Phase 1 Concerns
The Phase 1 Environmental Site Assessment investigation may uncover recognized environmental conditions also called RECs. These are hazardous substances that exist(ed) on the property which may have been released, into the environment. Remember, standard industry practices conducted in the past at a site may be non-compliant with the current environmental regulations. Common examples of RECs include:
- Underground storage tanks
- Petroleum product storage/spills
- Tetrachloroethylene (TCE)/solvent spills
- Polychlorinated biphenyls (PCB)/leaks
- Hazardous waste storage/improper disposal
An REC is not necessarily deleterious for the environment or your business — it depends on many factors. Discovering the RECs for the property is the purpose behind having a Phase 1 assessment performed.
Steps to Take for Dealing With Phase 1 ESA RECs
Although it may seem like a Phase 2 investigation is the next logical step to resolve Phase 1 investigation concerns, this is not always the case. Sometimes the REC is proven to present a small risk to human health, or it can be controlled through engineering, which eliminates the need for a Phase 2 ESA.
Before you conduct a Phase 2 ESA, you may also consider:
- Site-specific assessments: Conduct tests based on your needs to resolve the REC.
- Parcel carve-out: For cases where the REC is in only one “parcel” of the asset, it can be “carved out” of the collateral.
- Environmental indemnity clauses: The seller indemnifies the next owner from environmental liability. They will cover the costs of environmental remediation while the new owner buys and operates the business.
- Remedial cost estimate: Provides financial guidance for a range of cost scenarios, which helps put a number on the environmental risks.
- Holdback of funds in escrow: Reserve funds in an escrow account that are enough to pay for remedial or cleanup solutions later on.
- Environmental insurance: A policy for commercial properties that have a possible environmental risk.
Getting a Phase 2 ESA
The Phase 2 ESA evaluates the extent of the REC discovered in the Phase 1 assessment. This phase can include the collection of soil, vapor, and groundwater samples or exploratory excavations to find the extent of environmental impacts.
Get a Phase 2 assessment if Phase 1 concerns indicate past or present releases of contaminants into the environment, or if there is a possibility of a release. In these cases, it is worth identifying the extent of the concerns, so it doesn’t lead to future environmental liability and remediation costs at a future date.