The phrase Environmental Site Assessment, or ESA, might ring a bell for anyone who’s dealt in buying or selling commercial properties since 2006. An ESA is a report on a property that identifies potential or existing environmental contamination liabilities. An ESA is done prior to any commercial or industrial property purchase to assess the possibility of contamination and outline cleaning procedures if it is discovered. ESAs can be divided into three phases depending on the severity of contamination. To determine whether Phase 2 or Phase 3 are necessary, a Phase 1 ESA will be required. There is a significant change in CRE transactions that will affect Phase I ESAs. Many are left wondering if this will impact the cost of getting one.
The ESAs standards need to be updated every 8 year in order for any unclear terminologies to be clarified and any inconsistencies in report deliverables to be corrected. The American Society for Testing and Materials has completed Phase 1 updates and submitted them for approval to the Environmental Protection Agency. These changes will be accepted by the EPA and incorporated into its regulations later in the year.
What are the changes?
Specifying definitions
The new standard (that just slides off the tongue): ASTM E1527-21This standard replaces ASTM E1527-13 and was enacted in 2013. The previous standard set out best practices and rules for determining whether there is a material threat from hazardous substances or petroleum products on commercial real estate sites. The majority of the revisions to the Phase 1 ESA standard are “clarifications” rather than actual changes.
The most important clarification concerns Recognized Environmental conditions (RECs). To achieve consistent results in ESA reporting, the ASTM E1527 has updated the definition of a REC. Under the old standard, a REC was defined as a likely presence of any hazardous substances. The new standard removes the wishy-washy adverbs to define a REC for hazardous substances.
Surrounding Areas
Although the majority of Phase 1 ESA changes will be lexical, it is the update that will most impact CRE transactions that must be reviewed during the historical review. The 2021 standard requires not only a thorough historical analysis of the subject property but also a thorough historical assessment of adjacent properties. Regardless of the results of the subject property’s review, the core historical records for adjoining properties will need to be reviewed at a minimum.
Simply put, if you’re buying or refinancing a retail, industrial, or mixed-use property with multiple tenants and a long occupancy history, the person conducting the Phase 1 ESA must thoroughly investigate the businesses that occupied the adjacent site. It’s worth noting that failing to identify dry cleaners that have gone out of business in a Phase I ESA is one of the main reasons for the increased attention on historical research and adjacent properties.
According to the old standard, environmental professionals had the freedom to choose how many historical records (building department records or property tax records, city directories or zoning documents, etc.) they used. were required to be used. Environment professionals need to use historical aerial photographs, historic city directories, and historic fire insurance. [Sanborn]Maps available Minimum. These sources should be reviewed for both the subject and any adjacent properties.
Also see
Oh, and just because a property is considered adjacent doesn’t mean it has to touch that property. The new standard requires that environmental professionals review properties in the immediate vicinity and in alleyways. Many companies that provide professional ESA services knew that it was a good idea to look around the area. However, the new standards require reporting specific information on the subject property and the surrounding area. And Anywhere near it, it is not hard to believe that Phase 1 ESAs may take longer and ultimately cost more.
Loss-leader
A business site isolated from other commercial, industrial, or retail assets should find the cost of Phase 1 ESAs to be minimal. However, Phase 1 ESAs may be costly for industrial properties located in an industrial area with a long history.
If Phase 1 ESAs cost more than the cost of Phase 1, Do If the price of a Phase 1 ESA goes up, that could lead to an even bigger honey trap: loss-leader ESAs. Some companies that are not as careful as they should be with environmental assessment services will intentionally lower the price for a Phase 1 ESA only to then recommend an exorbitant Phase 2 ESA to recoup the cost. It is tempting to hire a low-bidder to conduct an unavoidable inspection of the property in order to facilitate your deal, especially if it is a lengthy process. Does The new updates can make it more expensive so it is best to avoid them. It is possible to get ripped off if someone does a Phase 1 ESA for a very low price, even with the new requirements of looking into abutting properties and nearby properties. Many people who choose the cheap Phase 1 ESA are faced with reports that require additional investigation. They are responsible for paying for additional investigation when that happens. It is almost impossible to get out of it.
The ASTM standards have not changed the ESA process much beyond changing the language and requiring more thorough investigations. Buyers still view environmental studies as a costly and frustrating obstacle to closing a real estate transaction. It is important to remember that the liability associated with buying contaminated property can be exponentially more costly than the land. It is possible for soil and groundwater to be further damaged if contamination sources are not identified. This could have a serious negative impact on the community as well as the environment. While dealing with the ESA is a problem for many commercial buyers or sellers, it pales when compared to the harm that an ever-growing toxic environment can do to your bottom line (and the environmental).
