February 2014
The Phase I and Phase II Environmental Site Assessment: History & Differences
By Ashley Bring

The term “due diligence” is used for a variety of concepts relating to the investigation or audit of a potential investment.  Information gathered during the due diligence period is useful to prevent unnecessary harm to parties involved in a purchase and may include many aspects of the purchasing process. Environmental due diligence is often taken into consideration prior to the purchase of real estate.  Knowledge of what environmental due diligence options are available, their benefits, limitations, time to complete, and costs associated are valuable to anyone involved in the transfer of real estate.

The Phase I Environmental Site Assessment (Phase I ESA) is a very common report used to identify potential or existing environmental contamination liabilities for real estate properties.  Early history of Phase I ESA’s date back to the 1970’s with studies assessing the risks of owning commercial properties potentially contaminated with toxic chemicals or disposal.  Creation of today’s Phase I ESA was largely a result of the U.S. courts passing the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).    

Implementation of CERCLA established, among other things, a liability scheme for determining who can be held accountable for releases of hazardous substances.  Under CERCLA, any property owner of a site from which there is a release or threatened release of hazardous substances, regardless of fault, can be held liable – simply by virtue of ownership.  CERCLA provides protection from liability for certain parties, provided they comply with specific criteria outlined in the statute.  Three common protections under this statute include: 1) Innocent landowners, 2) Contiguous property owners, and 3) Bona fide prospective purchasers. 

To qualify for these protections, “All Appropriate Inquiry” (AAI) must be completed to determine prior uses of the property and to identify past releases or potential releases of hazardous substances at the property.  The Phase I ESA became the standard by which parties eligible for protection under CERCLA could satisfy the AAI requirement set forth in AAI 40 CFR part 312.  In 1993 the American Society for Testing and Materials (ASTM) published a baseline process for completing AAI.  This standard, the ASTM E 1527, Practice for Phase I Environmental Site Assessment, is still in effect today and has undergone several updates and revisions to comply with AAI regulations. 

Offering the most legal protection under CERCLA, an ASTM 1527-13 compliant Phase I is the most common form of environmental due diligence performed today.  The Phase I ESA is comprised of several pieces, the basics of which includes inspection the property by an environmental professional, a historical records review of the property, and interviews with owners, occupants, neighbors, and local government officials.  The findings of the environmental consultant may uncover a recognized environmental concern (REC), which may lead to further investigation. Examples of RECs may include but are not limited to: discovery of a spill or staining, evidence of a leaking underground storage tank, finding releases from adjacent properties, among other issues.  Upon discovery of REC’s, the environmental professional may recommend a Phase II Environmental Site Assessment (Phase II ESA). 

The degree to which a site is inspected is the main difference between a Phase I and Phase II ESA.  While the Phase I ESA is used to identify potential REC’s, the Phase II further investigates the presence/absence or further identifies/quantifies of the potential environmental contaminants recognized in the Phase I.    A Phase I is noninvasive, whereas Phase II is invasive - typically requiring collection and testing of soil or groundwater samples or building materials. Phase II site assessment allows the potential purchaser to gain additional knowledge of the environmental impacts of the property they are considering purchasing. 

Depending on the risk tolerance of a potential purchaser, lending institution, or loan servicing company, a variety of environmental assessments are available.  To get the full protection satisfying the AAI under CERCLA, a Phase I ESA is the best report for many situations.   When warranted, a Phase II ESA provides additional information not covered in the initial Phase I report.  To learn more about Phase I and II ESA’s join us for our upcoming webinar program.

Ashley Bring is a Business Development Representative for August Mack Environmental, Inc in their Ohio office.  She works closely with the environmental due diligence team, with a focus on Phase I and II environmental site assessments, building sciences, and closure services.  Ashley can be reached at 740.548.1524 or via email at abring@augustmack.com

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