Phase I and II Environmental Site Assessments, Toronto and beyond. Why are they costing more?

In the last blog we saw that whether you're in Toronto, London, Ottawa or even Sault Ste. Marie after July 1, 2011 a typical Phase 1 environmental site assessment will cost commercial real estate clients more money and take longer to complete.

Leaking drums at a GTA site

While many commercial real estate professionals are upset with this, there are even more significant changes that could make a 60 or 90-day close on commercial / industrial properties a thing of the past.

Amendments to Ontario’s regulation, O. Reg 153/04, Records of Site Condition, make reference to a seemingly innocuous term called "potentially contaminating activities" (PCA). PCA's are industrial activities which produce pollutants that could contaminate a property, and the Ministry of Environment (MOE) has indentified 71 different PCA's.  Examples include paint manufacturing, metal working, fuel storage, etc. (See May 4, 2011 blog for the complete PCA list).



"Brownfield" site, Toronto

 PCA's are actually well known in the environmental engineering field, but the new regulations require that when a PCA is found at a site currently or anytime in the past, then the Phase 1 report must recommend that a Phase II environmental site assessment be performed to test the soil and groundwater for contamination.

In essence the MOE is taking decision-making out of the hands of the engineer and requiring them to recommend lab testing to ensure the site is clean. While this attempt to remove human error or human influence from the process may be well-intended, the resulting financial implications for commercial deals will be significant.

More commercial and industrial properties will require a Phase II ESA and have lab results confirm the site is “clean”, in order for a transaction to be approved by a bank or finance company.

The costs of a Phase II vary with each property but here is a general rule of thumb: a Phase II environmental site assessment done on a 1.5 acre industrial property with a 10,000 square-foot building will run approximately $10,000-$15,000. That’s not too bad but the problem is the extra time it will take to complete the Phase II ESA: 4 - 6 weeks.

However having to get a Phase II ESA is not the biggest concern. More important is whether the site passes the lab tests for environmental contamination. In the next blog we will discuss the implications of Phase II’s and why more sites will fail under the new guidelines.

Next week: How Greenfields become Brownfields.