In the frenetic world of commercial real estate transactions, timing can be tight, and due diligence can be perceived as a challenge. Neglecting environmental risk can see a promising deal turn into a financial and legal hand grenade in no time at all. A Phase 1 environmental assessment is an essential component of the pre-purchase process that enables buyers, lenders and developers to safeguard against potential contamination stemming from a property’s history.
This kind of report, however, isn’t simply a bureaucratic box to check — it’s an investigative tool to figure out whether a property has the potential to create environmental liabilities. The Phase 1 Environmental Report is non-invasive and only involves collecting existing data, as opposed to more invasive environmental testing. It usually involves a site visit, review of aerial imagery and historic land use records, government environmental database searches, and interviews with relevant stakeholders.
To find RECs (Recognized Environmental Conditions), which is defined as the presence or likely presence of any hazardous substance or petroleum product in, on, or at a property, under conditions that indicate an existing release, a past release, or a material threat of a future release. If RECs are identified, a Phase 2 environmental site assessment (Phase 2 ESA) may be necessary, which includes laboratory testing and a more in-depth investigation.
When a property has been previously industrial or commercial, lenders make it their policy to require a phase 1 environmental report as part of their Risk Management practices. Properties that were once home to gas stations, dry cleaners, manufacturing plants or even auto repair shops may still be the site of environmental contaminants. Recognizing these issues early enables parties to make more informed decisions related to risk allocation, remediation approaches, or even the terms of sale themselves.
The price of neglecting a Phase 1 Environmental Report can be shocking for real estate investors. Finding contamination after a closure can initiate cleanup costs, lawsuits and possible regulatory fines. Even worse, environmental contamination can affect a property’s usability or resale potential.
In addition to compliance and liability protection, though, these reports also serve a strategic purpose. They contribute to a more complete picture of a site’s worth and development capacity. Investors can also use the data for contingency planning, applying for brownfield redevelopment incentives or negotiating for environmental insurance with facilities that accurately reflect the property’s actual risk profile.
In some jurisdictions, buyers with a Phase 1 Environmental Report following national or provincial standards can be protected by the law from future liabilities under environmental law. This can protect new owners from responsibility for contamination that happened before they took possession, as long as they did not learn about it and took proper due diligence measures.
From the phase 1 environmental report perspective, it serves both as a form of protection and as a strategic planning instrument. If you’re working on a real estate acquisition, and the property in question is in an area with a complicated land use history, this report should be an integral part of a well-informed, risk-aware investment process.
Landon Flynn the author of this article. To know more about Best Environmental consulting in Kelowa please visit our website: nextenvironmental.com