(CANADA) Environmental Site Assessment: Do I need a Phase 2 ESA?

2 Replies

Hi there,

i'm interested in a small and older apartment building. I've approached the owners to talk about the property, he has indicated that there is an oil tank on the property. Hopefully some people with experience in Canadian Real Estate can help me (I think the laws are different for USA / CAN).

Questions:

1. If there's an oil tank on the property does that automatically fail the Phase 1 ESA?

2. If there's an oil tank on the property will I automatically require a Phase 2 ESA? 

3. If there's an oil tank on the property and the Phase 1 ESA comes back clean, will I still require a Phase 2 ESA? 

@Elijah Fast

Your lender and possible your insurer will require a Phase 1 assessment .... this is predominately a visual inspection and paper exercise (costing anywhere from $750 - $2500) with the objective of discovering any potential contamination of the property (or demonstrating that there is none).

An abandoned underground storage tank (UST) is something which should be disclosed by the vendor (it appears that it has been in this instance), but it is an example of the sorts of things a Phase 1 ESA looks to discover.

Depending on the results of the Phase 1, you may very well be requested to continue with a Phase II ESA.

Having a Phase 1 lets you know what you are walking into ... which is why lenders want them.  It also provide you the opportunity to negotiate who pays for the remediation.   We had a tentative deal on a 24-30 unit apartment {I forget precisely how many off the top of my head) a few years ago when the Phase 1 discovered abandoned USTs on the property.   Additional sampling yielded that one of the tanks was not entirely empty and may have leaked.   The Vendor was unwilling to undertake the work to have the tanks removed and {possibly} the soil remediated - nor would he entertain a reduction in price or an escrow of a portion of the purchase price in exchange for us tackling the issue - and the deal came unravelled.

Now being obliged to disclose the results of the Phase I to other potential suiters, the Vendor ended up removing the tanks some months later.

Most jurisdictions in Canada will require an abandoned UST to be removed ... even it not abandoned, if the tank is older and steel, it may have to come out.

As @Roy N. said. A Phase 2 looks at actual contamination / leaks that may have occurred. Even if it comes back clean, the tank will very likely need to come out and then the ground is retested to confirm that nothing 'happened' during the extraction.

Assuming there are no other issues (i.e. additional tanks), one option to explore is to get the tank removal as part of the initial quote, you might get a better price, and not do the actual Phase 2 testing until after the tank is out so it only gets done, hopefully, once. A bit of risk in that if there is any contamination, it will require additional remediation and retesting.

Good luck.