Phase 1 Environmental Site Assessment
A Phase 1 Environmental Site Assessment is a comprehensive review that follows ASTM Standards to evaluate the environmental risk of a property. It is often referred to as a “Phase 1 ESA,” and is typically part of the real estate due diligence process. A Phase I ESA studies historical and current land-uses of a property. Additionally, the report documents the environmental liability and likelihood of contamination to exist at a property. For instance, an apartment complex today may have been a gas station 90 years ago. And the gas station may have contaminated the soil. Updated November 13, 2019.
- Nationwide Bank & Lender-Approval
- Certified Engineers & Geologists
Federal Standards & Guidelines
There are federal guidelines and standards to regulate the quality of Phase 1 Environmental Site Assessment reports. In fact, a proper Phase 1 ESA report can assist with protecting innocent landowners from the unforeseeable burdens of environmental concern. For instance, when a Phase 1 ESA report meets all the guidelines, it can qualify the landowner for legal liability protection and financial assistance in the cleanup process. For this purpose, the All Appropriate Inquiry (AAI) rule is in place.
American Society for Testing & Materials
Additionally, the American Society for Testing and Materials (ASTM) administers standards for Phase 1 Environmental Site Assessments. Similarly, these standards generally comply with the CERCLA’s Innocent Land Owner (ILO) defense policies. Purchasers looking to qualify for CERCLA liability protection require a comprehensive Phase 1 Environmental Site Assessment Report. And the Geo Forward team prepares Phase 1 ESA Reports to meet all of these requirements.
In some cases, a Phase 1 ESA report comprises additional components (user-specific standards) to qualify for its user’s purpose. For example, the Department of Housing and Urban Development (HUD) and the Small Business Administration each administer internal standards for Phase 1 ESA reports. In fact, these additional requirements build-on the ASTM and federal standards summarized above. And consequently, the assessment process becomes more comprehensive. A Phase 1 Environmental Site Assessment report compliant with HUD standards qualifies under the “Multifamily Accelerate Process.” And reports compliant with SBA standards qualify for SBA-504 or 7(a) loans.
Phase 1 ESA at Pre-Purchase
A Phase 1 Environmental Site Assessment is a common requirement at the pre-purchase and/or loan qualification stage of a property transaction. These real estate due diligence reports provide buyers and sellers with an assessment concerning any potential environmental conditions that may exist at a site. The ultimate purpose of a Phase 1 ESA is for the report user to document the environmental risk of a property, prior to a transaction and/or development.
In most cases, multiple parties fall under the “report user” category and require reliance. And obligations to report or withhold the results of a Phase 1 ESA to outside parties or agencies can be complex. Thus, there is always a recommendation for professional consultation, along with advice under legal counsel.
No Further Action
Upon the completion of a Phase 1 Environmental Site Assessment, environmental professionals are required to evaluate the presence of any Recognized Environmental Condition (REC) that could lead to subsurface contamination. Additionally, the ASTM standards require the evaluation of potential Controlled Recognized Environmental Conditions (CRECs) and Historical Recognized Environmental Conditions (HRECs). If no such conditions come to light during a Phase 1 ESA, the conclusions generally lead to a “No Further Action” recommendation.
Phase 2 ESA Recommendations?
Upon recognizing environmental concerns during a Phase I ESA, recommendations for subsurface testing may be necessary, per the ASTM standards. This continuation of the assessment is referred to as a “Phase 2 Environmental Site Assessment” (or Phase 2 Subsurface Investigation). The Phase 2 scope of work is a function of the Recognized Environmental Conditions at the Subject Site. As a result, the Phase 2 ESA directly investigates whether those conditions are causing subsurface contamination, or not.
What Happens During a Phase 2 ESA?
A Phase 2 Environmental Site Assessment is the subsurface investigation warranted by the findings of a Phase 1 Environmental Site Assessment. To illustrate, a Phase 2 ESA typically includes soil, soil gas, and groundwater testing, as well as laboratory analysis. Furthermore, a Phase 2 Subsurface Investigation can also include geophysical surveys to locate underground tanks and pipelines. And the results of a Phase 2 Subsurface Investigation compare directly against environmental screening levels, per government agency standards. Similarly, the use of vapor intrusion investigation tools within a Phase 2 ESA, assist in determining whether occupants of a property potentially face human health risks, or not.
Other Possible Recommendations
Other environmental conditions that can warrant further investigation are Environmental Issues, CRECs, HRECs and other De Minimis Conditions. Although methane soil gas is an apparent environmental concern for developers today, there doesn’t appear to be an ASTM standard for recommending additional subsurface investigations of methane at this time. However, based on site-specific information obtainable during the Phase 1 ESA process, the environmental professional may recommend a methane test anyways. In most cases, properties within a high methane gas zone are likely to include recommendations for methane testing.
In some cases, a Phase 1 ESA Report isn’t necessary to start off. Alternatively, some lending institutions, along with the SBA, initiate due diligence in the form of limited investigations. In fact, a limited environmental site assessment such as a desktop environmental report or a transaction screen assessment can serve as a preliminary tool to evaluate risk. Basing on the findings of these limited reports, there may or may not be a recommendation to follow through with a Phase 1 ESA.
Scope of Work
Phase I Environmental Site Assessments require certification by environmental professionals, such as geologists and engineers. To illustrate the components of a typical Phase 1 ESA, the following items are part of the assessment.
- Job Site Visits or Reconnaissance
- Historical Property Information
- Regulatory Agency Files
- Database Reports and Government Records
- Study and Analysis of Geology and Hydrogeology
- Vapor Intrusion Risk Analysis
- Environmental Liens and Activity Use Limitations
- Conclusions and Recommendations
Suspicious Low-Cost Phase 1 ESAs
A low-cost Phase 1 Environmental Site Assessment typically performs below the required standard. Usually, suspiciously low-costing Phase 1 ESAs contain major errors and omissions. In fact, errors on a critical assessment like this can result in expensive legal and regulatory agency fees. Moreover, there could be a requirement to cleanup unforeseen contamination. Consumers should be aware of the fair industry-standard pricing of a Phase 1 ESA.
Case Example (Year 2018, Los Angeles, CA): Company-A is commissioned to conduct an environmental review on a property. Company-B prepared a low-cost Phase 1 ESA report on the same property. During the review, Company-A found significant errors and omissions. The low-cost report by Company-B missed that there had been a gasoline station and underground tanks on the property for over a decade. Consequently, the low-cost Phase 1 ESA report by Company-B disqualifies under Innocent Landowner Liability Protection Policy. And the owner of the property is faced with high legal costs and cleanup responsibilities.
Initially, during the due diligence period, an environmental questionnaire can be required. This typically applies to sales or financing of the Subject Site. The information within an environmental questionnaire is valuable to the Phase 1 Environmental Site Assessment process. The form provides facts about the property, under a legal certification of good faith. Under this presumption, a basic level of environmental risk can be evaluated and used as a tool to enhance the accuracy of the Phase 1 ESA report. However, a Phase 1 Environmental report does not solely rely on this information.
User Data Request Form
In some cases, a User Data Request Form will be required with a Phase 1 Environmental Site Assessment. In fact, this form assists in satisfying the Brownfields Act for Innocent Landowner Liability Protection, and the “All Appropriate Inquiry” determination. Consequently, the User Data Request Form inquires about the User’s knowledge of environmental cleanup liens. Additionally, the form inquires about activity or land use limitations, the purchase price to fair market value, and other special information.
A reliance letter is a legal document that allows environmental professionals to authorize Lenders and the SBA to use and rely upon their technical reports. These letters typically serve as an extension of liability. Thus, an additional cost is applied. The letter is not an update or modification to the original Phase 1 Environmental Site Assessment report. As a result, a reliance letter implies no warranty that the condition of the property is the same as it was on the date of the Phase 1 ESA. A Phase 1 Environmental Site Assessment reliance letter can cost approximately $250 to $600.
Geo Forward can customize Phase 1 Environmental Site Assessment formats to any preferred report structure.
For more information about Phase 1 ESAs, please call (888) 930-6604 to speak with a licensed professional engineer or geologist.
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