Due diligence is a critical step in any major financial transaction. For real estate purchases, it can mean a long list of items that need to be investigated, details to be checked out, and documentation to be confirmed before signing on the dotted line.
Environmental due diligence is every bit as important as other categories of due diligence. The first step in environmental due diligence is the Phase I environmental site assessment, which will serve to protect you against possible headaches or negative repercussions in the future.
Why would I need a Phase I?
In 1986 Congress enacted the Comprehensive Environmental Response Compensation and Liability Act, which holds the buyer, lessor, or lender of real estate property responsible for remediation of hazardous substance residues or contamination on the property.
The Phase I is a systematic process that has been developed with specific standards to determine the potential environmental liability on a real estate property. Through the process, you can identify potential or existing environmental contamination on a property and understand what the associated liability risks are.
A Phase I is typically required by lenders during financing. When properly done, a Phase I will help reduce your risk by serving as a “safe harbor” defense against prior land use or chemical disposal on a property.
What does the Phase I involve?
Standards that guide the Phase I process and satisfy the Environmental Protection Agency’s “All Appropriate Inquiries Rule” have been developed by the American Society for Testing and Materials ([ASTM] E1527-05). The process involves specific tasks that must be undertaken or overseen by a qualified environmental professional with a defined mix of education and years of experience.
Tasks include activities such as searches for property-associated environmental records and titles, in-depth reviews of historical aerial photography and maps, as well as interviews with past and present owners. A site inspection to evaluate current conditions is mandatory and should always include observations of adjoining properties. Findings are documented in a comprehensive report that has a shelf-life of six months, and if warranted, will be the basis for further investigation.
What if my property has never been developed?
In 2008, new ASTM standard practices were developed for the Phase I process involving large tracts of undeveloped forest land or rural property (ASTM 2247-08). This practice was established to be used on properties of 120 acres or greater and allows for limited site inspection of hard-to-reach areas and limited records or historical searches when typically available sources may not exist.
So along with conducting due diligence for issues such as code compliance, title and legal issues, and entitlements, don’t forget about environmental due diligence . The Phase I environmental site assessment is an essential tool to reduce the uncertainty of environmental risk associated with real estate property transactions.
To learn more about Phase I site assessments, epa.gov/brownfields/aai/index.htm.
DeAnne Rietz, M.S., CPESC, is a hydrologist and project manager in SWCA Environmental Consultants’ Phoenix office with more than 15 years of experience. She is a Certified Professional in Erosion and Sediment Control and has conducted numerous Phase I and II environmental site assessments throughout Arizona, New Mexico, California, and Guam in accordance with ASTM Standards.
