Commercial Land Purchase - Phase 1 and 2 Environmental

[Peace Meal Farm]

Seeking advice, thoughts, insight etc

Looking at purchasing a commercial land and building for my automotive repair business. The land and building in question is currently being used for this same purpose, and has been since the mid 1990s.

This deal is private - no realtors involved. The vendor and I have agreed on a purchase price subject to financing (which is subject to passing a phase 1 environmental). The agreed upon price is flexible depending on the results of the phase 1.

Just got the phase 1 back. $4 000 later and I'm told that they want to dig 3 test wells as part of a phase 2, monitor for possible contamination and then remediate if required. No huge surprise there, but I was at least somewhat optimistic that I'd get off easily.

Obviously the cost of the phase 2 and potential remediation is near impossible to predict, but I am expecting somewhere in the very wide range of $25 000 to $100 000.

If anybody here has gone through this process and if you have any experience to share then please do so! This is all a first for me.

[tirebob]

It can be a huge amount more than that… Was it ever a service station? What happens if the contamination runs clear under the building? Will it end up being a tear down? My parents had to go through remediation back in the 90’s and it was that much or more back then for their place, and if it is contaminated and can be determined it contaminated a neighbours property, what is your liability there?

Personally I would run far away from a contaminated property unless all remediation was already done by the current owner but I guess if you can get all your ducks in a row and the right deal it could mean you come out okay, but I can’t help but think of all the potential pitfalls that could turn it into a literal money pit.

[3blade]

I have a contact in the environmental testing world....long story short, don’t go near any property that ever dispensed fossil fuels or farm chemicals as part of their business. You’re talking possible 7 figure remediations.

I’d bet a lot of vehicles sat in the yard leaking oil/gas, for 30 years....

[Albertacoyotecaller]

I have lots of experience in this from the environmental perspective. What exactly do you want to know. You can pm me if you want.

[Sundancefisher]

Originally Posted by Peace Meal Farm

Seeking advice, thoughts, insight etc

Looking at purchasing a commercial land and building for my automotive repair business. The land and building in question is currently being used for this same purpose, and has been since the mid 1990s.

This deal is private - no realtors involved. The vendor and I have agreed on a purchase price subject to financing (which is subject to passing a phase 1 environmental). The agreed upon price is flexible depending on the results of the phase 1.

Just got the phase 1 back. $4 000 later and I'm told that they want to dig 3 test wells as part of a phase 2, monitor for possible contamination and then remediate if required. No huge surprise there, but I was at least somewhat optimistic that I'd get off easily.

Obviously the cost of the phase 2 and potential remediation is near impossible to predict, but I am expecting somewhere in the very wide range of $25 000 to $100 000.

If anybody here has gone through this process and if you have any experience to share then please do so! This is all a first for me.

If there is surface contamination and it can all be cleaned up with some truck loads of dirt hauled away for cleaning… and your price is adjusted accordingly… less of an issue.

If there has been years of spilled oil, brake fluid, diesel and more… and its spreading to neighbours and it’s enough that it’s too expensive to dig up and immediately mediate… run away. It’s not worth it.

Environmental contamination regulations are not going to get more lax over time…it’s only going to get worse.

Unless you can get an environmental lawyer to absolve you of future liability, you don’t want that burden. It’s not worth it.

I’m not sure if this location is awesome or far cheaper with buildings present however maybe an option would be to lease the property subject to zero environmental liability going forward.

At the very least… your environmental company should tell you the nature of the contamination, the potential cause, the long term problems, scope and extent and estimated clean up costs.

Who knows… maybe the property is worth $500,000 and the clean up is $250,000. Get it cleaned up by the current owner. He’d be crazy not to as he is now aware of the contamination and likely by law needs to address it and not ignore it… if it is getting worse or spreading to neighbouring properties.

Comes down to how much risk you want to assume… but you need to know the scope and cost and if it can be cleaned up or not.

[Dean2]

You are at the buying stage, I would never want to own any land that was potentially contaminated. Your liability is endless. If can cost far more than the land is worth to clean up a site. Anyone selling land should be able to supply a clean Enviro 1 report, or 2 if needed, as part of the sales package. The current owner is the one who should be paying the cost of the reports. You can't just take them off the purchase price because you may not end up buying it at all. If it does not pass Enviro 2, I would not buy it, I would not take the land for free. Once the existing owner has it remediated and a clear report, then you can talk purchase price.

[Sundancefisher]

Originally Posted by Dean2

You are at the buying stage, I would never want to own any land that was potentially contaminated. Your liability is endless. If can cost far more than the land is worth to clean up a site. Anyone selling land should be able to supply a clean Enviro 1 report, or 2 if needed, as part of the sales package. The current owner is the one who should be paying the cost of the reports. You can't just take them off the purchase price because you may not end up buying it at all. If it does not pass Enviro 2, I would not buy it, I would not take the land for free. Once the existing owner has it remediated and a clear report, then you can talk purchase price.

X2

[Esox]

Been doing this as a career for close to 20 years in the remediation world. First question is, why do the consultants want to dig these holes and why/where do they want to do them? They can also get an auger rig in there and drill test holes instead of digging open three large holes. Just because they do this phase 2 doesnt mean you have to do remediation. What they should be doing is getting a drill rig in and an actual sampling plan, three holes sounds like theyre just randomly poking them in to the ground. The auger is far less intrusive. They should also be sampling to find the extent of the contamination if there are field indicators from their first three holes. Not sure if the bank will accept it as "good" with just three random holes. Also, this really should be on the sellers dime and not yours.

[ghfalls]

If it’s contaminated, maybe you could get a smokin deal on a lease for a few years, save some money up and move to a better location. I wouldn’t spend a cent of my money on any tests.

[kidd]

Seller should absolutely be responsible for the testing and the costs of those tests. If you pay for it and walk away, the seller has gained valuable information and you have less money in your pocket. No harm in getting the test holes done to determine what you're dealing with, but not on your dime.
kidd

[liketoshoot]

I have a fair bit of experience with this

#1 is the history of the property, what was on it, one of the worst is an auto wrecker, right along with fuel stations

#2 get a reputable contractor, you want a good job because you want that piece of mind when and if you go to sell, look at the building behind the fishing hole on 170 street, been in court for about 10 years now

#3 use your own guy, for the cost of phase 1 its cheap insurance, use theres and you get what you get


Its all easy until you want to sell, every year testing will get more stringent so do your due diligence and get all paper work, last property i bought i was and now i am selling that same property and totally painless.


Anything further PM me, i have seen painless to train wrecks with this

All the best

[Ice Fishing Maniac]

Originally Posted by kidd

Seller should absolutely be responsible for the testing and the costs of those tests. If you pay for it and walk away, the seller has gained valuable information and you have less money in your pocket. No harm in getting the test holes done to determine what you're dealing with, but not on your dime.
kidd

X2 what he said. Sellers responsibility. No Financial Institution will give you the money /mortgage for a contaminated property

A PM message to Alberta Coyote Caller is definitely worth your worth time too.

[Peace Meal Farm]

A sincere thanks for all of the opinions offered above.

I hired out my own firm for the phase one. At this point I feel that I am going to offer to the vendor that I will purchase it at the agreed upon price provided that the phase two and whatever associated remediation is complete. The phase two can be done by either the firm which I chose to do the phase one, or another firm which we mutually agree upon.

I feel that offer will likely be turned down. My guess is that the vendor doesn't have the money to bankroll this process. He will be stuck trying to either find another interested party, or selling the land in a cash, as is where is type deal.

In the end I am torn. I feel that the commercial property could be a good investment, and it would add an element of security to my situation where shop space is tricky to find. (I don't like the idea of becoming commercially homeless.) Whitehorse is a funny market.

Conversely, if I don't buy this property then I can take my existing down payment, combine it with projected profits over the next 4 to 5 years, and have my home paid off. Mortgage free by the age of 40 or 41 also sounds good. And perhaps that's much safer.

[Dean2]

Originally Posted by Peace Meal Farm

A sincere thanks for all of the opinions offered above.

I hired out my own firm for the phase one. At this point I feel that I am going to offer to the vendor that I will purchase it at the agreed upon price provided that the phase two and whatever associated remediation is complete. The phase two can be done by either the firm which I chose to do the phase one, or another firm which we mutually agree upon.

I feel that offer will likely be turned down. My guess is that the vendor doesn't have the money to bankroll this process. He will be stuck trying to either find another interested party, or selling the land in a cash, as is where is type deal.

In the end I am torn. I feel that the commercial property could be a good investment, and it would add an element of security to my situation where shop space is tricky to find. (I don't like the idea of becoming commercially homeless.) Whitehorse is a funny market.

Conversely, if I don't buy this property then I can take my existing down payment, combine it with projected profits over the next 4 to 5 years, and have my home paid off. Mortgage free by the age of 40 or 41 also sounds good. And perhaps that's much safer.

I hear where you are coming from but this property could also turn out to be a terrible investment, unless you know something you aren't disclosing. I would rather be looking for lease space than go bankrupt from remediation costs. My suggestion, get a long term lease on this property or another suitable one if you want but don't buy this one till it is fully cleaned and clear. With a lease in place you also have time to look for other property or build your own from scratch. All we can do is provide advice, final decision is of course up to you, but the bank isn't going to finance this till it is remediated to THEIR satisfaction and maybe not at all depending on the level of contamination it started with.

[Bushrat]

You could analogize that this deal could easily turn out to be similar to getting married to what upon first impression you think is a nice sweet girl only to find out too late that she is a meth addicted nightmare.

[Vacation]

I have done p2s on many properties. They don’t always fail. U want to make sure it’s a thorough assessment so you are not taking on liability. Good Luck!

[oilngas]

I try to remember the old business adage;

"It's not the good deals you miss that kill you it's the bad deals you take."

[Okotok]

Originally Posted by ghfalls

If it’s contaminated, maybe you could get a smokin deal on a lease for a few years, save some money up and move to a better location. I wouldn’t spend a cent of my money on any tests.

You'll still want the testing done for a lease or you could be on the hook for pre-existing contamination when the lease is up. You'll also need to do testing at the end of the lease to prove you didn't contaminate or add to any existing contamination.

[Ice Fishing Maniac]

Originally Posted by Okotok

You'll still want the testing done for a lease or you could be on the hook for pre-existing contamination when the lease is up. You'll also need to do testing at the end of the lease to prove you didn't contaminate or add to any existing contamination.

Great advice!! Listen to his statement