Is a Phase I ESA Necessary for Every Commercial Property Purchase?
Are you about to purchase a commercial property, but not sure if it requires a Phase I Environmental Site Assessment (ESA)? Lenders, and prospective property buyers, must gauge the cost of a Phase I ESA versus the probability that an environmental issue exists, which could negatively affect the value of the property. Federal regulations do not require that a Phase I ESA be conducted on every commercial real estate transaction.
However, CERCLA liability protection is only afforded when such assessments are initiated prior to the purchase of a property. Property use and history of use dictate whether or not a bank will require a Phase I ESA before offering a loan. If paying cash, a prospective buyer should also consider these same conditions in deciding to conduct a Phase I ESA. Since everyone’s risk tolerance is different, there are some gray areas. There are also some occasions where a Phase I ESA is clearly warranted.
Current Use of a Property is used to Gauge the Need for a Phase I ESA
A Phase I ESA should always be obtained if:
The business sells, supplies, or dispenses fuel, gasoline, heating oil, and other hazardous materials.
If there are actual or suspected hazardous substances on the property (or in the subsurface soil and/or groundwater), either from current, past, or future activities on the property itself or current or past activities on surrounding properties.
There is a known or potential threat to the environment or potential exceedance of any cleanup standard.
There is an issue that has been, currently is, or will potentially become the subject of an enforcement action under Federal or state laws, especially cleanup-related and waste-related state laws.
Property History is used to Gauge the Need for a Phase I ESA
A Phase I ESA should be conducted if a property has been used for an environmentally-sensitive industry or is in close proximity to a business in an environmentally-sensitive industry.