When You Should NOT Do a Phase II Environmental Investigation

Is a Phase II ESA the Right Move for Your Deal? Maybe Not!

Most buyers already know that Phase II Environmental Site Assessments are powerful tools. When used correctly, they reduce uncertainty, support negotiations, and protect deal value. But here's the part that rarely gets discussed openly: there are situations where doing a Phase II is not the right move.

Sophisticated buyers understand that environmental diligence isn't about eliminating all risk. It is about managing risk intelligently. And sometimes, additional investigation creates more exposure than it helps.

Below, we've put together the most common scenarios we see where experienced buyers, lenders, and deal teams may intentionally decide not to proceed with a Phase II and why that decision can make sense.

And if you're navigating this decision right now, it's usually worth having a strategic conversation before authorizing fieldwork. We've got you covered - you can reach us anytime here for help with a Phase II decision!

Table of Contents

• 1. When the Deal Is Already Structured to Walk Away
• 2. When Reporting Obligations Create Unwanted Timing Risk
• 3. When Risk Is Better Managed Contractually
• 4. When the Scope Would Be Unnecessarily Overbroad
• 5. When the Buyer Will Not Own or Operate the Site Long-Term
• 6. When the Issues Are Unchanged and Well-Understood
• 7. When the Buyer Is Not Prepared to Act on the Results
• The Difference Between Avoidance and Strategy

1. When the Deal Is Already Structured to Walk Away

Sometimes, as a buyer, the deal is already set up so you can walk away if the Phase I shows something you do not like. We see this all the time. The contract gives you a clean exit, and going in, you already know you are not interested in fixing environmental problems or getting creative with the price. You just want to know if this site is worth your time.

In those cases, the Phase I usually does its job. It gives you enough information to decide whether you are comfortable or not. If the findings already push you past your comfort level, that answer is usually pretty clear. You do not need more detail to tell you what your gut already knows.

At that point, a Phase II often just piles on. More cost, more time, more paperwork, and more things that can follow you into future deals. We always tell buyers to pause and ask one simple question: would Phase II results actually keep you in this deal? If the honest answer is no, stopping after Phase I is often the cleanest and smartest move.

2. When Reporting Obligations Create Unwanted Timing Risk

Another thing buyers don't always realize is how much timing matters with Phase II work. In some states, certain findings trigger reporting requirements right away. Once that happens, regulators can get involved, and deals that were moving smoothly can slow down fast.

This gets especially uncomfortable if you don't own the property yet and the reporting responsibility lands on the seller. We've seen deals stall or fall apart because a Phase II started before everyone was aligned. Sellers get nervous, attorneys get involved, and closing dates start slipping.

Now, this isn't about ignoring problems or trying to dodge responsibility. It's about understanding what might happen once sampling starts. Before you move forward, it's worth asking whether you are truly ready to deal with regulators and extra oversight right now. If not, it may make sense to slow down or rethink the timing.

3. When Risk Is Better Managed Contractually

Not every environmental concern needs to be handled by digging holes in the ground. A lot of times, buyers have better and simpler tools available. Price adjustments, escrows, indemnities, representations, warranties, and environmental insurance are all common ways we see risk handled.

If the issue is already understood at a high level and the contract clearly spells out who owns it, a Phase II may not add much value. In those cases, everyone already knows what the risk is and how it will be handled if something comes up.

In these situations, more testing usually doesn't make the decision any clearer. It often just creates more details without changing the outcome. We try to remind buyers that more information is not always better if the deal already defines how the risk is shared.

4. When the Scope Would Be Unnecessarily Overbroad

Some properties come with a lot of history. Older industrial and urban sites, especially, can have decades of past use, limited records, and plenty of unknowns. When a Phase I points to possible historical impacts, that next step can feel like opening a door you can't easily close.

Once a broad Phase II starts, it can grow quickly. One sample leads to another, and another (and another!) and suddenly the scope is much bigger than anyone expected. We've seen buyers go in expecting a small investigation and end up with far more questions than answers.

Before moving forward, it helps to ask whether you're actually ready for whatever might turn up. You should also be thinking about whether new findings would actually change your decision. A Phase II should help you move forward with confidence, not create a whole new set of problems you didn't plan for.

5. When the Buyer Will Not Own or Operate the Site Long-Term

Your ownership plans matter a lot more than people think. If this is a short-term hold, a loan-to-own deal, or some kind of transitional ownership, extra testing may not help you much. You may not be the one managing (or paying for!) these risks long-term if you're just "flipping the property".

In many of these deals, environmental issues are already disclosed and addressed in the contract. Lenders, insurers, and even future buyers may already be comfortable with the known conditions. And if you're not going to be the one paying for cleanup or remediation down the line because you're planning on selling the property, a Phase II doesn't really make sense!

We often tell buyers in this situation to weigh the cost and exposure against the benefit. Sometimes the right move is accepting known risks that are already priced into the deal and moving forward without digging deeper.

6. When the Issues Are Unchanged and Well-Understood

There are also plenty of cases where nothing about the site is really changing. The property has been used the same way for years, sometimes decades, and the Phase I confirms exactly what everyone expected. No surprises, just familiar conditions.

In those situations, a Phase II usually serves as confirmation, not discovery. While that can feel reassuring, it also comes with added cost, time, and potential exposure if something unexpected shows up.

Many experienced buyers are comfortable accepting stable, well-understood conditions when they match the intended use of the property. If the risks are known and managed, more testing may not be necessary to feel confident in the deal.

7. When the Buyer Is Not Prepared to Act on the Results

The biggest question we always come back to is whether you are prepared to act on the results. A Phase II only makes sense if you are willing to renegotiate, delay closing, deal with regulators, spend money on management or cleanup, or walk away if it comes to that.

Let's be real - if you already know you're not willing (or able) to do those things, testing can actually work against you. It can create obligations and risks that limit your flexibility instead of helping you.

We never recommend doing a Phase II just to "see what happens". It should only be done when you have a clear plan for what you will do with the results. The goal is not more data. The goal is making decisions you are actually ready to make.

The Difference Between Avoidance and Strategy

So here's the bottom line: choosing not to do a Phase II is not the same as ignoring environmental risk. Avoidance is pretending the risk does not exist. Strategy is deciding how best to manage that risk within the context of the transaction.

At RMA, we help buyers make that distinction every day. Sometimes the right answer is more investigation. Sometimes the right answer is restraint, supported by smart deal structure and legal strategy.

If you're weighing whether a Phase II truly adds value in your transaction, we'd be happy to talk it through before sampling begins. If you're looking for straight advice on whether to proceed with a Phase II, reach out here - we'll steer you straight.