What is a Phase I Environmental Site Assessment?

A Phase I Environmental Site Assessment (Phase I ESA) is an environmental study of a property. It asks one question: are there signs that hazardous substances or petroleum products have been released at this site, or could be?

It answers by looking at records, history, the site, and the people who know it. It does not take soil, water or air samples. It is not a building inspection. It does not tell you what a cleanup costs.

Most buyers and lenders know the standard by its number: ASTM E1527-21. This guide explains what the standard is for, what a Phase I includes, what the key terms mean, how long a report stays usable, and what comes next if it finds a problem.

Why buyers order a Phase I

There are two main reasons.

Liability protection. Under the federal Superfund law (CERCLA), a person can be held strictly liable for cleaning up hazardous substances at a property they own or operate. Liability can attach based on ownership alone. EPA says CERCLA gives liability protection to some buyers who did not cause the contamination. These are:

• Innocent landowners
• Contiguous property owners
• Bona fide prospective purchasers

To qualify, a buyer must perform “all appropriate inquiries” (AAI) before acquiring the property. EPA’s AAI rule is at 40 CFR Part 312. EPA says ASTM E1527-21 can be used to satisfy the AAI requirement.

A bona fide prospective purchaser can buy a property knowing it has contamination, if the purchase was after January 11, 2002 and the buyer meets the statute’s criteria. EPA also says the buyer must meet continuing obligations after the purchase. These include taking “reasonable steps” to stop continuing releases and to prevent threatened future releases. A Phase I is not a one-time shield. The buyer must act on what it learns.

Lender requirements. Many lenders require a Phase I. Each program has its own rules. See what lenders require.

Which standard applies

EPA’s AAI rule recognizes ASTM E1527-21. EPA’s rule text (40 CFR 312.11) lists E1527-21 and E2247-23 (for forestland and rural property). It lists the older E1527-13 as usable only until February 13, 2024. That date has passed. A Phase I done to E1527-13 today does not meet the AAI rule. If someone offers you an E1527-13 report, ask why.

Who performs a Phase I

An “environmental professional” performs the inquiry. The AAI rule, in 40 CFR 312.10, sets the definition. The person must have enough education, training and experience to give opinions on conditions that indicate a release or a threatened release. The person must also meet one of these tests:

• A current Professional Engineer or Professional Geologist license, plus three years of full-time relevant experience; or
• A state, tribal, territorial or federal license or certification to perform environmental inquiries, plus three years of relevant experience; or
• A bachelor’s degree or higher in engineering or science, plus five years of relevant experience; or
• Ten years of full-time relevant experience.

The rule lets other people help, if the environmental professional supervises them and signs the report. The report must carry the environmental professional’s declaration. Lenders may add their own qualification rules. SBA, for example, requires an environmental professional carrying at least $1 million of errors and omissions insurance.

What a Phase I includes

Calibre’s Phase I service follows these steps, which match the AAI rule’s structure.

1. Records review. The consultant searches federal, tribal, state and local government records for the property and for nearby sites.
2. Historical research. The consultant reviews past uses, such as aerial photographs and local records.
3. Site visit. The consultant walks the property and looks at adjoining properties for signs of environmental concern, such as chemical storage or stained soil.
4. Interviews. The consultant talks to owners, occupants, or local officials.
5. Report. The consultant gives an opinion, lists data gaps, and signs the declaration.

Under 40 CFR 312.21, the report must include:

• An opinion on whether the inquiry found conditions that indicate a release or threatened release of hazardous substances at the property
• An identification of data gaps and comments on how significant they are
• The qualifications of the environmental professional

What the buyer must do (the “user” tasks)

The AAI rule also puts tasks on the buyer. These are in 40 CFR 312.22. The buyer, or the person for whom the report is made, must:

• Search for environmental cleanup liens recorded against the property, unless the environmental professional has already done so
• Identify any specialized knowledge or experience the buyer has about the property
• Compare the purchase price to the fair market value, if the property were not contaminated
• Gather commonly known or reasonably ascertainable information about the property, unless the environmental professional has already done so

If the buyer skips these tasks, the inquiry may not meet the rule. Ask your consultant for a user questionnaire and complete it with care.

The key terms: REC, CREC, HREC and data gap

Recognized environmental condition (REC). ASTM’s scope summary for E1527-21 describes a REC as one of three things:

1. The presence of hazardous substances or petroleum products at the property due to a release to the environment
2. The likely presence of such substances due to a release or likely release
3. Their presence under conditions that pose a material threat of a future release

A de minimis condition is not a REC.

Controlled recognized environmental condition (CREC). Practitioner summaries of E1527-21 describe a CREC as a REC that regulators have addressed to their satisfaction, with contamination left in place under controls such as activity and use limits. Confirm the exact wording in the standard.

Historical recognized environmental condition (HREC). Practitioner summaries describe an HREC as a past release that regulators have addressed so that the property meets unrestricted use criteria, with no controls. Confirm the exact wording in the standard.

Practitioner summaries say E1527-21 changed these two definitions. If your report lists a CREC, find out what the controls are, who must keep them in place, and whether your plans for the property are consistent with them.

Data gap. The AAI rule defines a data gap as a lack of, or inability to obtain, information required by the AAI standards, despite good faith efforts to gather it. The report must say how significant each gap is to the consultant’s opinion.

How long a Phase I stays valid

This is a common source of errors.

The AAI rule sets two timing limits, in 40 CFR 312.20:

• The inquiry must be done within one year before the date of acquisition.
• These five parts must be done or updated within 180 days before the acquisition date: interviews with past and present owners, operators and occupants; searches for recorded environmental cleanup liens; reviews of government records; visual inspections of the property and adjoining properties; and the environmental professional’s declaration.

ASTM’s scope summary for E1527-21 says a Phase I is presumed viable if done within 180 days before acquisition, and that certain components can be updated within that window if the underlying information is less than a year old.

Practitioner summaries say E1527-21 requires the report to show the completion date of each component, and that the 180-day clock starts on the earliest component date. Confirm this in the standard and with your consultant.

What this means in practice: if your closing slips, a report that was fresh at signing can be too old at closing. Ask the consultant for the component dates. Plan a refresh if the closing is near the limit.

Lenders may be stricter or looser than EPA. Fannie Mae’s Form 4251 uses the 180-day rule from the origination date. SBA accepts a report dated within one year of the loan number for its review, but notes that parties may want to follow the EPA 180-day timing to protect their legal position. Freddie Mac asks for a report dated within six months before the underwriting package.

What a Phase I does not cover

ASTM’s scope summary says the practice covers contaminants within CERCLA’s scope and petroleum products. It excludes controlled substances unless an EPA Brownfields grant requires them. The practice does not address business environmental risk beyond its scope or other legal duties. No assessment can remove all uncertainty. Judge the work by the reasonableness of decisions at the time, not by hindsight.

Some topics sit outside the core Phase I, and a buyer or lender may add them. Fannie Mae’s Form 4251 adds radon testing for most multifamily properties. Freddie Mac’s Chapter 61 sets separate scope and protocol rules for asbestos-containing materials, lead-based paint, mold, radon, drinking water and storage tanks. Calibre’s article on historic buildings shows how a walk-through leads to referrals for asbestos and lead surveys in older buildings. See historic commercial building due diligence.

PFAS. On April 17, 2024, EPA designated PFOA and PFOS as hazardous substances under CERCLA. The designation took effect July 8, 2024. Because a Phase I looks at CERCLA hazardous substances, ask your consultant in writing whether and how PFAS were considered. EPA has also issued an enforcement discretion policy on PFAS. Ask your attorney how it applies.

What a “REC” means for your deal

A REC does not mean the property is contaminated. It means the consultant found conditions that justify more attention. The report should state what it recommends. Common outcomes:

• No further action
• Obtain more records
• Install controls or follow an operations and maintenance plan
• Conduct a Phase II ESA

Do not sign off on a Phase I with an unresolved REC and no plan. Ask what each REC means for cost, timing, lender approval, and liability.

Phase II: when sampling starts

A Phase II ESA takes samples, such as soil, soil vapor, or groundwater, to find out whether a release has occurred and how far it reaches. SBA’s SOP names ASTM E1903-19 (2020) as the current Phase II standard and also accepts work done to generally accepted practice that is reasonable to identify the presence, nature and extent of a release.

Lender rules on Phase II vary. Fannie Mae’s Form 4251 says that if the environmental professional recommends a Phase II, or if data gaps leave unanswered questions, the lender must obtain and evaluate it. SBA says that if the Phase I concludes more investigation is warranted, the lender must follow the environmental professional’s recommendation or seek an exception. SBA requires a Phase I followed by a Phase II for any property with an on-site dry cleaner, current or former, that used chlorinated or petroleum-based solvents.

A lighter option some lenders use

Some programs allow a shorter step for low-risk properties. SBA’s SOP, for example, uses a Transaction Screen under ASTM E1528-22, an Environmental Questionnaire, and a Records Search with Risk Assessment. A Transaction Screen is not an AAI-compliant Phase I. Ask whether the lender’s lighter option gives you the liability protection you want. See what lenders require.

Idaho: cleanup help if the news is bad

If your Phase I finds a problem and you still want the property, Idaho DEQ’s Voluntary Cleanup Program may help. DEQ says the program was created in 1996 under the Idaho Land Remediation Act (Idaho Code Title 39, Chapter 72). DEQ lists a Covenant Not to Sue, lender liability protection, and a Certificate of Completion as program results. Talk to your attorney and the environmental professional before you sign a purchase contract.

How to get a Phase I that holds up

• Order it early. See the due diligence checklist.
• Complete the user tasks and questionnaire, and return them fast.
• Give the consultant any prior reports, permits, and tank records you have.
• Ask for the component dates so you can track the 180-day window.
• Tell the consultant who will rely on the report. Lenders often need a reliance letter.
• Read every REC, CREC, HREC and data gap in the report, not only the summary.

Calibre’s Phase 1 ESA service describes its process. Request a proposal.

Frequently asked questions

Sources

• EPA, Brownfields All Appropriate Inquiries
• EPA, Bona Fide Prospective Purchasers
• 40 CFR Part 312
• 40 CFR 312.10 (definitions)
• 40 CFR 312.11 (referenced standards)
• 40 CFR 312.20 (timing of AAI)
• 40 CFR 312.21 (results of inquiry)
• 40 CFR 312.22 (additional inquiries)
• ASTM E1527-21, scope summary
• EPA, PFOA and PFOS CERCLA designation
• EPA, PFAS enforcement discretion policy
• SBA SOP 50 10 (Phase I, Phase II, Transaction Screen definitions)
• Fannie Mae Form 4251 (2023 redline)
• Freddie Mac Guide Chapter 61
• Idaho DEQ, Voluntary Cleanup Program

Lender guides and standards change. Confirm current requirements with your lender and counsel. This guide is general information, not legal advice.