Ontario's new environmental legislation: Implications for Commercial Real Estate Professionals from Toronto to Thunder Bay

On July 1st Ontario's new environmental legislation, Ontario Regulation 153/04, Records of Site Condition, will become law.

So what is the impact for commercial real estate professionals?

At first glance it would seem 'not much', but changes to the legislation could significantly impact both the cost and time it takes to close even a simple commercial deal.  Whether you are redeveloping a Brownfield site in Kitchener, selling an industrial building in Toronto or just getting refinancing on commercial office condo in Ottawa, the new environmental regulations will effect your deal. 

Over the next month, leading up to July 1^st, I will cut through the 147-page O. Reg 153/04 and highlight important changes, so you can be better prepared to advise your clients. Today we will look at changes to the Phase 1 Environmental Site Assessment (ESA).

First we need to clarify some terminology which should be familiar to most readers but is still very important.

A Phase 1 ESA is a report prepared by a “Qualified Person” (QP), typically an engineer, which investigates a property to determine the “likelihood” of environmental contamination. No analytical testing is done for the Phase 1.

The current accepted Phase 1 ESA standard is the CSA Z768-01, however after July 1, 2011, if you require a “Record of Site Condition” to be filed the new O. Reg. 153/04 standard must be used.

A Record of Site Condition (RSC), is a legal a statement filed by a QP to protect property owners from environmental cleanup orders and it must be filed whenever a property changes to a ‘more sensitive use’.  An example of ‘sensitive use’ is redeveloping a former gas station site for a condominium. The QP uses a Phase 1 and (often) a Phase 2 ESA to support the filing of the RSC.

So what if you site is not changing its use and do not require a RSC? Eg. A sale or refinance of a commercial / industrial building with no plans for redevelopment.

Are you legally required to use the new Phase 1 standard? No.

Will a lender require you to use the new standard? Maybe.

We all know banks and lenders have their own underwriting policies, so don’t be surprised if they require the Phase 1 ESA for your site be done to the new O. Reg. 153/04 standard.

However if your client’s property is not being redeveloped, the question you should ask the lender is “Will you accept the CSA standard for a Phase 1?”.  If the answer is “No”, ask them “Why not?”.

The worst they can say is “No, use the new regulations”. But if they say “Yes, use the CSA standard” you may save your client thousands of dollars and at least two weeks in time to prepare a Phase 1 ESA.  

Next Blog: Why the new regulations will mean Phase 1 ESA’s will take longer and will cost more.