While Ontario doesn’t require an Environmental Site Assessment (ESA) by law, lenders and real estate investors should never proceed without one. According to Building Experts Canada Ltd., a Toronto firm that provides environmental site assessment reports, “The best time to determine if an environmental contamination is present is before you buy”. The reason for this is clear; once you own the property it becomes your responsibility; if contamination is found on the property, even if you didn’t cause it, you, as the owner are responsible for the cost of cleaning it up. In some cases, the cost of cleaning up the contaminated property exceeds the property’s value! And it can create a tangled web of liability between present and past property owners, investors, lenders or even commercial tenants.
Aside from the clean-up costs associated with a contaminated property, a purchaser could also be prosecuted for environmental offences and face fines and legal costs.
This is why lenders are very sticky about insisting upon a positive Environmental Site Assessment report before providing funding.
There are three different phases of ESA reports. Phase 1 is a visual and historical inspection, Phase 2 involves taking samples for testing and Phase 3 provides recommendations for remediation (should contamination be found) and monitors the execution of the remediation as well.
A Phase 1 environmental site assessment determines whether a property is subject to actual or potential contamination. This consists of a visual assessment of the site and surrounding properties and interviews with people who have knowledge of past and present site activities. Phase 1 can also include locating and analyzing missing or previously undiscovered documents to determine if contamination could potentially exist. Typically, the Phase 1 report takes ten to fifteen business days and costs between $2500 and $3500.
In a Phase 2 ESA, a qualified environmental consultant (or team) visits the site to validate Areas of Potential Environmental Concern (APECs) which were identified in the Phase I ESA.
Through surface and sub-surface soil testing, surface water analysis, groundwater sampling, and other materials on site, the current environmental condition of the site is assessed and described. As each site has unique APECs, the sampling program is tailored to the site’s individual history.
The primary objective of a Phase 3 ESA is to design a Remedial Action Plan (RAP) to offset the adverse environmental impact identified by the Phase 2 ESA. Once remediation has been completed, testing is done again.
Typically ESA reports are valid for 18 months and can only be used by the person(s) who are named on the reports.
A common misconception is that agricultural land does not require an ESA report. The chemicals and pesticides used in today’s agriculture can heavily contaminate a property. It is essential to get a positive environmental report before proceeding with the purchase of agricultural land.
While purchasing an industrial, commercial or agricultural property can provide exceptional investment potential, determining the site’s environmental status is a vital component of the due diligence process.