What Is A Phase 1 Environmental Site Assessment?
Do I Need To Have One Done When Purchasing An Apartment Building?
A phase 1 environmental site assessment (sometimes called a phase 1 ESA for short) is an absolute necessity when purchasing commercial property these days, including apartment properties. So make sure you budget for this in your due diligence process.
Believe me,you do not ever want to be faced with a situation where a property that you own is contaminated!
I speak from hard earned experience on this. (I relate how I almost lost millions and millions of dollars due to an
environmental contamination in this article
Remember, the best time to determine if an environmental contamination is present, is before you buy. After you own the property it becomes your responsibility. So even if you are doing a deal where a mortgage lender is not involved (lenders will always ask for an up to date phase 1 environmental report before advancing any money) make sure you CYA (cover your a**) by ordering a phase 1. In fact, any time there is a change in ownership, a partnership buyout or a new lender is getting involved you will require a phase one.
So what exactly is a phase 1 environmental site assessment?
In short, it is a report prepared to identify any existing or potential environmental contamination of a real estate property. And that includes the land, water, buildings etc. ie. Anything that has to do with the property is examined. However, no physical analysis or testing of any type is performed during a phase one. A phase 1 is the fact phase of an environmental assessment. Basically, the whole purpose of the phase 1 is to determine whether or not there is any evidence that may suggest that the site is contaminated or may become contaminated. If such evidence is uncovered, it is likely that a phase 2 environmental assessment would then be required. A phase 2 is much more involved (and costly) and does include physical testing and sampling etc.
To give you an idea of some of what is typically undertaken during a phase 1 environmental site assessment, here is a list of some of the tasks performed:
- Chain of title review. What has the property been used for in the past? Are there red flags based on past usage?
- Determine surrounding land use. This can be a very important part of the assessment as the risk of contamination can increase dramatically if the surrounding properties are potentially contaminated.
- Historical aerial photograph review. When conducting a phase one environmental review, environmental consultants will almost always look through historical aerial photographs to determine a time-line for development of the property as well as surrounding properties.
- Agency contacts and related record searches. Consultants may contact several agencies such as fire departments, local health departments, petroleum tank management associations, water boards etc. in order to gather pertinent information in the form of records and/or interviews.
- Interviews. Interviews will be conducted with anyone who may have information that would help with the report. For example, past and present property managers and tenants would be obvious choices. As well, if there is concern over surrounding properties, interviews may be conducted with people who have been or are involved with that property. For example, a mixed-use property that I purchased a few years back was located adjacent to a property that used to be a gas station. As part of the phase 1 environmental site assessment, the consultant I had hired interviewed the past manager of the station regarding some petroleum tank leaks and subsequent remediation that took place about 15 years prior to my purchase.
- Site reconnaissance. Of course, a visual inspection of the property and improvements plays a vital role in a phase 1 environmental report. The confines of the building(s) are inspected and property boundary measurements observed among other things. Photographs are taken of the property at this time as well. Again, no physical testing or sampling is conducted during a phase 1 assessment.
Some of the things that environmental consultants look for during a phase 1 environmental include:
- evidence of lead based paint
- potential hydrocarbon contamination
In concluding her/his report, the consultant will give their recommendation as to whether or not a phase 2 environmental site assessment is necessary. This will be the case if there has been anything uncovered during the phase 1 ESA that might suggest potential contamination. The phase 2 involves actual testing in any areas of concern, and can become quite costly.
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