The purpose of the Phase I Environmental Assessment is to identify actual or potential site contamination.
When selecting a new project, either a residential, commercial, or large-scale land development, environmental due diligence, specifically a phase i environmental assessment, is a critical step in choosing the right property. Most commercial real estate transactions require a level 1 environmental assessment before conducting any transaction to ensure that the property is free from any contamination, which may have been caused by past or present activities.
The process of phase 1 environmental site assessment involves a records review, site visits, interviews, and report writing.
If there is contamination, it possesses a liability concern for the stakeholder. In most cases, the Environmental Consultant will provide a report without any concern that means no further investigation is required. However, what happens when the phase 1 site assessment finds a potential problem due to evidence of potential contamination. For most clients, when they find evidence of potential contamination, either the deals fall through as the Buyer may not be interested as he has to spend more money for further investigation or the financial institution may not finance the project.
The common practice is that if a phase i environmental site assessment finds evidence of potential contamination, the next step is to conduct an ESA Phase II subsurface investigation. However, there are other options that can help prevent a further Phase II investigation.
When evidence of potential contamination is found the first thing, we do contact our client to discuss the issue with them and try to find a solution. Additional research, interviews, analysis, and risk assessment may reveal that evidence of potential contamination does not pose a significant risk to the property. Although the above process is carried out during Phase I Environmental Assessment, when evidence of potential contamination is found, then owners may be more willing to provide additional information. As a result, additional investigation may reveal that evidence of potential contamination does not possess significant risk.
When Phase I Assessment reveals that there is evidence of potential contamination, the client would like to know what is the cost of carrying out Phase 2 environmental site assessment and the cost of remediation. Then the Buyer can negotiate with the seller to make an informed decision as to whether to proceed with the purchase.
Some insurance companies provide environmental insurance for specific commercial properties having environmental risks.
Sometimes there may be a gas station and strip mall in the same property. The Buyer may ask the seller to create separate parcels for gas station and strip mall and end up buying only the strip mall to mitigate the environmental risk.
Sometimes the seller or the tenant the gas station may indemnify the Buyer from any environmental liability from any release or high-risk use. In that case, the environmental risk is mitigated from the Buyer’s perspective.
For a gas station, sometimes leakage can be established by tank tightness testing, line test report, or tracer gas leak testing to determine if the tanks are leaking before carrying out a phase ii environmental assessment.
Once all option is exhausted, and it is still found that the property has significant environmental risk, then Phase 2 Environmental Site Assessment should be carried out.
Review of the previous Phase I ESA report. Developing a conceptual site model. Site investigation plan, which includes developing sampling plans. Carrying out the site investigation. Evaluating and interpreting the data gathered during the site investigation. Based on the data summarizing conclusion that may or may not require remediation.
However, if phase 2 investigation reveals that there is contamination, then remediation work should be carried out as per appropriate guidelines. Once remediation work is completed, Phase 2 confirmatory sampling and testing should be carried out to establish that there is no more contamination on the subject property.
No environmental professional wants to deliver the bad news to their clients. The client must sometimes understand it is worth walking away from buying a property where there is a high environmental risk. Also, the client has to realize that the financing may not go through due to potential high environmental risk at the property.
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