Phase I Environmental Site Assessments (ESAs): Realtors and Conditional Offers
Phase I ESAs are required during a majority of property transactions, whether it may be a commercial or industrial property of interest, or an agricultural parcel of land, or a vacant undeveloped lot. A Phase I ESA allows the potential purchaser to understand if any environmental liabilities associated with the property exist and if any identified environmental risks need to be further explored by conducting an intrusive soil and/or groundwater investigation. These investigations are meant to be conducted during the due diligence period, once a potential purchaser has retained a Realtor to prepare a conditional offer on a property of interest.
What should a property purchaser be aware of once a property of interest has been identified?
What type of property are you looking for? Each property type can be associated with different environmental risks, including the following examples:
- Vacant, undeveloped lot
- Historical use of the property included a residential dwelling that was formerly heated by fuel oil
- Agricultural parcel of land
- Large-scale applications of pesticides, herbicides, and fungicides
- Former or present use of fuel oil for heating purposes
- Types of tenants that previously and presently occupy the building (i.e., on-site dry cleaning and automotive repair operations)
- Historical and current operations occurring on-site (i.e., manufacturing processes and use of hazardous materials)
In addition, the properties in close proximity to your property of interest, can also pose an environmental risk to your potential property. Land uses such as a gasoline service station, automotive repair garage, dry cleaning facility, and manufacturing facility can pose an environmental risk to your property, specifically if these properties are located up-gradient to your Site (at a higher elevation with respect to the direction of groundwater flow) or are located immediately adjacent to a property boundary of the Site of interest. A Phase I ESA considers all properties located within a 250 metre (m) radius from the Site, which may pose an environmental risk to your potential property. Upon the identification of a potential environmental risk located within the 250 m radius, it is the discretion of the Qualified Person (QP) conducting the ESA to determine the extent of risk (on the Site) that is associated with that property based on length of operations, type of operations, distance from the Site, location, historical records associated with the property etc.
What should your Realtor consider when making a conditional offer?
A buyer and Realtor commonly base their conditional offers on one or more of the following:
- Financing – the buyer receiving the necessary financing to finalize the purchase.
- Home Inspection and/or Building Condition Assessment – the buyer conducting a building inspection to verify the structural integrity and condition of the building and/or conducting a life cycle cost analysis for building components.
- Property Appraisal – the buyer verifying the value of the property.
- Environmental Investigations – the buyer conducting an ESA and being satisfied with the results of the environmental report completed by a consultant.
The Realtor is also responsible for delegating a time period to each of the conditions, based on the length of time required to complete any associated tasks that confirm or refute the buyers purchase. In the case of environmental risk, the Realtor and buyer should consider the following:
- Verify if the financial institution requires the buyer to conduct an ESA as part of their risk evaluation during the pre-approval process.
- Verify if the financial institution obtains a Pre-Approved Consultant Vendor List.
- Verify that the retained Consultant is on the Pre-Approved Vendor List of the financial institution the buyer is seeking financing with.
- Environmental Investigations
- Phase I ESA
- Typical turnaround times to complete a Canadian Standards Association (CSA) Phase I ESA is three to four weeks.
- Phase II ESA
- Typical turnaround times to complete a CSA Phase II ESA is four to six weeks.
- Contact the Consultant and discuss what timeline is required to complete the necessary investigations (Phase I and/or Phase II ESA), so that the appropriate timelines are included in the conditional offer.
- Phase I ESA
What should an individual and/or business consider when leasing a space?
Leasing a space may be considered an ideal option for financial reasons; however, it is still very important that a future tenant reduce their risk associated with building occupancy and fully understand the existence of any environmental liabilities. Rubidium recommends that a potential leasee conduct the same environmental due diligence as a potential purchaser, so that all risk factors can be explored and mitigated. If a former dry cleaning tenant operated within the unit currently listed for lease, would you want to occupy that space not knowing what environmental liabilities exist due to the former tenant or operations that took place in that space?
Some property transactions are finalized almost immediately when a Relator presents an offer that waives any conditions. Rubidium suggest that you, as a buyer, be diligent and retain a consultant to investigate the potential presence of environmental liabilities associated with the property of interest and/or space for lease. It is important that property owners or occupants fully understand any risks associated with a financial investment that may lead to greater risk in the future when the property is listed for sale or you decide to terminate a lease and vacate the space.