Knowing the Difference between Phase I and Phase II Environmental Site Assessments

As concerns about legal liability related to environmental concerns grow, conducting

environmental site assessments has become an important part of due diligence for real estate

transactions. These assessments help prevent harm to parties involved in a real estate transaction,

informing buyers and sellers alike of potential environmental hazards.

Phase I and Phase II environmental site assessments are very useful in establishing whether

environmental contamination liabilities exist on a property being sold. The primary difference

between Phase I and Phase II assessments is rigor. The Phase I assessment uses documents and

interviews to compile information. Phase II assessments go deeper, taking soil and water samples

for analysis.

Phase I Environmental Assessment

Phase I ESAs were developed after the Comprehensive Environmental Response, Compensation,

and Liability Act of 1980 went into effect. The act, commonly referred to as CERCLA, set up

guidelines for determining liability regarding environmental contamination of real estate

properties. Under the law, property owners of sites can be held liable for releases of hazardous

substances. Innocent landowners, contiguous property owners and bona fide prospective

purchasers may be exempt from liability, however. A Phase I ESA report can help property

owners establish that they are eligible for these protections.

In a Phase I ESA, evaluators conduct an inspection of the property and review records related to

the property. These records typically include deeds, aerial photographs, surveys, maps, and other

documents. The evaluator may also examine records of other nearby properties, particularly if

there have been concerns about contamination at these properties. Interviews with property

owners in the area and state and federal officials may also be part of the review.

Depending on what the Phase I ESA digs up, a Phase II ESA may be recommended by the

evaluator.

Phase II ESA

Phase II ESAs are far more invasive than Phase I environmental site assessments. In a Phase II

assessment, evaluators may conduct lab tests. A Phase II assessment may include:

Soil samples

Water samples

Well drilling to monitor groundwater

Surveying for underground storage tanks or drums

Sampling of drums on site

Testing of underground tanks

Transformer or capacitor sampling for polychlorinated biphenyls

Based on what environmental consultants find, prospective property owners have several

options. They can walk away from a deal, require that the current landowner remediate the

property as a condition of the sale, ask that the price of the property be reduced to compensate

for remediation costs, or purchase the property and begin remediation on their own. In some

cases, federal grant money may be available to help property owners clean up contaminated

property.

Banks typically require ESAs on property worth more than $1 million. Parties to lower value

transactions would also be well-served to conduct an ESA, as liability resulting from

contamination can be extremely costly if the matter ends up in litigation. For site assessments

conducted by a professional, reliable evaluator, property owners should consider EBI Consulting.

The company has a sterling professional reputation and can provide expert due diligence

consulting tailored to clients’ specific needs.