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Why perform a Phase I Environmental Site Assessment

  
  
  
  

Who requires a Phase I ESA?

Traditionally, a Phase I was contracted by the bank or lending institution on properties where financing was being arranged.  The Phase I was primarily  performed for the protection of the banks, who were concerned that if they loaned money for a contaminated property they may be held liable for the site cleanup.  Today, many banks with loans under a million dollars and borrowers supplying a down payment do not require a Phase I.  This has been an industry shift over the past several years as banks have come to understand where their limit of liability stands.

Cost for a Phase I ESA

Phase I Environmental

 

 

What is included in a Phase I?

The Phase I is a property assessment that includes a walkover of the property and associated structures; a review of historic property information including maps, aerial photographs, deeds, telephone or address directories, etc.; a review of contaminated properties in the vicinity of the subject property; a summary of knowledgeable party information and review of prior reports; and the review of local, State and Federal files pertaining to the property address.

Items evaluated in the Phase I report include: tanks, drains, pits, spills, in-ground and aboveground equipment, petroleum and chemical use, and environmental liens.

Additional issues which may be included in the Phase I at the lenders or clients request include: wetlands, radon, asbestos, lead-based paint, and drinking water. 

The Phase I report is typically research only.  Unless otherwise specified as part of the scope of work, testing or surveys are outside of the typical Phase I requirements.

Why complete a Phase I if my bank does not require one?

Although many banks are not requiring a Phase I on some commercial loans, the environmental regulations leave the burden of environmental responsibility on the property owner.  Performing a Phase I, allows a purchaser to complete the necessary due diligence.  It is this due diligence that enables a purchaser to obtain prior to taking possession of a property.  Buyer beware is relevant now more than ever in commercial real estate transactions.  If a property is purchased without a due diligence evaluation and subsequent environmental issues are found in association with the property, the property owner is now burdened with the cost of remediating the issue. The performance of a pre-purchase Phase I could alleviate the potential for finding environmental issues in the future and thereby holding up future transactions.  As a potential purchaser, the determination of environmental issues on a property could be used as leverage for the seller to remediate the concern prior to purchase or could be used to negotiate the property value pending the need for the potential purchaser to perform the cleanup.

If I don’t do a Phase I and buy a property how would I ever find out if there was an environmental problem with the site?

The most common way is when you go to sell and the potential buyer completes a Phase I and discovers an environmental Area of Concern (AOC).   Today the largest purchaser of Phase I’s is not the banks, but commercial real estate investors and owners (*transactions under $1,000,000.00).

I own a property, never had a Phase I and I am now thinking of selling the property.  Do property owners have Phase I’s performed?

One of the largest shifts in the commercial real estate market today is that many land owners are having a Phase I performed to root out environmental issues before they become an issue when a buyer is found.   A buyer performed Phase I is viewed as both a marketing tool and an environmental property assessment that can help sellers anticipate issues with a property.  It can be akin to a homeowner having a home inspection completed to address issues that a purchaser might find during their inspection. 

If an environmental issue is found in a Phase I report on a property I am buying, can I still purchase the property?

 If the issue is fully disclosed to the lender (if one is involved) and the buyer is wiling to accept the liability and cost of addressing the issue, then yes you can buy the property.  But the real question is should I address the issue before buying the property?

The investigation of potential issues found in the Phase I is typically addressed as part of a Phase II Environmental Site Assessment.

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NJDEP LSRP May 7, 2012 Deadline

January 2012 Update

The NJDEP LSRP program deadline of May 7, 2012 is coming up quickly and the Licensed Site Remediation Program is well into its’ Interim Phase of working into its permanent place as the new form of oversight program for the NJDEP.  Curren will utilize this page to periodically provide NJDEP Updates and LSRP findings to keep our clients’ abreast of what is happening and how it could affect you:

At this point and based on our discussions with various NJDEP Case Managers, there appears to be a slim chance to close out existing NJDEP cases under  the review of the NJDEP.  The stacks of case files pending review at this time appear to be more than the NJDEP can provide responses to by the May 7, 2012 deadline.  Therefore, the NJDEP is currently recommending that future submissions be performed under the direction of an LSRP.  Existing cases must Opt-In to the Site Remediation Reform Act (“SRRA”) Program and retain an LSRP.  All new cases and those cases which initiated remediation or remedial actions after November 3, 2009 need to hire an LSRP immediately. 

Therefore, at this time, it appears that almost all future NJDEP submissions, except where the remediating party has not performed timely actions and where the concern poses a significant threat to human health and the environment, must involve an LSRP.

One of the most significant first submissions for existing cases and cased which initiated remediation prior to November 4, 2009, if it has not been completed at this time is the Receptor Evaluation (“RE”).  The Initial RE should have been submitted to the NJDEP by March 1, 2011 or one (1) year after the initiation of remediating a site after March 1, 2010. 

The Mandatory Timeframe for submission of the Initial RE is March 1, 2012 or two (2) years after the initiation of remediation that occurs after March 1, 2010.