admin / February 27, 2019
Difference between phase I and phase II
Most “in-fill” properties in metropolitan areas of California are directly or indirectly impacted by environmental issues. This makes it very important that a property undergoes an Environmental Site Assessment before a lease, purchase, sale or refinance is completed. Not doing proper due diligence can put you at a significant amount of financial risk. It is not necessary you to become completely versed with regard to every detail of the process, it is advisable one understand the general overall process.
Most mortgage lenders and banks require that a Phase I environmental site assessment be performed on commercial property. The Phase I is performed to determine whether or not it is necessary to conduct a Phase II study. The Phase I study is an information gathering report, no physical testing takes place during this stage of the process. The Phase I assessment is done to see if it reveals potential environmental contaminants on the site in question. The historic uses of site are researched to see if prior users were involved with any processes that might have contributed to contamination. For example, dry cleaning businesses, chrome plating, manufacturing with acids and oils or dairy land where methane gases may have accumulated. If the property in question has “potential” concerns the environmental firm conducting the study will list these areas of concern for review and audit.
The Phase I is one of the required due Diligence items in any pre-acquisition assessment. The service will also can include a site assessment or physical tour of property, interviews with past owners, current or past tenants and property managers. Local governmental agencies will be interviewed and governmental files may be pulled if warranted. Historical data of property can provide much insight, as well as aerials, building plans and geology of the area.
Additional items being looked for are UST (Underground
Storage Tanks), asbestos, mold, lead and radon. Once the consultant has gathered and processed the information they need, they will declare either no further action or note there is reason to conduct a Phase II assessment based on potential contaminants. The Phase I cost can range from $1,800 – $3,000 depending on size of property and age.
If a Phase II is recommended, this is the stage of the due diligence where physical samples and testing takes place. Depending on what was uncovered in the Phase I will determine the number of borings, depth of boring samples and lab analysis required as well. The cost of the Phase II can be in the $5,000 -$15,000 price range. Once the study and report is complete, results will be shown that will determine amount of contamination, severity or less than actionable results. If environmental remediation is required an approved plan for cleanup will need to be detailed, priced and with the final objective of “Closure” signed off on by all local and state governmental agencies. A qualified, licensed and bonded Environmental Consultant who has experience in California Real Estate is essential. The above is an overview to provide a general outline of the process. For more detailed and specific information you should contact a qualified real estate attorney or environmental engineer.
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