If you are currently in the process of purchasing a property, you should know about the advantages of performing a Phase I Environmental Site Assessment (ESA) prior to purchase. Property transactions are often completed without an understanding of the environmental conditions and how they could cause you or your business financial risk. The purpose of the Phase I ESA is to identify environmental concerns related to a property. The Phase I includes an evaluation of the potential for soil and groundwater contamination which could be expensive to address. The Phase I also includes a site reconnaissance to identify current or evidence of past activities that could have impacted the environment. Additionally, the Phase I includes interviews, a record search to identify previous land use and ownership and a regulatory listings search for the site and surrounding properties to identify reported spills and releases that may have impacted the property.

The Environmental Protection Agency (EPA) through the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) imposes strict liability for contamination. A “Potentially Responsible Party” (PRP) can include a current or recent property owner that may not have caused the contamination present at a property. As such, unaware and innocent purchasers may find themselves facing expensive cleanup costs resulting from pre-existing contamination.

Although several Phase I standards have been developed and used over the years, the most recent standard is the American Society for Testing and Materials (ASTM) Standard E-1527-05. This standard is referred to as All Appropriate Inquiry (AAI). AAI defines an Environmental Professional (EP) and states that AAI reports must be reviewed and signed by an EP. AAI also provides some very important CERCLA liability protections for purchasers that are not offered if this standard is not followed. This liability protection is referred to as the “innocent landowner defense.” It is important to recognize that CERCLA liability relates to hazardous substances but not petroleum products such as gasoline and diesel fuel.

In addition to the innocent landowner defense, AAI provides bonafide prospective purchaser liability protection and contiguous property owner liability protection. The bonafide prospective purchase protection allows a party to acquire a property that is known to be contaminated without incurring CERCLA liability while the contiguous property owner liability protection applies in a situation where a party acquires a property that is being impacted by a contiguous property. In all cases, the purchaser must not contribute to, exasperate the problem or interfere with measures related to response to the contamination. This is why it is important for the purchaser to understand what measures are or will likely be required to address the contamination. As a site owner and/or operator, you should understand what measures are likely to be needed to address the contamination in order to understand how it might impact your operations or devalue your property.

As a purchaser, you should recognize and understand the implications of contamination beyond simply qualifying for liability protection. The presence of contamination can devalue a property or complicate site use for several reasons. The primary concern is the safety of site occupants as it relates to exposure to the contamination. Exposure can occur through direct contact, ingestion or inhalation of vapors. Exposure to vapors is difficult to prevent especially when volatile contamination is present beneath existing buildings. Some environmental remedies may involve long term cleanup activities, ongoing maintenance and/or monitoring that can last many years. Direct contact and ingestion exposure is often eliminated through the use of covers such as parking lots or buildings coupled with land use restrictions. Land use restrictions often prohibit:

• Residential development
• Installation or use of groundwater wells
• Construction (or occupancy) of buildings without evaluating vapor intrusion concerns
• Excavation of soils in certain areas without proper safety measures
• Improper disposal of contaminated soils disturbed during construction     

Other potential environmental concerns related to purchasing a building include the possible presence of asbestos containing building materials (ACMs), lead paint and mold. These items are considered “non-scope” items by AAI but could impact the cost related to use or upgrade of a structure. These items should be discussed with the EP if renovation or demolition is planned.

A Phase I will typically take approximately three weeks to complete. If concerns arise during the Phase I, it can take time to address prior to completing the transaction. You should initiate the Phase I early in the transaction process so your purchase is not delayed and the environmental conditions can be considered during drafting of the purchase agreement.

Working with an individual that meets the definition of an EP is essential to accomplish your Phase I ESA objectives. Also, it is important to consult legal counsel if you have questions relating to CERCLA liability. Whether it is for CERCLA liability protection, to establish baseline environmental conditions, or to make sound business decisions, a Phase I ESA will be beneficial and worth the cost.