The gist of some recent conversations I’ve had with potential customers is, basically, why can’t I just do this myself? The “this” they are referring to is a Phase I Environmental Site Assessment (ESA), which is typically requested by their lender.
This is a fair question. If I were in their position, I would likely ask the same thing. The short answer is, maybe you can do your own Phase I ESA. But in order for you to know if you can do it yourself, you need to know a little more. Before I go further, if you would like to learn more about what goes into the information investigation in a Phase I ESA, see this recorded webinar: Interviews and Site Records.
Phase I ESA Basics
To find the basis of the Phase I ESA, you need to go back to the Ronald Reagan or George H.W. Bush presidencies. Specifically, the Phase I ESA is “rooted” in federal environmental regulations that were created in response to historically-polluted sites (i.e., Superfund Sites).
The general idea was to create a process that would allow a buyer to evaluate the environmental history of a site. The Love Canal neighborhood in New York is the example often provided as reason why a process or regulation was needed. Now, I realize, depending on your age and background, you may not remember Love Canal, but a quick Google search will provide you with the context.
A lot has changed since the early days of recognizing the potential environmental threats from abandoned industrial sites. Many of these sites were cleaned up or are in the process of being cleaned up. However, in their place, so to speak, are old underground storage tanks, other chemical releases, vapor intrusion concerns, and more recently, concerns about a group of chemicals called PFAS and PFOA. The potential environmental issues are constantly changing.
Thorough Phase I ESAs provide potential buyers with a lot of information about the site, including the “environmental history” of the site (Photo Credit: Dragun Corporation).
All Appropriate Inquiry
With Love Canal and other environmental issues as the backdrop, you might better appreciate why the federal regulation is referred to as “All Appropriate Inquiries.” You, as a prospective purchaser of the site, want to inquire into the background of the property before you invest.
What is all appropriate? Unfortunately, this is where it gets more complicated with regulations, standards, and the subsequent definitions.
You can find the All Appropriate Inquires, or AAI regulation, in Part 312 of Title 40 of the Code of Federal Regulations. Depending on the situation, AAI provides three liability protections: 1) innocent landowner, 2) contiguous property owner, or 3) bona fide prospective purchaser. Of course, because it’s a regulation, it’s never that simple.
The AAI “standard practice” will, again, depend on several factors but may include one or more of the following:
You will want to make sure you select the “appropriate” standard (or standards) to satisfy the AAI threshold.
Environmental Professional and More Definitions
The various standards aside, the other complicating factor for the “do-it-yourselfer” is who is “qualified” to conduct the Phase I ESA. The Federal regulation states that the AAI must include “…an inquiry by an environmental professional (as defined in §312.10), as provided in §312.21.”
The requirements for an environmental professional include “…a person who possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases on, at, in, or to a property, sufficient to meet the objectives and performance factors.”
The definition of education, training, and experience requirements includes:
- holding a current professional license in engineering or geology and having three years of full-time relevant experience, or
- being licensed or certified by the federal government, a state, a tribe, or a U.S. territory to perform environmental inquiries and having three years of full-time relevant experience, or
- having a baccalaureate or higher degree in engineering or science and the equivalent of five years full-time relevant experience, or
- the equivalent of 10 years of full-time relevant experience.
Relevant experience is defined as “understanding of surface and subsurface environmental conditions and the processes used to evaluate these conditions.”
Yes… there are a lot of definitions.
Lender Requirements
Since their money is at risk as well, lenders are typically requesting you to conduct the Phase I ESA. It’s not unusual for each lender to have their own specific requirements in addition to those defined above. They will also require the consultants to carry a certain level of professional insurance.
With all of the above said, obviously, if it’s a cash deal, then it’s your call with respect to who does your Phase I ESA and what level of inquiry you want to conduct. Before you make final decisions, we encourage you to discuss your decision with your legal counsel.
So, can you do your own Phase I ESA? Yes, but as you can see, the circumstances are fairly narrow as to when this is likely to apply. But regardless if you “do it yourself” or hire someone, having some knowledge of the process can only be helpful.
If you have questions about the Phase I or Phase II ESA process, feel free to contact me at 248-932-0228, Ext. 133.