property perform a Phase I ESA meeting the sepcific standard of ASTM E1527-21.

I Don’t Have a Phase I ESA, I’m Not Using a Lender and I Don’t Want to Pay for a Phase I

It is always a risk to purchase a property without being aware of all potential issues. Once the transaction is complete, the new owner assumes all responsibility for the property - including environmental problems if an ASTM Phase I ESA was not completed as part of the transaction. 

pitandwastepileSeveral years ago, we received a phone call from a person who purchased a commercial property with all cash and no financing. The new property owner also made the purchase without completing a Phase I ESA. After many years of owning the property, the owner decided to make some improvements and discovered an underground storage tank (UST) on the property that had leaked. In order to remove the tank, the property owner was required to obtain a permit from the county, who in turn required the owner to investigate the extent of the contamination. Since the property owner hadn’t completed a Phase I prior to purchasing the property, they weren’t protected under Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) laws, and had to pay for the cleanup costs out of their own pocket. 

In most commercial property transactions, the cost of a Phase I is usually less than 1% of the total purchase price. It’s a small price to pay for powerful protection, and we will always recommend prospective buyers take this step to ensure the value of their investment. Oftentimes, the seller will opt to pay for and complete a Phase I ESA before putting their property on the market, and it is possible to negotiate who will bear the cost for a Phase I during the transaction process.

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You may be asked for a Phase I ESA as part of a real estate transaction, or perhaps your particular transaction, like owner financing, doesn’t require one. Our recommendation is to have a Phase I ESA in hand before you buy a piece of property. We have the experience and the professionals that can provide you with practical advice regarding a Phase I ESA specific to your property. Click the button below for a free consultation.