Top 10 Phase I ESA Questions

Here are the most common questions we receive regarding Phase I Environmental Assessments.

1. We did a Phase I ESA a couple of years ago; do I need another Phase I ESA now?
   Yes, selected ESA components (e.g., review of government records and visual inspections) must be updated within 180 days, while overall the ESA report may be valid for up to 12 months. A key question is whether potential environmental activities are on-going (e.g., dry cleaner) since the last inspection.
   
2. What options are available for less expensive and/or low environmental risk properties?
   Your lender may allow a lesser scope such as a regulatory database search or a Transaction Screen (former ASTM scope item that does not meet the requirements of EPA’s All Appropriate Inquiry [AAI], nor provides protection from CERCLA or Superfund liability). In most cases the Superfund liability issue is remote.
   
3. In most cases the buyer orders the Phase I ESA but when is it a good idea for the seller?
   If the seller suspects potential environmental concerns (e.g., former service station or dry cleaner), then they should perform the ESA prior to placing the property on the market. Resolving environmental issues prior to buyers looking at your property may help avoid delays when the property is under contract and ultimately having the prospective buyer walk away or requesting a price reduction. We recommend that you fix as many of the environmental issues as possible on the front end – “pay me now or pay me later!”
   
4. I have a Recognized Environmental Condition (REC), what do I do?
   The REC indicates a potential environmental issue that needs further assessment. In some cases, additional files from the state or EPA may be sufficient but in other cases sampling is needed. As a note, the lower your risk tolerance, the bigger the scope of work for Phase II sampling.
   
5. Does the Phase I ESA include asbestos or soil sampling?
   No, unless specifically requested in the Work Order/Contract. Asbestos is NOT included as a scope item under the EPA rules or ASTM guidance.
   
6. If the property is contaminated and I drop the deal, who pays?
   Usually the buyer, but this should be negotiated on the front end or after Phase I ESA identified a REC. Determining who pays becomes a big issue when the Phase II Investigation identifies contamination.  At this point, the buyer has spent a relatively large amount for a deal that’s going bust.
   
7. Should I buy a contaminated property or just walk away?
   It depends on the deal or revised deal and what’s the cost for cleanup and regulatory closure. In some cases, contaminated properties are excellent deals, especially if the environmental issues can be addressed at a reasonable cost and time frame.
   
8. My property is contaminated, what can I do?
   In Texas, the Texas Commission on Environmental Quality (TCEQ) has excellent programs for real estate such as Voluntary Cleanup Program (VCP), Innocent Owner/Operator Program (IOP), Dry Cleaner Remediation Program (DCRP), and Municipal Setting Designation (MSD) to clean up and close contaminated properties.
   
9. What should I look for in a great ESA provider?
   Evaluate company credentials along with the resume of the inspector. Unfortunately, many ESAs are performed by the less experienced professional in the firm. Lastly, is the ESA firm capable of addressing more complex issues such as Phase II, remediation, and regulatory closure if a REC is identified?
   
10. Should my Phase I ESA guy do the Phase II, remediation, and/or closure?
    Not always. A good Phase I ESA firm that has the right price for ESAs may not be the best option for more complex projects such as Phase II sampling, remediation, regulatory closure, and working with a regulatory agency such as TCEQ.

For more answers to your environmental due diligence questions, please contact Michael Whitehead, Senior Consultant at Whitehead E.S. at mwhitehead@whiteheades.com or 214-335-3246.