If business property is contaminated, the responsibility for cleaning it up falls on the property owner.
Because you own a piece of land tainted by environmental hazards, the landowner must take action to remedy the situation. As a result, it’s crucial to do a thorough Phase 1 Environmental Site Assessment before beginning any commercial development.
This report’s primary goal is to guarantee that any nearby or former uses have tainted neither the soil nor the groundwater. The property’s worth and potential uses may be affected by any contamination in these assessments.
Let’s examine the significance of Phase 1 studies in commercial real estate development.
- Safeguard Against Potential CERCLA Lawsuits
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of the United States holds that the owner of a piece of property is solely liable for any environmental contamination on their land. CERCLA has been one of the primary motivating drivers behind buyers undertaking environmental due diligence in real estate purchases. These are stringent regulations, and the potential legal repercussions can be significant.
- Once Spotless, Now Filthy
ASTM E1527-13, published in 2013, is the standard to which Phase 1 evaluations conform. This new analysis considers vapor intrusion or encroachment, which had not been considered in the original soil and groundwater contamination estimates.
Existing clean locations may now be declared dirty when states begin implementing these new regulations. Partner Engineering and Science, Inc. National Client Manager Kathryn Peacock warns, “Even with a closure letter, new standards may subject your site to a regulatory reopen.”
Moreover, the introduction of new regulations is also contributing to the expansion of new developments. Extra testing, or even seasonal interval testing, can delay a project by four to six months if it must conform to stricter standards.
- Even the “Site” Operator is Subject to these Rules
The tenant (lessee) can be held liable for contamination at a property in the same way as an owner because these legal rules apply to the site “operator.”
A facility’s “current operators” are responsible for contamination that occurred before their occupancy under the federal Superfund legislation. In addition, “current owners” of the facility can be understood to include lessees who exercise adequate control over the leasehold, and lessees who fall under this category are also ordinarily liable.
- Timely, Safe, and Cost-effective Project Construction
A thorough site survey and geotechnical report are essential for a commercial development project to be built securely and economically.
When designing a brand-new commercial complex, geotechnical reports are an absolute must. Engineers will have to speculate on the onsite soils’ design criteria if a geotechnical report isn’t used.
If you’re proactive and complete Phase I, you should have enough time to maintain projects on a sensible timetable, as Peacock puts it. And “on top of that, performing the assessment will help you avoid future property devaluation and reputational risk.”
- Required Lender
Financial institutions typically demand a transaction screen or a “Phase I” Environmental Site Assessment (ESA). Phase I was mainly conducted to safeguard lending institutions from potential liability should they provide financing for purchasing a polluted property.
No buyer should conduct a Phase I to “check off a box” on the due diligence checklist and then go ahead with the acquisition or loan, notwithstanding red flags. The process adds time and money to your project up front, but it can prevent you from facing significant legal and regulatory consequences if you operate responsibly.
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