Before acquiring land or real estate—particularly for industrial or commercial projects—it is essential to identify any underlying environmental risks that could compromise the value of the asset, restrict its future use, or result in unexpected legal and financial liabilities.
For this purpose, environmental due diligence incorporates Phase I and Phase II environmental studies, which are critical tools for assessing the environmental condition of a property and supporting informed decision-making.
What Are Phase I and Phase II Environmental Studies?
Phase I and Phase II environmental studies form part of the Environmental Site Assessment (ESA) process. Their purpose is to identify, confirm, and evaluate the scope of potential environmental contamination affecting a property.
These studies are conducted sequentially and in a complementary manner, depending on the findings identified during the initial assessment.
Phase I: Initial Environmental Assessment
Phase I consists of a documentary and field review aimed at identifying potential sources of contamination, without conducting sampling or chemical analysis.
This assessment typically includes:
- Review of the property’s historical background and prior uses
- Consultation of official records and environmental databases
- Visual inspection of the site and surrounding areas to identify potential signs of contamination, such as spills, leaks, or high-risk activities
- Interviews with owners, occupants, or, where appropriate, relevant authorities
The objective of Phase I is to identify environmental red flags that may justify a more detailed assessment, without physically disturbing the soil or existing facilities.
Phase II: Confirmation and Scope of Environmental Risks
When Phase I identifies potential contamination concerns, a Phase II study is conducted. This phase involves a more detailed technical assessment designed to confirm the existence, nature, and extent of environmental contamination.
Phase II typically includes:
- Collection and analysis of soil, groundwater, or air samples
- Identification of specific contaminants and their concentration levels
- Evaluation of potential impacts on the property and surrounding areas
- Technical recommendations for remediation
The results of a Phase II study allow stakeholders to estimate remediation costs, define implementation timelines, and assess the financial impact of any identified environmental liabilities.
Why Are These Studies Decisive in Real Estate Transactions?
In acquisition, leasing, or financing transactions, Phase I and Phase II environmental studies are often decisive for:
- Negotiating the purchase price or lease terms
- Defining clear remediation obligations between the parties
- Allocating or limiting future environmental liabilities
- Complying with the requirements of financial institutions and insurers
- Protecting the investment against unforeseen environmental contingencies
Failing to conduct these studies can expose investors and developers to significant risks that may affect the feasibility and profitability of a project in both the medium and long term.
The Importance of Legal Advice
Specialized legal advice is essential to properly interpret the results of environmental studies and translate them into contractual protections, risk allocation mechanisms, and sound investment decisions.
At Roqueñí Abogados, we go beyond traditional legal counsel. We act as strategic business partners, guiding our clients through every stage of the transaction to protect their investments and provide legal certainty for their real estate projects.