The Phase I Environmental Site Assessment Process
In your time you may deal with environmental investigations. It may be when you purchase or refinance a piece of a industrial or commercial property, when you sell a property, when you go for zoning or land use changes, when you have to defend yourself or your business in court (including the court of public opinion), or when you just want to spend money with a fun environmental consultant. Oddly, we don’t see a lot of that last kind. Issues of liability with buying, selling or lending on environmentally impaired real estate (or what someone thinks is environmentally impaired real estate) are very serious and often deal breakers. You may need to know about environmental conditions on a piece of real estate for a lot of different reasons.
A Phase I ESA is designed to assess the potential for adverse environmental conditions on a specific property, or nearby properties with potential to adversely affect the condition of the subject property. A Phase I typically does not involve any type of intrusive activity – no digging, no sampling, etc. The goal of a Phase I is to develop a recommendation, based on site walks, interviews and a detailed records review (a paper chase); to do, or not to do additional environmental investigation. This further investigation is referred to as a Phase II Investigation and is most likely invasive; a sampling and/or drilling program for example. The Phase II is a less prescribed investigation that targets the potential issues found during the Phase I. These potential issues are referred to as recognized environmental conditions (RECs). If problems are found during the Phase II, the next steps are corrective actions or mitigation. Corrective actions can take many forms and be no big deal, or a very big deal.
People often ask us why we recommend a Phase I if we suspect a Phase II will be called for. It is the only private sector investigation that evaluates potential environmental issues that could affect a site based on present and past land uses. It is amazing the amount of information you can find on a piece of real estate and persons associated with it by researching the property history. A Phase I allows us to determine if further investigation is warranted based on the site’s history, what we should look for during the Phase II, and where we should look for it. For example if the site was a gas station we would look for petroleum in the Phase II – not Methyl Ethyl Kool Aid. The gas pumps were here – look here. The research can also prevent a potential issue from being “smoke screened” by another issue. For example, the site is a gas station now but it was a Methyl Ethyl Kool Aid factory in the 1960s – let’s look for both gas and Methyl Ethyl Kool Aid.
The Phase I is a roadmap that helps determine if future investigation on the site is necessary and if so what, where and how much investigation is called for. Having a good road map (Phase I) can make the trip (Phase II) shorter, less expensive and more advantageous. If there are no RECs found as part of the Phase I, the recommendation will be that further investigation (a Phase II) is not warranted.
A proper Phase I should include: a site walk on the property, evaluation of neighboring or nearby properties, a public agency records review, evaluation of prior land usage of the property and adjacent properties, review of historical aerial photographs and maps, interviews with knowledgeable persons, and reviews of chains of title for the property. All of these sources may provide clues about how the property was used in the past. You may be asked to provide a legal description or survey of the property in question to ensure there is no confusion regarding the boundaries of the subject property.
Common Phase I interview formats ask: “is the property or any adjacent property currently being used as a gasoline station, motor repair facility, commercial printing facility, dry cleaner, photo developing lab, salvage yard or landfill, or as a waste treatment facility, storage, disposal, processing or recycling facility?” Other questions ask if the property or any adjacent property have been used for any of the stated purposes at any time in the past. Auto salvage and recycling facilities, like dry cleaners and print shops, have been a problem in the past. Some continue to be problematic despite recent improvements. The perception that yards are a mess will be with us for a long time. I have been to salvage yards where I would let my ten-year-old play on the ground (he would want to run the loader). I have also been to yards that will require significant investigation and corrective action. Perceptions are real. This is an industry that has not always been clean. These perceptions will keep automotive recycling facilities in the spotlight for years to come.
So, how do you protect yourself? How do you ensure that when you are ready to sell you can, without taking a major price decrease or obligating yourself, or your heirs, to long-term environmental liability? You prepare now. Environmental process of some sort is in the future of every salvage yard. The yards that will fare the best are those that prepared the best. Start implementing systems today that will make you money when you are ready to retire and sell. Avoid creating any issues that will be identified in a Phase I or Phase II investigation and fix existing issues. Document your activity. If you dispose of waste tires, keep the receipts. Information is power, and you want to be in the driver’s seat when the time comes to negotiate on your property.
Understand the environmental investigation process. Knowing what your friendly environmental consultant is looking for and why, can give you a leg-up on preventing problems, or help you start addressing issues that exist, on your terms. The worst time to address environmental issues is when you are due to close on the property in two weeks or when your loan is supposed to be going to committee. The Phase I can be your road map to addressing things in a meaningful way and to the degree possible, on your terms and timeline.
We hope everyone had a great summer and that 2018 is a great year for your business.