Phase I & II Environmental Site Assessments

Historically, environmental regulations have been developed that impact many aspects of our daily lives and the way we conduct business. The catalyst for these regulations has been the protection of both human health and the environment. For the most part, these regulations are developed at the federal level and implemented by federal, state, and local officials, with penalties for violations including fines and criminal punishment.

The body of environmental legislation and associated regulations have resulted in many businesses, financial institutions, building owners, and tenants involved in property transactions being named as potentially responsible parties (PRP’s) who may be liable for the entire cost of an environmental clean-up (remediation). Environmental regulations may also target the individual as a PRP. In order to minimize this liability exposure, it has become evident that a professional review of current and past property uses is necessary. This method of limiting liability was recognized as a “due diligence” process under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, a.k.a. Superfund, 40 CFR Part 300). Although this process was intended as a Superfund defense, the ESA has become the de facto method of conducting environmental due diligence for commercial property transactions.

To assist in developing the due diligence defense, the following standards are typically used:

  • Phase I Site Assessment ASTM E1527
  • 40 CFR Part 312 “All Appropriate Inquiry”

ASTM International has developed E1527 Standards for Environmental Site Assessments: Phase I Environmental Site Assessment. This practice is intended to permit a user to satisfy one of the requirements to qualify for the innocent landowner defense to CERCLA liability: that is, the practices that constitute “all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice” as defined in 42 USC [section]9601(35)(B). 

Phase I ESA

Phase I involves research into the history of a property to determine if hazardous substances or petroleum products have likely been released into soil, groundwater, or structures on site.

The rationale for conducting a Phase I ESA has historically been one or more of the following:

1. To satisfy CERCLA appropriate inquiry requirements for the “innocent landowner” defense, should contamination be found on the property at some time in the future;

2. To evaluate business environmental risk, defined by the American Society of Testing and Materials (ASTM) as “a risk which can have a material, environmental or environmentally-driven impact on the business associated with the current or planned use of a parcel of commercial real estate;

3. As a common-sense practice to determine the likelihood of soil or groundwater contamination or of contamination within an existing structure on a property. The presence of any such contamination could devalue a property or incur future liability for the property owner.



Phase II ESA

Recognized environmental conditions identified in a Phase I may trigger a Phase II ESA. The Phase II process typically includes sampling and laboratory analysis of different media, as deemed necessary based on the findings of the Phase I ESA or by a regulatory agency, including but not limited to building materials, indoor air, soils, ground water, surface water, and ambient air. The data gathered is compared to existing environmental and human health standards to determine the site’s environmental and public health risks and potential remediation strategies. ASTM has created a standard for conducting Phase II ESA’s, ASTM E 1903, Standard Guide for Environmental Site Assessments: Phase II Environmental Site Assessment Process. Be aware of regulatory standards, including reporting requirements, which may be applicable to the type of Phase II being conducted.

Additional Environmental Actions

Following the Phase II ESA, further studies may be required to determine the extent of any environmental impact, to explore alternative methods of abatement or remediation, and to develop cost estimates of the various abatement or remediation alternatives. Upon completion of these studies, abatement or remediation activity is often initiated.