Do Your Due Diligence: Environmental Assessments of Commercial Properties
The purpose of a Phase I Environmental Site Assessment (ESA) is to determine if a property has any potential environmental issues that may create a liability for the purchaser. It is normally required by a lender for a commercial property. The Phase I ESA is typically one of the early steps performed during the due diligence process of land acquisition.
Phase I ESAs are conducted in accordance with the American Society for Testing and Materials (ASTM). In a nutshell, the assessment consists of state and federal database searches, historic aerial photography review, interviews with former and current landowners, a physical site reconnaissance, and a report documenting the findings and recommendations. Sampling of water, soil or air is typically not performed during a Phase I, but may be recommended as the next course of action if contamination is suspected.
For the most part, Phase I ESAs are concerned with the possibility of hazardous chemicals that may be in the soil or groundwater of a property. Such contamination can originate from adjacent properties such as dry cleaners, gas stations, or other industrial businesses. They also might originate from the client’s property in the form of leaking underground storage tanks or previous land use. Previous or current agricultural practices can also play a role from the use of fuel tanks, cattle dipping vats, insecticides, and pesticides.
Here are some items to think about when hiring a professional to conduct your Phase I ESA:
- Hire an experienced consultant with an environmental science background. Phase I ESAs cover a broad variety of scientific disciplines, such as geology, chemistry, and biology. Ask them how many Phase I ESAs they have prepared in the past.
- Make sure they go onsite and inspect the property. Although they will look at a variety of maps and historic aerials, nothing beats feet on the ground. An area that was fine yesterday may have become a dumping ground for someone’s old tires today.
- If there are structures or old buildings on the property, ask the consultant to determine the potential for asbestos or lead-based paint. While a Phase I ESA typically does not include testing for these items, it would be good to know if the potential exists, especially if your client is contemplating demolition activities.
- Be sure to provide a contact person to discuss the parcel’s history with your consultant. Owner interview is a part of the ASTM process and is very important in understanding past property uses and determining when further information might be useful. Interviewing previous property owners is another critical item that will allow the consultant to ascertain if previous uses of the property may have impacted the property.
A careful review of the regulatory agency databases is another important part of a Phase I ESA that will oftentimes shed light on the subject property and adjacent property uses; e.g., registered underground storage tanks may exist on an adjacent property.
Prices to conduct a Phase I ESA vary widely, from $500 to $2,500 or more for larger parcels. This is one area where you definitely get what you pay for. Just the regulatory agency database search alone is normally upwards of $200. So if a person quotes you a price of $500 to assess your 500-acre property for commercial development, you can be pretty sure they aren’t going to do a very thorough job.
Remember, a Phase I ESA protects your client from having to undergo costly cleanup work to correct a problem that may have been caused by someone else. The potential for litigation is also high if contamination is found.
The Phoenix Environmental Group, Inc.