Suppose you are a commercial property owner looking to buy or sell your property. Before finalizing your contract, a Phase I Environmental Site Assessment is strongly recommended if it wasn’t already made a requirement from the bank handling your primary financial transactions. A Phase I ESA is likely the cheapest form of due diligence and risk management you could do to ensure that the property you’re investing in is a satisfactory long-term financial decision. If you’re wondering what a Phase I ESA is, it is an assessment done by a professional with a license to recognize contamination at the subject property. Essentially, the current and historical uses of the property are investigated to predict if there is a likelihood of contamination. To find out more details about what a Phase I ESA entails, click here.
It can be confusing to know under what circumstances a Phase I ESA would be needed. Chances are, if you have suspicions that the operations at the property are poorly conducted, a Phase I ESA is an excellent way to ensure that you won’t be liable in the future.
Here Are Some Specific Situations That Require A Phase I ESA:
- As mentioned before, any commercial transactions related to buying, selling, refinancing or renovating the property.
- With commercial transactions that a bank administers because a real estate loan is being used.
- When applying for a building permit.
- When the properties zoning must be changed.
- With any commercial or industrial transaction, if you’re a dry-cleaning business or any business that must use a hazardous substance. This also applies if you’re a business directly adjacent to a property with such commercial or industrial operations.
- With gas stations, service stations, or any properties that handle oil and gas operations. If you’re a business operating right next to a gas station, you will most likely need one too.
- Suppose the property is known to have environmental liens. Environmental liens are a legal file that a property has because it was previously exposed to hazardous substances or toxic chemicals.
While the risk of contaminated property is more vital in commercial properties, non-commercial properties can also be contaminated. The likelihood of finding RECs in residential homes is minimal unless there were operations taking place that were not declared. The good news is that cleanup won’t be nearly as expensive as a commercial property’s cleanup.
Here Are A Few Examples Of Non-commercial Properties That May Need Phase I ESA’s:
- Non-commercial properties that tend to require a Phase I ESA are usually farmlands or acreages that have been poorly maintained and are being used as junkyards.
- Vacant deserted lands that previously had building structures on-site that were removed also need an inspection as it is unknown what impacts the previous operations left behind.
- Suppose there are wells, cisterns, or sumps on site. Cisterns are usually constructed to catch stormwater, and sumps are built to catch water, chemicals, and other undesirable liquids.
- Properties that carry oil drums, fuel tanks or large amounts of fuel.
What happens if you chose not to conduct a Phase I ESA? Suppose, after finding a feasible location for your business to grow, you discover that the property was previously a poorly maintained service station, and oil has been sitting on the soil’s subsurface for years. Not only can you not proceed with construction, but it is also your responsibility as the property owner to deal with the remediation even if the contamination was a product of practices that occurred before you purchased the property. This will now cost you thousands of dollars to clean up, and no further development work will be allowed. It also ruins the timeline of the project. Depending on the type of contamination, remediation can take anywhere from a couple of weeks to a couple of years. If a Phase I ESA was conducted, the contamination could have been identified before purchasing the property, and whoever owned the property during the operations would be responsible for cleanup. You would be free from any liabilities. Even if operations are well maintained, and standards are met, a Phase I ESA may still be required legally. However, the upside is that ONLY a Phase I ESA will be needed, and in a matter of three weeks, construction can continue as planned. While anybody can spot the obvious signs of contaminations such as spills or stains, professionals are hired to identify recognized environmental concerns (REC’s) through a historical record review, site assessment and interviews. If contamination exists, then the assessor will take the necessary steps to determine what the contaminants are. The best tip is to not look at Phase I ESAs as a burden but instead, use it as a tool to relieve you of future liabilities.
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