Are Environmental Investigations Always Necessary When Buying a Property?

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The short answer is no, the federal regulations do not obligate property buyers to conduct environmental investigations or in more correct terms, to perform a Phase I Environmental Site Assessment (ESA) in every case that there is a commercial real estate transaction.

However, there’s more to this than a simple yes or no answer, which is why we will have to go deeper into this important topic.

What Are Environmental Investigations or Environmental Site Assessments?

A Phase I ESA is a report made for real estate that suspects potential for existing environmental contamination liabilities.

These assessments are performed on both the land and the improvements made upon it. In most cases, these assessments are there to mitigate the environmental concern any side has when a real estate transaction is involved. The fear may be from the seller, the buyer, or even the bank.

In rare cases, a Phase I ESA report will find problems that will create cause for another study – Phase II ESA that looks to perform chemical analysis of any hazardous substances that were found in Phase I.

As these cases are rare, we are here to look only at Phase I ESA.

When Are Phase I ESAs performed?

As we previously mentioned, Phase I ESA is performed when there’s worry that an environmental risk might exist in connection to the property.

Let’s take a look at the reasons which prompt the initiation of Phase I ESA:

  • If any hazardous material such as gasoline, heating oil, fuel, etc. has or does pass through the property

  • If the property was involved in any investigation under federal or state law that related to environmental performance

  • If the property is considered to cause any environmental threat

In essence, Phase I ESA is warranted in many cases and should be justified, as a vast variety or environmental risks have a potential to exist. Additionally, property history needs to be inspected in any case, to determine whether or not an environmental investigation is warranted.

The Use of Property Matters the Most

In any case, the use of the property involved is the most critical factor for Phase I ESAs. If the property is used or has been used in an environmentally sensitive industry a Phase I ESA must be performed. Listing all related sectors would take too long, but you can probably guess which ones should be considered to involve any risk to the environment.

Additionally, if you’re prudent, you’ll also want environmental investigations conducted if the property is a particular use facility, i.e. if built before 1980. The reason for this is mostly the hazardous materials that might have been used in the past when it wasn’t known whether or not some substances were dangerous for the environment.

The Bottom Line

If you’re selling, or especially if you’re purchasing a property, Phase I ESAs certainly won’t hurt, even though they are mostly used to mitigate fears and prove that there are no environmental risks involved.

However, in the rare case that there is risk involved, not performing a Phase I ESA can be detrimental for everyone involved, which certainly warrants performing these assessments.

For more information, you may reach us at info@LLCPM.com