Environmental Due Diligence: A Practical Guide to Environmental Site Assessments Part 2

If after a Phase I ESA, the EP determines further investigation is warranted, that more invasive investigation takes the form of a Phase II ESA. The primary purpose in conducting a Phase II ESA is to evaluate any REC(s) identified in a Phase I ESA to determine the presence or likely presence of certain contaminants and provide sufficient information regarding the nature and extent of any contamination.

Tailoring the Scope of the Phase II ESA to Meet the Results of the Phase I ESA:

The protocol for performing a Phase II ESA is outlined in ASTM E1903-97 "Standard Guide for Environmental Site Assessments: Phase II Environmental Site Assessment Process."  While the Phase I ESA follows a fairly regimented scope (ASTM 1527-13), the format of a Phase II assessment is more variable and based on the results of the Phase I ESA.  For example, depending on the results of a Phase I ESA, a Phase II investigation work could include surface and sub-surface soil and groundwater analyses, the installation of monitoring wells, air sampling (including indoor air quality for potential vapor intrusion), mold sampling, asbestos sampling, lead paint sampling, and more – including any combination of these or some other testing specific to the REC.  The investigation will be tailored to the results of the Phase I ESA, and the conclusions and recommendations of the EP.

Phase II ESA Activities:

The objective of a Phase II ESA is to define the nature and extent of any environmental impacts at a site through an intrusive sampling program.  The typical scope of work may include:

• collection of soil, groundwater, surface water, sediment and/or vapor samples;
• chemical analysis of samples for relevant parameters;
• surveying the site and establishing groundwater flow direction;
• determining the appropriate criteria to which the results must be compared;
• interpretation of data, possibly including modeling, qualitative risk assessment, or development of a Conceptual Site Model; and
• preparation of a clear, comprehensive report documenting the findings and presenting a conclusion regarding the environmental condition of the site.

As a result, a Phase II ESA investigation is usually more expensive than a Phase I and takes longer to perform mainly because of the time necessary to mobilize to the site, remove samples and have the samples tested at a third-party laboratory.  A Phase II ESA, however, is necessary to gain sufficient information regarding the impact of contaminant releases at the property or to confirm the absence of suspected releases when a REC has been discovered.

Phase I and II ESA Limitations in Conducting Due Diligence

While the industry standard for assessing the environmental condition of commercial real estate is to rely on Phase I and II ESA's compliant with ASTM standards, such assessments are not without limitation.  Below is a list of some of the more obvious limitations.

• Data gaps exist in almost every ESA, and the conclusions set forth in the report may change with additional information.
• The EP cannot often verify the truthfulness of interviewees.
• A Court can always question the qualifications of the EP and his or her conclusions set forth in the report.
• EP's cannot avoid relying on other's work or truthfulness.
• Liability protections do not extend to every environmental condition or statutory or common law liability.
• ESA's have a limited shelf life (one year, with the use of certain sections limited to 180 days).
• EPs must rely on assumptions based upon limited data (for example, environmental conditions found in one soil boring may differ considerably from a boring located a few feet away).

Moreover, most ESA's contain limitations on liability, and numerous disclaimers, including who can use and rely on the reports.

Conclusion

All potential purchasers of an interest in commercial real estate are prudent to conduct due diligence to determine the environmental condition or the property prior to the transaction being completed.  Use of a Phase I ESA, along with a Phase II ESA when necessary, is the industry standard in making such a determination.  Understanding the purpose and limitations in each type of site assessment is critical for the potential purchaser to receive the full benefit and liability protections available through use or the assessments.  In this regard, a potential purchaser of commercial real estate should employ the assistance of qualified and experienced environmental consultants and counsel.  Failure to successfully complete environmental due diligence can result in significant liability for the purchaser and the loss of use of all or part of the property.