Before buying or selling a car, it’s a good idea for one to take a look under the hood, listen to the engine, and inspect the vehicle to identify any problems before closing the deal. This is no different when buying or selling a property.
When buying or selling a property, one must be aware of the potential liability and complete the necessary due diligence to protect their investment from unwelcome surprises down the road. The first step in this process is a “Phase I Environmental Site Assessment” or “Phase I ESA”.
Essentially, a Phase I ESA is a process that determines the presence of actual or potential for contamination in the soil and/or groundwater. The process involves several steps, the first of which is desktop research where historical documents are accessed and information pertinent to the environmental condition of the property is determined. Historical documents which are reviewed include, but are not limited to; municipal directories, Fire Insurance Plans (FIPs), aerial photographs, and ownership history. Following this research, a professional will conduct a Site reconnaissance of the property to document the current condition of the Site and the surrounding area by making detailed observations. Interviews will be conducted with representatives who are familiar with the Site and its history. The reporting presents the conclusions as to whether there is any potential for on-site contamination and presents recommendations as to whether a further intrusive investigation is warranted (i.e. a Phase II ESA).
A Phase II is the intrusive side of the due diligence work and involves the collection and analysis of soil and/or groundwater samples. For most sites, the analytical results of the samples are compared to general standards prescribed by the Ministry of the Environment, Conservation and Parks (MOECP). The Phase II ESA serves to evaluate the presence of contaminants of concern, and if present, attempts to determine the extent of the contamination. Once the extent of contamination is known, remediation options and associated costs may be evaluated.
The process and costs associated with this process can vary greatly as no two sites are alike. Where remediation is involved costs can be considerable, from tens of thousands to tens of millions or more in extreme cases.
The facts and numbers above may appear scary at first, but imagine facing these issues blindly when the investment into a contaminated property has already been finalized. As a potential purchaser of a property, having this information before making a financial commitment is crucial and at times, completely necessary. More often than not a Phase I ESA is considered to be a bare minimum before securing financing on a property. Even if financing for a contaminated property is obtained, there is potential for legal issues later on if it is determined that the purchased property has impacted others, regardless of whether the impacts were caused by the new owner or not. The regulations which govern the environmental conditions of properties place the responsibility on the current property owner. Conversely, if the purchaser conducts a Phase I ESA prior to purchasing a property, any environmental issues which are determined in the report may be used as leverage against the seller to renegotiate the purchase price or for the vendor to deal with the issue before finalizing the purchase. Therefore, without conducting the appropriate due diligence, which begins with a Phase I ESA, one may be investing into the burden of contaminated property and the inherited liability of issues which may not stop at the property line.
As a seller of a property, this may all seem even scarier and prevent one from wanting to even consider a Phase I ESA. However, there are several reasons why it is just as, if not more, important for the seller of a property to conduct a Phase I ESA. Firstly, it puts the seller in a more opportune position to have the transparency and ability to disclose any relevant information to the purchaser. If there is anything of concern on the property, a good Phase I ESA will find it and as a seller, it’s better to know this ahead of time to ensure the sale of the property goes smoothly. Conducting the Phase I ESA before putting a property up for sale may also save you time. Environmental due diligence can take a long time, especially if contamination is found, and therefore it may be better to address this before approaching a closing date so that the work can be conducted in a fluid and efficient manner. Finally, as a seller, one needs to convince the buyer that there is a good level of trust between the two parties. Having a Phase I ESA report at hand facilitates this and shows you’re not wasting anyone’s time.
It is for the reasons explained above why it is essential to determine the environmental condition of a property through the completion of a Phase I ESA before completing property transactions, whether you’re a buyer or seller. Don’t be caught blindly and surprised by what skeletons may be hiding in the closet, but rather be proactive by opening the door and kicking them out before they have a chance to bite.
Please feel free to contact us during regular business hours to discuss any related questions or potential environmental work to be done at (519) 951-9191 or come visit us in person at 318 Neptune Crescent, Unit #1, London, Ontario. We would be pleased for the opportunity help facilitate the sale and/or purchase of your property. You can also reach out to us through one of the consultation forms which may be found on our website.