A Frequently Asked Question Caltha receives is “Do I need a Phase I Environmental if I am not getting a bank loan?“.
The simple answer is No; performing a Phase 1 Environmental Assessment on a property you intend to purchase or lease is voluntary. It is a risk management step taken to identify contamination issues on the property or nearby properties which can impact both the value and usability of the property.
The more complete answer is Possibly. The Phase 1 Assessment provides information which can be important to the value of a piece of property, which is not considered in other property valuation assessments. It is important to consider that a Phase 1 may be required in the future, if you use the property as collateral, or if you sell the property and a prospective Buyer uses a bank that would require a Phase 1. If in the future potential issues are identified, you can be responsible for cleanup,even if you did not cause the issue. The advantage of conducting an ESA most often cited is that it can establish you as an “innocent landowner“, allowing some protection against this type of liability. Therefore it is better to have this information before purchasing a property.
Another tangible benefit of conducting an ESA is the knowledge gained in conducting a formal assessment of a property. This benefit is greatly augmented by adding issues to the ESA that are often outside the scope of a standard ASTM Phase 1. This could include:
- Describing the manufacturing process
- Evaluating environmental compliance
- Identifying potential “bottlenecks” created by permit limits or regulations
- Considering environmental compliance implications of your future plans for the facility
- Assessing impacts of upcoming regulations on a facility
- Understanding the current environmental management system.
- Evaluating the status of asbestos, lead-based paint and other issues typically excluded from a Phase 1 ESA; this issues are especially important if you intent to demolish and/or renovate existing structures.