The Phase I Environmental Site Assessment (ESA) has long been the industry standard to evaluate potential environmental concerns in commercial real estate transactions. The methods and protocols are described by the American Society for Testing and Materials (ASTM) and provide “good commercial and customary practice” to conduct environmental due diligence. Last revised in 2005, the Phase I standard is up for renewal based on ASTM’s eight-year sunset cycle. Some significant changes will certainly impact the way commercial real estate transactions are managed.
One revision that will directly impact the Phase I ESA process is a change in how and when regulatory agency file reviews will be required. Currently, a file review may be conducted if the Environmental Professional (EP) believes it is necessary to determine if an issue is present. The new 2013 standard states file reviews should be conducted if the subject or an adjacent property are listed in a regulatory database. If a file review is not conducted, the EP must provide adequate justification why it was not. This change will likely result in more file reviews and potentially greater process costs.
Client (user) responsibilities are also changing. To qualify for the federal liability protections afforded by a compliant Phase I ESA, the user will be required to provide chain of title information, activity and use limitation documents (i.e. deed restrictions, etc.), and complete the ASTM user questionnaire. This will directly impact the documentation requirements for clients seeking federal liability protections.
While the process of completing a Phase I ESA has not significantly changed, the information required to produce a compliant ESA will once the new standard is released. The EPA will approve the standard before it is published, currently scheduled for summer or fall 2013. The environmental due diligence and commercial real estate industries may very well have some growing pains as these new procedures and requirements are implemented.