You’re involved in a commercial real estate transaction in Texas – maybe buying, selling, or refinancing property. As part of your due diligence, you’ve commissioned or received a Phase I Environmental Site Assessment (ESA) report. This crucial document aims to identify potential environmental liabilities by researching the property’s past and present uses.

But wading through the technical jargon can be daunting. One of the most critical parts of the report is the identification of environmental conditions, often presented as acronyms: REC, CREC, and HREC. Understanding what these mean is vital for making informed decisions about your Texas property transaction.

Let’s break down these key findings.

What is a Phase I ESA Again? (A Quick Refresher)

Before diving into the findings, remember that a Phase I ESA is a non-intrusive investigation. It doesn’t involve collecting soil, water, or air samples. Instead, environmental professionals review historical records, search regulatory databases (including Texas Commission on Environmental Quality – TCEQ – records ), conduct a site visit, and interview knowledgeable parties. The primary goal, according to the industry standard ASTM E1527-21, is to identify “Recognized Environmental Conditions” or RECs.  

Decoding the Findings: REC, CREC, and HREC

The ASTM E1527-21 standard defines three main types of findings related to potential contamination:

1. Recognized Environmental Condition (REC)

   • Definition: This is the big one. A REC signifies the presence or likely presence of hazardous substances or petroleum products on the property under conditions indicating a current release, a past release, or a material threat of a future release into the environment. The term “likely” isn’t a guess; it’s based on the environmental professional’s judgment using available evidence and experience.  
   • What it Means: Crucially, a REC indicates the possibility or likelihood of contamination, not confirmed contamination. Think of it as a red flag signaling potential environmental problems. Common sources leading to RECs in Texas include historical or current gas stations (especially with underground storage tanks – USTs), dry cleaners, auto repair shops, industrial or manufacturing facilities, and sometimes agricultural operations or oil and gas activities. Contamination can also migrate from adjacent properties.  
   • Next Steps: Identifying a REC typically leads to a recommendation for a Phase II ESA. This next phase involves physical sampling (soil, groundwater, vapor) to confirm if contamination exists, determine its extent, and assess the risk. A REC finding isn’t necessarily a deal-breaker, but it’s critical information for risk management and negotiation.  

2. Controlled Recognized Environmental Condition (CREC)

   • Definition: A CREC is a REC that has been previously addressed to the satisfaction of regulatory authorities (like the TCEQ), but where some contamination has been allowed to remain subject to controls. These controls could be physical (like a pavement cap over contaminated soil) or legal (like an Activity and Use Limitation, or AUL, restricting how the land can be used).  
   • What it Means: A CREC signifies that known contamination exists but is considered managed under specific conditions. This has ongoing implications. The property owner may be responsible for maintaining these controls and adhering to use restrictions. These factors can affect property value, financing options, insurance, and future redevelopment plans. Prospective buyers must fully understand these ongoing obligations before purchasing.  
   • Next Steps: Understanding the specific controls and any associated long-term monitoring or maintenance requirements is essential. Reviewing the regulatory closure documents is key.

3. Historical Recognized Environmental Condition (HREC)

   • Definition: An HREC refers to a past release on the property that has been addressed to the satisfaction of regulators and meets the criteria for unrestricted use. This means no controls are required to ensure the remedy remains protective for that specific release.  
   • What it Means: Generally, an HREC suggests the specific past issue is resolved and doesn’t pose a current environmental risk or limitation from that historical release. However, the environmental professional must evaluate the historical closure documentation to confirm it meets current regulatory standards.  
   • Next Steps: Usually, no further action is needed regarding the specific issue identified as an HREC, provided the closure met unrestricted use standards.

You might also see “De Minimis Conditions” mentioned. These are minor issues that don’t rise to the level of a REC because they generally don’t pose a threat to health or the environment and wouldn’t typically trigger regulatory action.  

What if No RECs are Found?

Receiving a Phase I ESA report stating “no RECs identified” is generally good news. It means that based on the assessment’s scope, the environmental professional didn’t find evidence meeting the REC definition. However, remember:  

• It’s Not a Guarantee: A Phase I ESA is non-invasive and has limitations. It reduces uncertainty but cannot eliminate the possibility of contamination entirely.  
• It Doesn’t Cover Everything: Standard Phase I ESAs don’t typically include testing for things like asbestos, lead-based paint, mold, or radon, which are considered “non-scope considerations” but can still represent significant costs or risks.  

Navigating the Findings in Your Texas Transaction

Understanding these findings is crucial for moving forward:

• REC: Usually prompts a Phase II ESA to confirm and quantify the risk. If contamination is confirmed, discussions may involve cleanup options, potential enrollment in TCEQ programs (like the Voluntary Cleanup Program or Innocent Owner/Operator Program ), and negotiations regarding price, cleanup responsibility, or escrow agreements.  
• CREC: Requires careful evaluation of the existing controls, long-term obligations, and potential impacts on your intended use of the property.
• HREC: Generally indicates a past issue is resolved, but verifying the closure details is still prudent.

The Bottom Line

Your Texas Phase I ESA report is a vital tool for environmental due diligence. Decoding the findings – especially understanding the difference between a REC, CREC, and HREC – empowers you to assess risks, negotiate effectively, and make informed decisions about your commercial real estate investment.

Always discuss the report’s findings and recommendations with your environmental professional to fully grasp the implications for your specific situation.

Partner with Peace Environmental

Navigating the complexities of Phase I ESA findings requires expertise. At Peace Environmental Services, we specialize in preparing thorough and accurate Phase I ESA reports tailored to the Texas landscape. Having performed hundreds of assessments across the state, our experienced team understands the nuances of Texas regulations and common site concerns. We pride ourselves on delivering high-quality reports with a great turnaround time, typically within two weeks, helping you keep your transaction on track.