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Phase 1 Inspections -What are They

A very common question when it comes to commercial real estate inspection is what is a Phase 1 inspection, and do I really need one? How to Negotiate commercial property inspections

Phase 1 refers to an environmental assessment of the property; the full name is Phase 1 Environmental Site Assessment. Phase 1 is also commonly referred to as an ESA or Phase 1 ESA. A Phase 1 is conducted to find the current and historical uses of a commercial property in the process of a commercial real estate sale. The reason for the Phase 1 ESA is to determine if any of the former or current uses for the commercial property have had impact on the soil or groundwater underneath the land resulting in a concern for the environment or human health.

In most commercial real estate transactions, a lender is going to require at least a Phase 1 ESA to be conducted. If any environmental impact use issues are found it presents a potential liability for the lender and the new owner of the property. It also affects the value of a property. Conducting a Phase 1 ESA on a commercial property before the close of a real estate sale can be used to fulfil the requirements of the Comprehensive Environmental Response Compensation and Liability Act’s (or CERCLA’s) innocent land owner defense under All Appropriate Inquiries (AAI).

A Phase 1 assessment can be conducted on all types of commercial properties such as vacant land, agricultural, multi-family residential, and properties used for industrial purposes. All Phase 1 reports are completed to comply with ASTEM E1527-13, but exceptions can be made for properties that are largely made up of undeveloped land and can be researched under ASTM E2247-16.

Related: Can you sell a property without an inspection?

What is included in a Phase 1 report?

- Site visit to look over current and past conditions and uses of the property and all adjacent properties.

- Review of federal, state, tribal, and local regulatory databases that can include underground storage tanks, above-ground storage tanks, known or suspected release cases, any storage of hazardous substances, any disposal of hazardous waste such as petroleum products, and institutional and engineering controls.

- A look at all historical records including historical aerial photographs, fire insurance maps sometimes called Sanborn maps, historical city directories, and historical topographic maps.

- A look into state and local agency records including state environmental agencies, building departments, fire departments, and health departments.

- Interviews with the current and all past property owners, operators, and occupants as well as anyone else familiar with the property.

- Interviews of the Report User for title or judicial records for the purpose of finding environmental liens and activity use limitations, specialized knowledge or experience, actual knowledge, commonly known or reasonable ascertainable information, any reason for a significantly low purchase price, and the reason for preparations of a Phase 1 ESA. The user must provide this information to qualify for the innocent landowner defense.

All of the completed Phase 1 report information is looked over by an Environmental Professional to officially determine if there are any potential environmental risks associated with the property for sale. This can include any current or past uses of the property known or suspected to have involved any hazardous substance or petroleum product during business operations.

Common former/current use concerns include: dry cleaners, gas stations, auto repair, printing, and manufacturing.

Once the Phase 1 report has been evaluated by an Environmental Professional, they will summarize any concerns identified for the property and make recommendations as to what action to take to address any environmental concerns. Many times if a concern is present a Phase 2 or Phase 3 ESA will be ordered to take more extensive assessments of the property.

If you are looking for reliable commercial inspections in Minot and surrounding areas, give us a call. 

MORE: How to Negotiate Commercial Inspections

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