Due Diligence – Part 3 – what does a Phase I do, anyway?

3 Sep 2013

“Trust me, it’s a clean phase I”

When a client tells me “we have a clean Phase I,” that’s often when I start asking questions.  A Phase I  Environmental Site Assessment (ESA) is supposed to give a buyer or lender a reasonable picture of potential “residual” environmental conditions of a property.  First of all, a Phase I ESA isn’t an in-depth scientific study. Instead it calls for broad-based research known as “all appropriate inquiry” into past and current usages of the property.

A “clean” Phase I ESA does not free you from worrying about compliance with a myriad of environmental laws

As noted in Part 2, the investigation is to be conducted by a qualified environmental professional who will:

  • Visually inspect the property and buildings, along with a cursory look at adjacent properties.
  • Interview current and/or former property owners and tenants.
  • Review historical sources such as directories, maps or public documents.
  • Review official records at the local, regional, state, federal or tribal level.
  • Specifically consider any gaps in information available about the property.

The goal of the Phase I ESA is to confirm the existence of a “recognized environmental condition” or REC which means that there may or may not be an environmental problem on, in or under the site.  A “clean” phase I means that no RECs were identified and, often, the environmental due diligence stops there. While these reports may satisfy CERCLA’s requirement that one conduct “all appropriate inquiry,” they don’t necessarily completely shield property owners from liability.

A Phase I ESA does not look at:

  • Lead in drinking water;
  • Lead based paint;
  • Asbestos;
  • Radon;
  • Mold;
  • Wetlands;
  • Archaelogical concerns;
  • General site conditions and the need for repairs;
  • Developability; and
  • Operational compliance for a going concern.

These issues can be included in a Phase I ESA but will not necessarily be unless you specifically ask.

A “clean” Phase I ESA does not mean that you are free not to worry about compliance with a myriad of environmental laws.  For example, there might be obligations to comply with the Resource Conservation Recovery Act (RCRA) which deals with hazardous waste generation, treatment, storage and disposal.

A “not-clean” Phase I ESA does not mean that you have a contaminated site – it is merely the “jumping off” point for a further Phase II ESA (watch for part 4 of this series) that will hopefully determine if there is or is not contamination on, in or under the property and whether it will be a problem for your planned use of it.

Ultimately, when the Phase I ESA comes back, you need to be sure that it is read and understood so that you can take the appropriate action to protect yourself, your business and your tenants and/or employees.

Leave a Comment Below

Leave a Reply