In the realm of real estate transactions, particularly for commercial properties, understanding the environmental condition of a property is paramount. Two essential tools used in evaluating potential environmental risks are the Phase 1 and Phase 2 Environmental Site Assessments (ESAs). This article aims to provide an overview of Phase 1 and Phase 2 Environmental reports and delineate their differences.

Phase 1 Environmental Report

A Phase 1 Environmental Report, also known as a Phase 1 Environmental Site Assessment (ESA), is the first step in the environmental due diligence process. Its primary purpose is to identify Recognized Environmental Conditions (RECs) or potential environmental contamination liabilities.

The Phase 1 Environmental report involves four key components, as outlined by the American Society for Testing and Materials (ASTM):

  1. Site Inspection: A visual inspection of the property and surrounding areas to identify potential signs of environmental contamination.
  2. Historical Review: An investigation into the property’s past usage to uncover activities that may have led to environmental contamination.
  3. Regulatory Records Review: Examination of federal, state, and local regulatory databases for environmental concerns related to the property or nearby sites.
  4. Interviews: Conversations with current and past property owners, occupants, or local government officials to gather additional information.

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Phase 2 Environmental Report

If the Phase 1 Environmental report identifies potential RECs, a Phase 2 Environmental Site Assessment (ESA) may be recommended. The Phase 2 ESA involves scientific testing to confirm the presence and extent of contamination.

Typically, a Phase 2 Environmental report includes:

  1. Sampling and Laboratory Analysis: This involves collecting soil, groundwater, or building materials samples and testing them for contaminants. The collected samples are sent to a laboratory for detailed analysis.
  2. Geophysical Testing: This can be used to identify subsurface structures or buried waste.
  3. Report: A detailed report is then compiled, documenting the findings and providing recommendations for remediation if necessary.

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Phase 1 vs. Phase 2 Environmental Report

While both assessments aim to identify potential environmental risks, they serve different purposes and entail different processes:

  1. Scope: Phase 1 ESAs are non-invasive, focusing on historical records, visual inspections, and interviews to identify potential risks. On the other hand, Phase 2 ESAs are invasive, involving actual soil, water, or material sampling and laboratory analysis to confirm contamination.
  2. Outcome: The Phase 1 Environmental report identifies potential environmental concerns, while the Phase 2 Environmental report confirms the presence of these concerns and determines their extent.
  3. Cost: Phase 1 ESAs are generally less expensive than Phase 2 assessments due to the extensive testing and analysis required in Phase 2 ESAs.

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In conclusion, Phase 1 and Phase 2 Environmental reports play critical roles in real estate transactions, providing valuable insight into a property’s environmental condition. While Phase 1 ESAs are largely investigational, Phase 2 ESAs provide definitive evidence of contamination, playing a crucial role in determining next steps, whether that be remediation or reconsidering the transaction. By understanding the distinctions between these two types of assessments, stakeholders can make informed decisions and mitigate potential environmental liabilities.

Remember, it’s essential to involve environmental professionals in the process. If potential environmental risks are identified, legal counsel should also be consulted to navigate the associated

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About the Author
Bryan Watkins is a Principal and co-owner of LRA Real Estate Group LLC, located in Mesa AZ. He is a ‘hunter-gatherer’ of wise advice, smart advisors and savvy clients. Search available LRA commercial listings today. You can reach Bryan at: or 480.734.7878.
Bryan Watkins, LRA Real Estate Principal