Investing in Commercial and Industrial Property
A Phase I ESA can help you determine who is potentially liable for environmental contamination found on a property. This protects you from liability by satisfying the requirements of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) innocent landowner defense under All Appropriate Inquiries (AAI).
Without a pre-purchase Phase I ESA, property owners can be held responsible for remediating environmental issues – even if they didn’t cause the problem and may not even be aware of it.
If a property owner can demonstrate that an appropriate inquiry or due diligence was performed and “recognized environmental conditions” were not found, courts have not held the owner responsible for environmental conditions encountered later.
The process for Phase I ESAs is outlined by ASTM International via the ASTM E1527 standard. The current version of this standard was approved in 2013 but is up for renewal with an updated E1527 possibly available before the end of 2021. We’ll have to wait and see what changes are made but it could involve modifications to the definition of a “Recognized Environmental Condition” (REC) along with other definitions and improvements as to how RECs are identified – time will tell and many eyes will be watching for the final version.
Improvements in how RECs are defined and identified could be helpful because understanding the results of a Phase I and/or Phase II Environmental Site Assessment can be tricky–is further remediation necessary? What are the liabilities for not resolving a “Recognized Environmental Condition?” What will those liabilities cost? What is the difference between a “Controlled Recognized Environmental Condition” and a “Historical Recognized Environmental Condition?”
Steps of a Phase I ESA
A Phase I ESA conducted by a trained and experienced environmental professional typically includes the following steps:
- Review federal, state, tribal, and local regulatory databases for information, including underground storage tanks, aboveground storage tanks, known or suspected release cases, the storage of hazardous substances, and disposal of hazardous wastes.
- Examine property photographs, aerial photographs, fire insurance maps, historical city directories, historical topographic maps, and historical records.
- Visually inspect the site and adjacent properties to observe current and past conditions.
- Interview current and past owners, occupants, neighbors, operators, and others familiar with the property.
Phase I ESA Report
Once the Phase I ESA is complete, the report will summarize the environmental findings. There are four possible “types” or categories of findings (i.e. environmental conditions) that may be included in the report:
- REC – A recognized environmental condition (REC) indicates known surface or subsurface contamination by a previous owner or by the owner of an adjacent property or offsite source.
- CREC – A controlled recognized environmental condition (CREC) indicates that the property has been impacted by contamination. Although this has been investigated and remediated, engineering and/or institutional conditions have been established on the property.
- HREC – A historical recognized environmental condition (HREC) identifies that contamination impacted the property, which was investigated and remediated. The property now qualifies for unrestricted use.
- Non-REC Findings – A report will include a list of environmental conditions found on the property. Even though these are not classified as a REC, cREC, or hREC by the environmental professional conducting the assessment, the non-REC findings can provide useful information.
The identification of a REC may require additional investigation through a Phase II Environmental Site Assessment to collect soil, groundwater, and/or soil vapor samples from the subsurface to analyze for the presence of contaminants.
If little or no evidence of potential contamination is found at the property, the next step may be to proceed with reuse or redevelopment.
How BAI Group Can Help
With experience assessing environmental conditions on hundreds of properties for over 30 years BAI Group has the experience and expertise to guide you through the environmental due diligence process – which can protect your investment from liability if there are environmental issues with the site’s soil or groundwater.
Next Steps
Investing in a commercial or property can be the start of a promising business venture. Protect your investment against lawsuits for environmental issues before you buy. Contact us to learn how BAI Group can help.