I know I need a Phase 1 . . . Now what?

June 29th, 2015 • by Jesse Hiney
Jesse Hiney

Jesse Hiney

Jesse Hiney is versed in all transactional and regulatory facets of environmental law. He provides advice on transactional and compliance matters for a broad spectrum of developers, lenders and other businesses. At the moment, his practice centers on environmental due diligence for complex transactions, compliance advice on permit and enforcement proceedings and the cleanup and redevelopment of brownfield and other contaminated properties.

So you’ve decided to acquire a new home for your brew equipment and tasting room. Whether it be an old jail, a former firehouse, a warehouse or manufacturing facility, the first step from an environmental perspective is to engage an environmental consultant to perform a Phase I Environmental Site Assessment. As Rick Marx has advised in his blog, Need More Room for Your Brew?, a Phase I Environmental Site Assessment is a non-invasive investigation of potential environmental concerns at a property that includes, at minimum, a site reconnaissance, interviews with relevant parties, a review of environmental databases and records, searches for environmental liens and certifications from the environmental professional performing the Phase I declaring they meet a certain standard.

This post focuses on some of the practical aspects associated with that process, including obtaining some pre-diligence environmental information from the seller and identifying the right environmental consultant.

In addition to identifying the environmental consultant, performing your own diligence may help you narrow perspective properties based on environmental issues and/or focus your environmental consultant to potential concerns. You may ask the seller:

  • What is the method of existing/historic operations?
  • Has the company/property received any complaints from neighbors?
  • Do you have any previous environmental studies of your property/company?
  • How have environmental issues been managed historically?

Depending on the seller and the nature of operations, the aforementioned questions may be sensitive. There is a level of care and deal-tact associated with when and how to make such inquiries. The answers however are important to focusing your environmental consultant towards pertinent issues. In addition, the inquiries may uncover potential red-flags that may not otherwise be identified in a standard Phase I Environmental Site Assessment.

When looking for an environmental consultant we typically look for the following characteristics:

  • Are they deal-savvy?The drafting of a Phase I Environmental Assessment Report can be an art form. There are often multiple drafts and interpretations of findings before a final conclusion is reached as to whether an identified condition is identified as a recognized environmental condition and whether it may have a material impact on the deal. A consultant that is savvy to the business issues generated by an environmental concern can save time, cost and effort and can be a valuable asset in negotiating the impact of Phase I findings on the ultimate terms of the sale.
  • How quickly can they complete the Phase I? Typically a Phase I can be completed between three and six weeks; however, depending on the needs of the deal the process can be expedited.  As Rick Marx suggests, getting the process started as early as possible is very helpful. That said, the timing of a transaction may still dictate the need to expedite a Phase I review. Understanding the consultant’s workload and/or ability to meet deadlines is critical.
  • Who will they commit to the project? This one is fairly obvious, but know who you are working with—particularly if you are have a specific concern or require expertise in a particular industry.
  • What is their experience in the specific geographic location and the specific target property/operation? Inquire whether the consultant is familiar with some of the regional concerns faced by your geographic location and/or the operations at a particular site. This familiarity can provide an additional layer of certainty as to the anticipated materiality of a particular concern as it applies to an acquisition and/or proposed use or development.
  • Will they remain with you after the deal? Do they have the requisite technical diversity? If the Phase I identifies environmental concerns that require additional investigation, or if your build-out will require specific environmental permitting, does the consultant have the capabilities to meet those needs?
  • What will the Phase I cost? Timing, specific expertise, the complexity of a specific property and the market in which it will be acquired all play roles in the cost of a Phase I Environmental Site Assessment; however, our experience indicates that a Phase I can generally be commissioned from between $2,000 and $6,000.

Should environmental concerns be identified, be sure to contact your environmental consultant and/or counsel to determine the next steps and understand potential risks.