Buying Commercial Property? Don’t get more than you bargained for!

The Big Deal

Old garage and gas station with rusty gas pumps

Imagine buying commercial property only to learn some time afterwards that areas of it are contaminated. You’d likely become stressed, angry, and frustrated as one or more of the following happens:

  • Your property loses value;
  • Your permit for re-development or re-zoning is blocked until the contamination has been adequately mitigated;
  • Your development plan for the property is delayed by the assessment and remediation process;
  • You discover how much the required contamination assessment and remediation activities will cost;
  • The assessment and remediation costs are beyond your financial means or make your redevelopment plans economically unviable; or,
  • While ‘polluter pays’, you cannot get adequate compensation from the ‘polluter’ to cover all your expenses.

So, what’s going on?

Land used for industrial and commercial purposes has the potential to be contaminated. Contamination of soil and groundwater can be ‘hidden’ below ground surface and still have the potential to cause risk to human health, wildlife, or water resources. Without proper training and experience, it may not be obvious that a property has been polluted.

Surface contamination

If contamination is discovered, a property cannot be redeveloped or rezoned until the risks from the contamination have been addressed. To accurately assess risks at a property, the extent of contamination must be delineated. To protect the public, the Ministry of Environment can stop a local government from issuing a redevelopment or rezoning permit until they feel the risks from contamination have been adequately addressed.

Assessment and delineation of contamination requires oversight by an environmental professional. It usually involves soil drilling or excavation, on-site soil testing and sampling, soil analysis at a lab, installation of groundwater monitoring wells, onsite groundwater testing, and analysis of water samples at a lab.

By purchasing a property, a buyer becomes responsible for the assessment and remediation costs regardless of who or what caused the pollution. Most people aren’t aware of the magnitude of potential costs associated with assessment and remediation of soil and groundwater. Costs escalate with the depth and total area of contamination, and with complexity of assessment and remediation efforts. Costs can be expected to start at 5-figures for even the smallest job and increase into 7-figures plus even for relatively modest projects. The owner of a property typically must pay for the required assessment and remediation of the contamination and then take legal action against the ‘polluter’ for their expenses. If the polluter doesn’t have the financial means to cover all the expenses, or was a corporation that no longer exists, the property owner may not recover their costs.

Take Control of the Risk

If you’re interested in commercial or industrial property, seek the assistance of an environmental professional who has experience with contaminated sites. They will help you understand the information available about the history of the site and the potential for it to be contaminated.

Soil profile and clipboard. Getting ready for assessment!

If you know the property you’re interested in has the potential to be contaminated, get your own environmental site assessment (ESA) completed. If ESA reports are already available from the seller, hire your own environmental professional to review them and give you their interpretation. It’s like getting a home inspection for a residential purchase. In most cases you would insist on one as condition of the sale, you would want it to be as recent as possible, and you may not rely on one provided by the seller. Most lenders require a Phase 1 ESA (a ‘Stage 1 Preliminary Site Investigation’ in BC) on a commercial/industrial property before they will grant a mortgage because they understand the potential financial risks associated with a contaminated site.

Finding potential or confirmed contamination doesn’t have to be a show-stopper to a property transaction. Risks are unique to each property and situation. Once knowledge of the potential for contamination and extent of contamination are on the table, the buyer and seller can seek legal assistance to negotiate sale terms that compensate for the liability associated with the contamination.

For a fraction of the purchase price of a property you can get the knowledge you need to make a wise decision.

Invest Wisely. Hire a professional.

Let us help you. At Spoke, we have years of experience with contaminated sites. We will guide you through the required process and explain to you the meaning of the information we collect.