This blog assumes that the reader is aware of what a phase 1 site assessment is. If not, visit our website for more details. In summary, while purchasing any sort of property or land, environmental due diligence in the form of phase one environmental is usually required by the lender for mortgage approval. A purchaser may also require it during any property transactions. The purpose is to find if there is any possibility of contamination at the site. This helps determine the value of the property and if it is a safe investment.
Sometimes property owners or buyers see environmental site assessment (ESA) as unnecessary extra expenses and try to use an expired phase one environmental to obtain mortgage approval. According to the Canadian Standards Association or the CSA, the reports are valid for one year or twelve months from the date of the final report. If the report is outside the twelve-month period, it may not be accepted by the lender and will be considered to be expired. However, this may not be the end of the world. If you contact the report owner – as in the consultant who conducted the investigation in the first place-, they might do a limited investigation for a quarter of the price and time to update the report accordingly. Updating a report is much cheaper than conducting a brand-new Phase I from a different consultant. In some cases, if your ESA consultant has been a part of your project (like managing your project), all you would require is a sign off in the form of a letter that suggests that the ESA Phase I that was conducted is still valid. Please note that the expiration time frame of each type of ESA may vary depending on the type of work. For example, a phase 2 environmental site assessment is valid for a different amount of time.
Also Read: Guide for Completing the Phase 1 Environmental Site Assessment for your business
It is important to realize that environmental site assessments aren’t legal barriers. Instead of trying to find loopholes to overcome the requirement of Phase I, it is always better to spend the money on Phase I than spend the money on cleaning up contaminations. The costs associated with remediation are significantly more than Phase I. Not to mention the risks it poses to the environment and people’s lives. These reports are a vital piece of information needed to make an informed decision regarding the subject property. If you fail to conduct a Phase I ESA, you can be held responsible for contamination that occurred even before you purchased the property.
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Phase I ESA’s do not predict the future of the property. It is environmental due diligence to examine the viability of the property at the time of the investigation. This is why they have an expiration date. Even if the phase i environmental site assessment found no REC’s a year ago at the property, there’s no guarantee that the subject site still has no contaminants presently. Any work that was done after the investigation is subject to examination. Along with that, the CSA standards needed to conduct a Phase I change after a certain period of time. The same standards that were used to conduct the first Phase I may be different from the ones that are required in the present day. Therefore, if you try to use an old Phase I, it will be obsolete for future use.
There are rare occasions where a second Phase I may not be needed. For example, if you have a good relationship with your lender because they are aware of all the activities that take place on the site, it is possible that they make an exception. Phase I ESA’s are conducted to reduce any existing risks. If the previous Phase I just expired, and not many high-risk activities have taken place, your lender may give you a pass. Chances are your lender will be familiar with the industry of your work, and the report has to have expired recently. The likelihood of an exception occurring is very minimal and requires specific circumstances. However, the liabilities associated with making that exception will be carried by you and the lender.
Also Read: A Phase 1 Environmental Site Assessment Cost Estimator
In conclusion, it is always cheaper to update Phase I than deal with the consequences of skipping it. You might even need the update in the case that contamination did occur after new activities were conducted. In America, a Phase 1 ESA is actually valid for six months to a year to state simply. Therefore, missing the twelve-month mark in Canada is usually taken seriously by lenders, and an update is required more often than not.
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