Holiday Inn says, “The Best Surprise is No Surprise.” Fram says, “Pay Me Now or Pay Me Later.” And we say, “You Buy the Land, You Buy the Environmental.”
That’s why lenders typically require environmental due diligence in the form of a Phase I Environmental Site Assessment (ESA) and why you should consider a Phase I ESA even on cash deals. In some cases (low risk properties), a lesser scope of work such as an environmental review may be sufficient.
A Phase I ESA is a great, low-cost tool to evaluate the environmental condition of a property. It can protect you from buying a contaminated property or at least let you know a potential problem exists that could reduce the property’s value. As the new owner, any future discovery of contamination will be your problem and not the previous owner’s.
You’re assuming the land is clean, but if you discover contamination after purchase, the environmental tasks/costs for assessment, remediation and regulatory closure are likely your responsibility.
Yes, Get a Phase I ESA Even on a Cash Deal
Based on our experience of over 25 years with real estate in urban areas throughout Texas, we recommend a Phase 1 ESA even on cash deals. The ESA is a great tool to evaluate property value because it may identify potential environmental concerns that should be further assessed with either additional file review and/or a Phase II Investigation. It is better to know now when you have recourse with the seller than later when you alone will be left “holding the bag.”
In our experience, most buyers will be sellers at some point in the future and will need to prove to the next buyer and lender that their property is not contaminated.
Common environmental problems identified in the Phase I ESA that are defined as Recognized Environmental Conditions (RECs) and/or Vapor Encroachment Conditions (VECs) include on-Site and off-Site dry cleaners, underground or aboveground storage tanks (USTs or ASTs), drums of chemicals/wastes, hydraulic lifts, landfills, waste piles, dark-stained soil, etc.
In our experience, the most common “red flag” properties are historical and/or current service stations, dry cleaners using tetrachloroethene or “perc”, and industrial facilities.
In some cases but not always, the site may be listed with a state regulatory agency such as the Texas Commission on Environmental Quality (TCEQ) as Leaking Petroleum Storage Tank (LPST), Voluntary Cleanup Program (VCP), Corrective Action (CA) case or hazardous waste generator.
For more information on Environmental Due Diligence from a Texas expert, contact Michael Whitehead at 214-335-3246.