Frequently Asked Questions
Essentially, the goal of the Phase I Environmental Site Assessment (Phase I ESA) process is to assess a commercial property to protect a buyer, seller, or lending institution (depending on who is investing in the Phase I ESA) from environmental site conditions that could influence the use, value, or sale of the property.
A Phase I ESA is performed to satisfy the current ASTM Standard E1527, and is designed to satisfy the Environmental Protection Agency (EPA) All Appropriate Inquiries (AAI) requirement prior to a property transaction to qualify for the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Landowner Liability Protections. Per the American Society for Testing and Materials (ASTM) Standard Practice for Phase I Environmental Site Assessments (ASTM E1527-21):
1.1 Purpose—The purpose of a Phase I ESA is to define good commercial and customary practice in the United States of America for conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (42 U.S.C. § 9601) and petroleum products. As such, this practice is intended to permit a user to satisfy one of the requirements to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser limitations on CERCLA liability (hereinafter, the “landowner liability protections,” or “LLPs”): that is, the practice that constitutes all appropriate inquiries into the previous ownership and uses of the property consistent with good commercial and customary standards and practices as defined at 42 U.S.C. § 9601(35)(B). (See Appendix X1 for an outline of CERCLA’s liability and defense provisions.)
After all the information is gathered and reviewed, a Phase I ESA report is generated to outline and explain findings. The report will include findings of a site visit, the User Questionnaire, an explanation of applicable historical documents, and relevant information from regulatory databases and agency records for the subject property and the surrounding area as well as Recognized Environmental Conditions (RECs). This comprehensive report is provided to the owner of the report (i.e., buyer, seller, tenant, or lending institution) to determine next steps in the real estate transaction.
Simply speaking, once you own the property, if the property is contaminated, the contamination is your responsibility to address. Parts of the New York and Philadelphia Metropolitan areas have been developed for well over 200 years. That is a lot of history! These two metropolitan areas are major hubs of the manufacturing, pharmaceutical, and transportation industries. Hazardous substances and petroleum are both utilized and produced by these industries, thus there is significant potential for environmental issues. This region is densely populated with a finite land mass; as the population has grown or shifted, the site of a former manufacturing plant once sat may now be home to an apartment complex; former farmland, now a shopping center; a former gas station, now a coffee shop; and a former dry cleaner, now a fitness center. How a site is currently developed may show no indication of its former use and its potential for contamination.
Conducting a Phase I ESA due diligence inquiry is a critical step in refinancing or buying a commercial property and intends to reduce uncertainty regarding Recognized Environmental Conditions (RECs). Performing a Phase I ESA provides information on current and previous ownership as well as current and previous property use.
During the Phase I ESA process, the goal is to determine if Recognized Environmental Conditions (RECs) are present. A REC is the presence, likely presence, or material threat of future release to the environment of a hazardous substance(s) or petroleum product(s) in/on/or at the property. This information will assist the client in determining how to proceed with the real estate transaction.
There are three types of a Recognized Environmental Condition (REC): a REC, an Historical REC (HREC), and a Controlled REC (CREC).
A REC is the presence, likely presence, or material threat of future release to the environment of a hazardous substance(s) or petroleum product(s) in/on/or at the property. An HREC is a past release of hazardous substances or petroleum products that has been addressed to unrestricted use criteria. A CREC is a past release of a hazardous substance or petroleum product that has been addressed to a risk-based standard, which means the substance was allowed to remain in place with required controls.
Common RECs include aboveground storage tanks (ASTs), underground storage tanks (USTs), chemical and hazardous substances, hydraulic equipment, polychlorinated biphenyls (PCBs), stains, spills, stressed vegetation, ponds, lagoons, wells, septic systems, pits, drains, sumps, radon, drinking water quality, odors, air quality issues, manufacturing concerns, industrial concerns, adjoining properties, existing environmental conditions of the property, environmental liens, activity limitations, and use limitations. Non-scope items such as asbestos-containing material (ACM) and lead-based paint (LBP) are often, but not always included.