A Phase I Environmental Site Assessment (ESA) is a process that evaluates whether a piece of real estate has potential environmental problems. The ESA process involves a visual inspection of the property, review of government environmental databases, interviews, and review of public information sources (aerial photos, city directories, etc.) pertaining to the property use and history. ASTM Standard Practice E1527-21 refers to potential problems identified during the assessment as “recognized environmental conditions” or RECs.
The standard defines a REC as:
The presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.
The standard provides no definition of the term “likely” as used in the first line of the definition. Webster’s dictionary defines likely as “having a high probability of occurring or being true”. That definition does not help much in deciding what “likely” means. If buyers are investing $1,000,000 in a property, are they comfortable with a 50% chance that contamination exists on the site? Probably not. But how about if there exists a 25%, 10%, or 2% chance of contamination? That decision becomes more difficult to answer even though statistically those chances would not be considered “likely”.
Unless investors are highly experienced in dealing with environmental matters, they depend on the advice of an experienced environmental professional when weighing the risks associated with any identified potential contamination. For the advice to be meaningful, the professional must be familiar with the applicable regulations, contaminant chemistry, geologic controls on contaminant movement, and the presence of nearby potential contaminant receptors (water-supply wells, streams, etc.). After such information is clearly explained by the environmental professional, the investor can then make an informed decision based on his or her tolerance for risk.
The Phase I ESA standard does not include the actual sampling or analysis of subsurface samples (soil, groundwater, or soil vapors). The potential risk(s) posed by RECs identified through the Phase I ESA process can be further evaluated through subsurface testing in what is referred to as a “Phase II” environmental assessment.
The potential risk posed by RECs identified through the Phase I ESA process can be further evaluated through subsurface testing in what is referred to as a “Phase II” environmental assessment.
By completing a Phase I ESA prior to purchase of real estate, an investor satisfies the “all appropriate inquiry” requirement under Federal Superfund (CERCLA) regulations to potentially qualify as an “innocent landowner” of “bona fide prospective purchaser”. In simpler terms, the Phase I ESA provides a degree of protection to the buyer of real estate in the event that environmental contamination is discovered after the date of purchase despite the completion of environmental due diligence..
Disclaimer: This sheet has been prepared by EnviroSouth, Inc. for general informational purposes only. The contents of this publication shall not be construed as legal or professional advice. Readers should consult an environmental professional before acting on the provided information.