New Website Announcement

Fisher Environmental is excited to announce the launch of their newly designed Website at: www.fisherenvironmental.com 

Fisher Environmental - home page

The site welcomes visitors with bold colours and a clean easy-to-read layout. Full of topical content and videos, our aim is to share our knowledge and expertise on environmental due diligence and how environmental issues impact real estate. 

The new site is divided into relevant sections including:

1. Environmental Site Assessments - the industry's most recognized due diligence report.
2. Indoor Air Quality - a growing human health concern.
3. Site Remediation - dealing with environmentally contaminated properties.
4. News Releases - topical articles from a variety of national publications.
5. Social Media - links to Associations and Fisher's other sites: Fisher Labs and Fisher Drilling.

The Website will be updated on a regular basis with new content.

Ontario courts rule against victims of off-site contamination (again)

Property development is a risky business. However those risks increase considerably when redeveloping a "Brownfield" site. Beyond dealing with on-site remediation costs, if pollutants have migrated to a neighbouring property, there is the potential for costly regulatory clean-up orders and civil lawsuits. 

Not surprisingly off-site liability concerns are often a significant stumbling block to Brownfield redeveloped. After all what developer would purchase a property with known clean-up costs on-site, but unknown off-site liabilities?

However two recent court rulings in Ontario cases involving off-site contamination, resulted in decisions going against the innocent property owners, whose sites were contaminated by the activities occurring on nearby sites. While it is unlikely that these cases will result in more Brownfields being redeveloped in the province they have caught the attention of many in the industry.

1. In October 2011 the Ontario Court of Appeal overturned an earlier decision by the Ontario Superior Court in Smith vs Inco Limited, which had awarded $36,000,000 in damages to 7000 property owners in Port Colborne, Ontario, due to soil contamination caused by nickel particles emitted from Inco’s refinery. (see my blog post from October 18, 2011)

Kawartha Lakes, Ontario

2. In June 2012 the Ontario Divisional Court upheld a Ministry of Environment (MOE) order requiring the City of Kawartha Lakes to clean-up city owned property contaminated by a residential homeowner's furnace oil spill. The MOE's order deemed that protecting the environment took precedent over the innocent victim's (the City's) rights. (see Dianne Saxe's blog for an excellent analysis)

Need a Phase I or II ESA? ---- Read this first (Part 2)

In my last post we saw how Ontario’s new “Brownfield” legislation has resulted in:

1. Phase I ESA’s costing more and taking longer.
2. More Phase II’s ESA being recommended.
3. Property owners receiving copies of Phase I & II’s, regardless of who orders them.
4. 65% of pollutants having more stringent guidelines, including the most common offenders (wastes from motor oil, gasoline and dry cleaning solvents).

You can refer back to September 14^th blog for details.

Additional implications of the new regulations are as follows:

5. More sites will not 'pass the test'.

The new Ministry of Environment (MOE) regulations on how Phase I's are prepared will result in more Phase II's ESA being recommended.  Also the new regulations have imposed lower thresholds for the most common pollutants.

Result: More sites will be deemed ‘contaminated’.

6. Developing a property requires a Record of Site Condition (RSC).

While this is not new news perse, in order to get a RSC approved the supporting Environment Site Assessments (Phase I and II) and remediation reports (if applicable) will have to meet the MOE standard. Therefore Phase I and II’s done to the CSA standard will not be accepted.

Result:  Getting approval for a RSC (necessary condition on most commercial deals and required by municipalities to approve redevelopment) will be more difficult.

7. Sites not being redeveloped can use the CSA-standards for Phase I and II ESA’s...

...BUT most financial institutions have adopted the new (stricter) MOE-standards into their underwriting guidelines*.

*Many bankers I have talked to indicate that in some cases (ie. mortgage refinance on a site with ‘lower risk’ activities) the CSA standard will be permitted. Tip: check with the bank first before ordering a report.

Need a Phase I or II ESA? ---- Read this first (Part 1).

For those in the commercial real estate industry, our business has been changed by recent amendments to Ontario’s "Brownfield" legislation.

When I do presentations I often get asked:  “How does the new law impact me and my clients?”

Over the next two posts I will present my list of - What you need to know about Ontario’s new environmental regulations.  While this is not an exhaustive list, it is my goal to highlight the changes and implications of new regulations so you will be able to respond appropriately to any environmental situation. 

1. Phase I ESA's will take longer and cost more.

The new regulations require investigating the complete historical uses of all properties within 250 metres (instead of the old CSA standard of investigating just the immediate neighbours). 

Result: Better quality reports industry-wide, but plan on 3 – 4 weeks and $3000 - $4000 on per report. Beware: a $2000 Phase 1 will probably not meet the new MOE standards.  

2. More Phase II ESA's will be required.

The inclusion of Potentially Contaminating Activities (PCA) in the new regulations mean that if an industrial activity has ever occurred at the subject property, the soil and groundwater will likely have to be tested for contamination. (See my blog on May 4, 2011 for the complete list of PCA’s).

Result: More properties will fail for contamination by virtue of more Phase II’s being completed.  In addition if the Phase II is a condition for a transaction (purchase or refinance), remember it will take 4 – 6 weeks and will cost $8,000 - $10,000 on average.

3. Property owners receive a copy of Phase I & II ESA reports.

Result: Regardless of who orders the report(s) this amendment means property owners will have to be more forthcoming about the environmental conditions of their site(s).

4. More stringent guidelines for 65% of pollutants.

Included in this list are common contaminants related to gas stations, automotive repair and dry cleaning activities.  

Result:  For some properties these new numbers will be very difficult, if not impossible, to achieve. For those sites only option for obtaining a Record of Site Condition from the MOE will be through a Risk Assessment. (Remember: a Record of Site Condition is required by most banks as evidence that a site is “clean”)

If you are going the Risk Assessment route be aware they can take many months to complete (forget the 90-day close), and there are no guarantees the MOE will accept a Record of Site Condition based on a Risk Assessment.

Although we are only a weeks into the new regulatory regime, this could prove to be a real bottle-neck for one of the Ministry of Environment’s stated goals for the new regulations: streamlining processes related to remediating contaminated sites.

More on Risk Assessments and other important regulatory changes in next week’s blog.

Greenfields become Brownfields. Increased Costs for Real Estate development in Toronto, GTA and Ontario.

If you have read any of my recent articles on amendments to Ontario's environmental legislation, O. Reg. 153/04, you know that the due diligence process for Phase 1 environmental site assessments will become more complicated on July 1st.

Phase 1 ESA’s will now investigate at larger 'Phase 1 Study Area', and consider more activities that could contaminate the subject property. This is going to result in more Phase 2 environmental site assessments being recommended, to test the soil and groundwater for environmental contamination. While this will cost property owners more time and money, of greater concern is whether the property will pass or fail the lab tests.

In the commercial real estate world timelines can be, and often are, adjusted. And an extra $10,000 or $15,000 in fees usually won't upset a multi-million dollar transaction. But if the site is found to be contaminated this is usually a 'deal killer'.

Environmental contamination is a ‘Deal Killer’

One of the goals of the new legislation is to recognize developments in science regarding the impacts of pollutants on humans and the surrounding ecology. 65% of pollutants will thus have more stringent numbers in the new regs. And some of the most common offenders – chlorinated solvents, oils and gas - will see significant reductions in their limits.

Therefore after July 1st we will see many more properties being tested, and more properties failing, under the new stricter guidelines. Whether you live in Oshawa, Kitchener, Peterborough, Barrie, or Mississauga - it's assured you will have more contaminated sites.

There is however hope for some contaminated sites, often referred to as ‘Brownfields’. The Ministry of Environment has introduced a new "Modified Generic Risk Assessment" (MGRA) model, which will allow some contaminated sites to be deemed acceptable for redevelopment (which is one of the stated goals of the new legislation: streamlining the process for redeveloping Brownfield sites).


Next week: Are Risk Assessments risky?

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.

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.

Environmental Site Assessments - Phase II - The Burden of Proof

In the last blog we discovered that a Phase I Environmental Site Assessment (ESA) is an investigation performed by a Qualified Person (QP), to determine if it is “likely” that a property is contaminated.

If it is determined that contamination is "likely" then the QP will recommend performing a Phase II ESA to find the “location and concentration” of the suspected pollutants.

To use a CSI analogy, there is a body but lab tests must be run to determine if a crime was committed.  Similarly a Phase II ESA will test the soil, water and air on or under a property to see if contamination exists.

The investigative procedures used in CSI and an ESA are remarkably similar. The QP does the following in preparing a Phase II report:

1. Review Phase 1 and plan the site investigation. 
2. Conduct drilling, sampling and lab testing.
3. Evaluate the lab results.

If contamination is found and it is above the guidelines, then the Phase II report will recommend performing a Phase 3 ESA, or “Site Remediation” to clean-up the property.  

If you would like to see how soil and groundwater samples are collected then watch the videos on our blog,  go to our Facebook page, or go to YouTube and search "Fisher Environmental"

  

Next Blog: Environmental Site Assessments - Phase III – 'The Site Clean-Up'