When you consider buying a commercial property, one big factor you should have in mind is the potential for environmental liabilities as it relates to the property. However, a phase 1 Environmental site assessment (ESA), an aspect of environmental due diligence, is a key step in choosing the right property. Briefly discussed below are five reasons why an environmental site assessment is important in choosing and vetting commercial real estate.
- Protections from federal liabilities
An appropriate Environmental Site Assessment will protect a prospective buyer from federal regulations such as the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Though key environmental concerns associated with a property may not be identified, but appropriate execution of the process backed up with clear and documented evidence could protect the property owner from federal liabilities in an event the property was found to be contaminated in a later stage.
- Business Risks
Localized contamination issues arising from unintended of property initially utilized for much riskier purposes in the past could rise to the level of CERCLA liability. A properly executed phase 1 ESA will unveil such historic use.
- Lender requirement:
Phase 1 Environmental Site Assessment constitutes an essential requirement when considering acquiring loan from a ending institution. Lending institutions most times review a phase 1 ESA to identify hidden contaminations to ensure that they don’t affect the value of the property which may have drastic effect on the ability of the borrower to repay the loan.
- Future lenders/prospective buyers will likely require one
Sometimes, bullish investors may be tempted by a good deal and may consider exercising the equity in a property in a bid to buy another. At this point, a lender is likely to be involved which implies possible commitment to phase 1 ESA.
- Monetize environmental impairments
Early detection of contamination in a property aids the application of discount to the purchase price. It offers the prospective purchaser two options; either to go with the new discounted price considering the cost for remediation or simply walk away from the deal. This is the role of ESA.
However, carrying out environmental site Assessment on a commercial property you intend to purchase is more like conducting a background check. This will help you know what you are in for before getting involved. Considering the effect environmental contamination has on property values, lenders will not want to risk lending less the worth of a property due to the presence of contamination. Even if you intend selling out the property almost immediately after purchase, prospective lenders will definitely wish to look at the original phase 1 ESA. Conducting an appropriate ESA will take you off any liability in cases of undocumented or unidentified contamination which may be seen in a later stage. In that case, you can consider using the service of évaluation environnementale phase 1 GroupeOrtam.