A customer recently commented, “Why do they always wait until the last minute to request a Phase I assessment in a real estate transaction?” This customer had just awarded us a large number of Phase I’s in six states with a deadline of three weeks, right in the middle of the COVID-19 Pandemic.
A Phase I assessment is a historical and current review of the usage of a property, surrounding properties and site reconnaissance of the current activities. It is used to identify current or past practices which may have caused environmental impact to the property.
The information included in a Phase I is strictly governed by the ASTM 1527-13 standard and consists of:
- Topographic maps
- Aerial photographs
- City directories
- Sanborn/insurance maps
- Regulatory environmental files
- Review of reports on the property and surrounding properties
- Interviews with knowledgeable people and various local agencies
- Site reconnaissance
The volume of information to be reviewed can be daunting and the timeframe to complete the review is typically short. Phase I reports can be massive in size and make great boat anchors. One report we recently completed for a single site was over 7,500 pages.
Although Phase I delivery times can be challenging, we have developed specific processes to meet those tight deadlines.
Of course, the pandemic has made it much harder to hit the client deadlines while meeting the ASTM 1527-13 standard. Many state offices are not fully staffed and long delays in obtaining responses to information requests are the new norm. Obtaining freedom of information requests (FOIA) can take months to obtain and frequently do not arrive before the Phase I report is completed. Delays in obtaining records from environmental database providers are not unusual either, especially when the information they provide is obtained from the Library of Congress.
Conducting the site visit portion of an assessment is a major potential obstacle when conducting Phase I’s during the pandemic. Some businesses are reluctant to allow or unwilling to allow outside people into the building. Critical portions of the building may be restricted. When assessing multitenant properties, some businesses may be closed.
Even if the property owner has permission and access to a tenant space, security systems may be in place and active. This recently happened to our staff on a project. After the second response of the police department, we decided to change plans.
Not surprisingly, travel restrictions may be an additional obstacle to consider if you are working on a multistate project. Some states may have quarantine requirements or entry restrictions for out of state travelers if the purpose of your travel is not considered essential.
So what does this all mean to your ability to get the Phase I Assessment performed? Work with your consultant to identify issues that may impact the time line for completion. Don’t wait too long. Order the Phase I early in your purchase process. It can still be completed in the typical three to four week timeframe, but the assessment may have multiple exclusions to the ASTM standard which could affect the All Appropriate Inquires requirements and weaken the Bona Fide Prospective Purchaser defense.
You should also expect an increase in the recommendation of Phase II assessments to be performed due to the inability to obtain information from regulatory agencies which historically would rule out the need for additional assessment. Phase II Assessments are recommended by the consultant to protect the customer and themselves.
Phase I assessments are a valuable tool to help protect you from unforeseen environmental liabilities. As more properties come available for purchase on businesses that sadly were casualties of the pandemic (especially when those business owners are not available for interviews) the need for a Phase I assessments is critical.
Yes, pandemic related delays are expected to lessen as the vaccines are distributed and people return to normal work life. However, delays and obstacles are still prevalent and should be planned for whenever possible to keep your purchase or divesture moving smoothly forward.
