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A Phase I ESA is an investigation of the current and historic uses of a property, and an inspection of current conditions of the property to determine the likelihood that contamination is present. The Phase I environmental assessment is intended to be a standardized review process looking for specific indications of contamination issues; it is not intended to be an exhaustive search looking for contamination that is not there.

What is a Phase 1 ESA?

Simply stated, a Phase I ESA is looking for indications that current or historic uses of the property may have resulted in contamination. The Phase I also considers neighboring properties where contaminants may have migrated onto the property through groundwater, etc. Because the scope of the Phase 1 environmental site assessment is focused on contamination issues, some organizations will decide to augment the assessment to address other related issues, such as:

•Asbestos •Lead-based paint •Indoor air quality and industrial hygiene •Compliance with environmental permits and environmental laws •Compliance with OSHA rules and other health and safety issues •Past company disposal practices in landfills, etc.

These other types of issues are not addressed in a Phase I ESA under the ASTM standard; if you wish to have these issues addressed, you need to discuss adding them with the environmental professional.

I N S I D E T H I S B R I E F I N G

1 What is a Phase 1 ESA?

2 How Long Does a Phase 1 Take?

3 What is the Phase 1 Looking For?

4 Are There Different Kinds?

5 Can Anyone Conduct a Phase 1 ESA?

6 Can I Use an Old ESA?

7 What Happens If My Phase I Identifies An Issue?

Landowner Liability Protections are available

only if a Phase I Environmental Site Assessment was

conducted prior to purchasing property

What is the Phase 1 Looking For?

Regulatory Briefing Phase 1 ESA Buyer’s Guide

December 2016

This will vary greatly between providers; you should allow at least two weeks to complete the Phase I. Some providers will ask for significantly more time, some requiring 4-6 weeks.

How Long Does A Phase 1 Take?

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Page 2 Regulatory Briefing

Are There Different Kinds If Phase 1 ESA? Different companies can use a variety of terms to refer to their own initial or cursory review of environmental issues associated with a property. It is sometimes difficult to determine what the review includes. Therefore, to assure a comprehensive assessment, the only types of Phase 1 ESA accepted by the US government, States and most lenders uses the current ASTM standard method, referred to as “ASTM E 1527-13” or "E 2247 – 08", with the later applying to large tracts of rural or forest lands only. These ASTM standards are updated every five years, so older, obsolete versions are referred to as E 1527-03, etc. To compare services between companies, be sure that each is providing a Phase I ESA that explicitly meets the ASTM E 1527-13 standard. Other types of investigations exist, including:

Transaction Screen Records Search With Risk Assessment

These types of investigations are appropriate for some limited situations, or can be conducted to satisfy the environmental due diligence requirements of specific organizations. For example, the Small Business Administration has developed their own “Records Search With Risk Assessment” procedure to provide an appropriate level of environmental review for low risk properties. These types of investigations are not equivalent to a Phase 1 Environmental Site Assessment.

Activity & Use Restrictions (AULs)

AULs are explicit restrictions on the uses and/or activities that are allowed on a property.

The existence of an AUL should be considered an

indication that the property is contaminated

and not suitable for unrestricted use.

“Industrial Use Only” restriction may indicate that contamination was partially cleaned up to

meet industrial standards. Restrictions could also

limit physical changes to the buildings, parking

lots, etc.

To be eligible for LLPs, Owners must know and have complied with all

AULs

Can anyone conduct a Phase I Environmental Assessment? Yes and no; legally, anyone can conduct a Phase I ESA. However, if you want your assessment to meet the ASTM standard, then the “environmental professional” you use will need to provide documentation that they meet the specific qualification requirements contained in ASTM E 1527-13. Different organizations and lenders may have additional requirements on who can conduct Environmental Site Assessments they will accept. For example, the Small Business Administration (SBA) requires that the environmental professional has a minimum of $1,000,0000 professional liability insurance, in addition to meeting technical qualifications.

© Caltha LLP 2016

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Lenders have a vested interest in the condition of a property they will accept as collateral. If contamination is discovered later, the value of the property can be significantly reduced and can make the property difficult to resell.

Make sure to discuss the Phase I ESA with your lender. They may have additional requirements that need to be included. The lender may also need to be identified in the ESA report as an “additional user”, or may require additional liability protections, such as a “reliance letter”. Some lenders prefer that they order the Phase I ESA rather than having the borrower order one.

Understanding your lender’s requirements at the onset will save time and money, and will avoid having to make last minute changes prior to closing.

How Is My Lender Involved?

Can I Use a Previous Phase I ESA Report? Possibly; however the ASTM is specific on how old the ESA report can be. Reports completed within the previous six months are valid; after six months some or all of the report will need to be updated. Environmental assessments older than one year need to be redone.

Sometimes the Phase I will identify issues (referred to as “Recognized Environmental Conditions” or REC) that indicate that contamination may be present on the property. In this case, the environmental professional will recommend a Phase II Environmental Site Assessment be conducted. The Phase II ESA will likely include collecting soil, groundwater or other samples to determine if contamination is actually present.

If contamination is discovered during the Phase 2 ESA, the property owner may be obligated to report it to State and/or Federal agencies, and may be required to conduct cleanup.

Finally, it is important to consider that the ESA process is only one element of environmental due diligence (although it is the only element required for LLPs). Other business risks may be important to a purchaser, which are not considered as part of the ASTM standard practice. These issues need to be discussed with the environmental professional conducting the assessment.

What Happens If My Phase I Environmental Assessment Identified An Issue?

Caltha LLP Services Caltha LLP provides expert due diligence support to Buyers, Sellers and Lenders. Click on the service area below for more information: Phase 1 Environmental Site Assessment Phase 2 Investigations Due Diligence Compliance Audits

Regulatory Briefings are published periodically by Caltha to highlight new or proposed environmental, health & safety regulations

Caltha LLP Phone: (763) 208-6430

Website: http://www.calthacompany.com

E-mail: info@calthacompany.com