What’s the Difference and What Does It Mean for Your Deal?
Not every environmental finding means the same thing. A Phase I ESA may identify environmental concerns, but the terminology used to classify them matters. A few acronyms CRE professionals may encounter are REC, CREC, and HREC. Although they sound similar, they can have very different meanings for a transaction. Does this issue need more investigation, or has it already been identified and managed?
What Is a REC?
REC stands for recognized environmental condition. A REC is defined by ASTM as “(1) the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment; or (3) the presence of hazardous substances or petroleum products in, on, or at the subject property under conditions that pose a material threat of a future release to the environment.”
In layman’s terms, there is enough environmental concern here that it deserves attention.
Some examples of locations with probable RECs include:
- A former gas station with UST history
- Dry cleaners
- Visible staining around chemical or waste storage
- Historical industrial operations
The term is not intended to include de minimis conditions that generally do not present a material risk of harm to human health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.
Does a REC Automatically Mean a Phase II?
Not necessarily. A REC is a professional finding. Determining the next steps depends on a number of factors: the nature of the concern; available information; lender requirements; risk tolerance; and the transaction itself. Sometimes additional records research can resolve questions. You may also find that targeted Phase II sampling may be appropriate. The goal is to define the risk well enough that the involved parties can make an informed decision.
What Makes a CREC Different?
“The term CREC, or “Controlled REC” refers to a REC with past releases that have been addressed, but where contamination still remains and is subject to the implementation of required activity use limitations (AULs) such as institutional or engineering controls.” Put simply, some type of release occurred and was addressed to the satisfaction of the applicable regulator, but contamination may remain subject to controls or restrictions.
Examples might include:
- Contaminated soil left beneath a paved area that must remain capped
- A land-use restriction limiting residential development
- Restrictions on groundwater use
- Required monitoring or maintenance of an engineering control
“Controlled” Does Not Mean “Gone”
A CREC isn’t the same thing as a clean bill of health. The condition has been addressed within a certain regulatory framework, but certain obligations may still remain.
Some important questions for buyers and lenders to ask:
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- What controls are in place?
- Who is responsible for maintaining them?
- Will redevelopment disturb impacted material?
- Could a change in property use affect the closure status?
- Are there ongoing reporting, monitoring, or inspection requirements?
OK, so What is an HREC?
An HREC, Historical Recognized Environmental Condition, involves a past release that was addressed to the satisfaction of the applicable regulatory authority and meets the criteria for unrestricted use.
Put simply:
REC = current environmental concern requiring consideration.
CREC = past problem, managed but still subject to controls.
HREC = past problem, resolved.
Imagine a property with a former leaking underground storage tank:
- REC: The release is known or suspected and hasn’t been adequately investigated or resolved.
- CREC: The release was addressed and received regulatory closure, but residual contamination remains and a land-use restriction or other control is required.
- HREC: The release was remediated and closed with no restrictions necessary, and it still meets current unrestricted-use criteria.
Classification Helps Define the Risk
A Phase I ESA isn’t a pass/fail report. When we identify something as a REC, CREC, or HREC it gives your environmental team an idea of what needs to happen next. Lenders, buyers, and brokers need to understand potential liability concerns, consider future obligations and redevelopment limitations, and anticipate these issues before it becomes a closing surprise.
A REC, CREC, or HREC doesn’t stop a transaction, it tells you where to look next. McAlister GeoScience works with lenders, buyers, brokers, and property owners to evaluate environmental concerns and recommend practical next steps, from Phase I ESAs and records review through targeted Phase II investigation and remediation when needed.