Updated September 28, 2026
Your Phase I comes back with a flag — a dry cleaner operated on the site in the 1970s, or a former gas station sat next door. That alone doesn't mean your soil is contaminated. It means somebody is about to find out for certain, and the deal you thought was clean just entered a different phase of diligence.
A Phase I environmental report is a records and site-history review — old land use, nearby industrial activity, prior permits — not a physical soil test. Most Phase I reports on older LA multifamily parcels come back clean. When one flags a "recognized environmental condition," the next step is a Phase II, which is where an environmental consultant actually collects and tests soil or groundwater samples to determine whether contamination exists and, if so, how much.
A documented prior industrial or fuel-related use on the site itself. Former gas stations, dry cleaners, auto repair shops, and certain manufacturing uses are the classic triggers.
Contamination on an adjoining parcel that could migrate. Groundwater and soil contamination don't respect property lines; a documented issue next door can be enough to warrant testing on your parcel.
Regulatory database hits. Phase I reports check state and federal environmental databases for open cases, cleanup orders, or leaking underground storage tank records tied to the address or nearby addresses.
A flagged Phase I is common and does not automatically mean contamination exists. Many Phase II tests on flagged sites come back clean, closing the question entirely.
Scope and extent matter more than the fact of contamination itself. A small, localized, historical issue is a very different negotiation than widespread soil or groundwater contamination requiring active remediation.
Remediation cost becomes the central negotiating point. Buyers typically want either a price reduction reflecting the estimated remediation cost, a seller-funded remediation completed before closing, or an escrow holdback tied to remediation completing after closing.
Regulatory oversight can extend the timeline significantly. Depending on the finding, a state or local environmental agency may need to approve a remediation plan, which can take considerably longer than a standard escrow period.
Lenders react cautiously. Financing a building with known, unresolved soil contamination is harder — some lenders decline outright, others require remediation completion or specific environmental insurance before funding.
There's no universal rule — it's negotiated, and it depends heavily on when the contamination originated relative to your ownership, what your purchase agreement says about environmental representations, and how much leverage each side has once the finding is on the table. A seller who owned the property when the contamination occurred has different exposure than one who inherited a legacy issue from decades before their ownership. This is a conversation for your attorney and an environmental consultant together, not a number to assume from a general rule.
Environmental findings are not something a seller can reasonably hide — regulatory databases are public, and a buyer's own Phase I will surface the same flags yours did. A seller who discloses a known historical land use upfront, before a buyer even orders their own Phase I, controls the narrative and the timeline. A seller who stays quiet and lets the buyer's consultant discover it independently loses both. The broader disclosure discipline this sits inside is covered in how to sell an apartment building in Los Angeles.
A flagged Phase I is a fork in the road, not a verdict. Most flagged sites test clean at Phase II. The sites that don't still sell — with a negotiated remediation plan, a price adjustment, or both — but only when the seller treats the finding as a fact to manage early rather than a problem to hope the buyer doesn't notice.
Does a flagged Phase I mean my property is contaminated?
No. It means the site history warrants further testing. Most Phase II investigations on flagged sites come back clean.
How long does a Phase II take?
Typically several weeks for sampling and lab results, longer if regulatory review or a remediation plan is required based on the findings.
Can I sell a building with known, unresolved soil contamination?
Yes, but the buyer pool narrows and pricing reflects the remediation cost and risk. Most transactions on contaminated sites involve a negotiated remediation plan, price adjustment, or escrow holdback rather than an outright sale with no accounting for the issue.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
Thinking about selling? Get a no-obligation evaluation on your building.
Request Free Evaluation →