In today’s environment, many small businesses lease the facility or office space in which they operate. However, businesses that wish to purchase or sell commercial property should expect to go through the Phase 1 ESA process.
A Phase I Environmental Site Assessment, commonly referred to as an ESA, or Phase I ESA, is an essential tool used by prospective property buyers, owners, and lenders to evaluate the environmental condition of a property as part of a commercial real estate transaction.
The purpose of a Phase I ESA is to identify any potential environmental liabilities or recognized environmental conditions (RECs) on a property that could impact the value of a specific property. It will help to protect both the buyer and seller in a commercial real estate transaction.
Scope: A Phase I ESA typically includes the following:
- A review of the site's historical and current use, interviews with current and past owners or operators,
- A review of government records and environmental databases,
- A site visit to identify any evidence of chemical or hazardous past contamination or other environmental concerns,
- A report summarizing the findings and identifying any recognized environmental conditions (RECs).
So, you ask, why are you telling me this?
Well, if you are selling your business and real estate / commercial property is involved, the bank will require this as a condition of the funding and closing. Under the assumption the property has not had any chemicals, hazardous materials, fuel storage/tanks, etc., you will most likely pass with “no findings”.
Conducting a Phase I ESA can also provide legal protection for buyers, sellers, and lenders. If environmental liabilities are identified during the assessment, the parties involved can take steps to address the issues before the property changes hands.
The Cost of These Assessments
The cost of a Phase I ESA can vary depending on the location, size, and complexity of the site, as well as the scope of work required. The cost generally ranges from $2,000 to $2,500 for the report. If there is a suspected case of containment, then you will move into a Phase 2 ESA. The costs for Phase 2 ESA tests and reports are significantly higher. Generally, you can expect to pay from $5,000 to over $200,000. Phase 3 ESA is expensive. Depending on the severity of the contamination, you could spend several thousand dollars to clean up the property.
Phase I ESA is an essential step in the due diligence process for any property purchase or financing and can provide peace of mind to all parties involved. It's always better to know before you buy, to avoid potential environmental liabilities and legal troubles in the future.
Moral of the story? Know before you Sell or Buy!
CAPSTONE has walked through this process with many of our clients over the years. We have the expertise you need to successfully complete the ESA process.
Schedule a no-obligation consultation here to learn more about our expertise and services.
