Virtually all real estate transactions involve some level of environmental risk. The key is to identify all of the significant potential and/or actual risks, and collect sufficient information about them early in the due diligence period of a transaction. A proactive approach to
Virtually all real estate transactions involve some level of environmental risk.
The key is to identify all of the significant potential and/or actual risks, and collect sufficient information about them early in the due diligence period of a transaction.
A proactive approach to environmental due diligence helps property buyers and/or lenders determine whether the environmental risks are acceptable based on their risk tolerance. This allows them to then develop a strategy for managing these risks, both during the contract negotiations prior to acquisition and after the transaction is complete.
Does your environmental consultant understand the regulatory regime, your specific needs and your risk tolerance? XCG will work with you to make sure we do. Only then will we suggest an appropriate course of action. This approach can help you avoid unnecessary costs associated with implementing overly conservative recommendations for additional site investigation/delineation and remedial activities.
XCG’s proactive and measured approach in risk identification and due diligence is illustrated in this project we recently completed for a commercial property in Woodstock.
The type and the scope of the environmental due diligence work XCG performs depends on the buyer’s/lender’s risk tolerance, the nature of the transaction, and the anticipated use of the property after purchase. In Canada, the environmental due diligence process is completed in accordance with standards developed by the Canadian Standards Association (CSA), including the Phase I Environmental Site Assessment Standard CSA Z768-01, and the Phase II Environmental Site Assessment Standard CSA Z769-00. In addition, many jurisdictions (e.g. provinces, municipalities), as well as some corporations (e.g. lenders), have developed their own guidelines and best management practices for completing environmental due diligence that go beyond the minimal requirements of the CSA Standards.
In Ontario environmental due diligence is generally conducted in accordance with the CSA Phase I and Phase II Standards or by following protocols for completing Phase One and Phase Two ESAs specified in Ontario Regulation (O. Reg.) 153/04 – Records of Site Condition. XCG can also conduct environmental due diligence projects based on a hybrid approach, by selectively picking and applying methods from the CSA Standards and O. Reg. 153/04 to identify the risks and ensure compliance.
Conducting a due diligence project based on the CSA Standards can be completed within a relatively short period of time. Typically a Phase I ESA can be completed within 1 and 3 weeks and a Phase II ESA can be completed within 2 to 8 weeks.
The mandatory and strict minimum requirements for completing Phase One ESA and Phase Two ESA are provided in O. Reg. 153 and the associated guidance documents published by the Ontario Ministry of the Environment (MOE). There are various numeric criteria that can be used to assess environmental conditions under O. Reg. 153/04. These effect-based criteria (which have been derived by the MOE through a risk assessment using chemical toxicity data, different exposure pathways and duration times for human and various ecological receptors) were published by the MOE in a document titled “Rationale for the Development of Soil and Ground Water Standards for Use at Contaminated Sites in Ontario,” (MOE Rationale Document). The most stringent/lowest criteria derived for each chemical listed in the MOE Rationale Document were selected and published by the MOE in a document titled “Soil, Ground Water and Sediment Standards for Use Under Part XV.1 of the Environmental Protection Act,” (MOE Standards). These MOE Standards, dated April 15, 2011, are commonly referred to as the Generic MOE Standards.
The O. Reg. 153/04 – Record of Site Condition (aka the Ontario Brownfield Regulation) establishes a rigorous site assessment process to ensure the protection of human health and the environment. From a regulatory standpoint, the ESAs must be completed by a Qualified Person when a site/land use is changed to more sensitive use (e.g. from industrial or commercial to residential). Typically, the O. Reg. 153/04 Phase One and Phase Two ESAs are completed in order to obtain a Record of Site Condition (RSC). However, O. Reg. 153/04 Phase One and Phase Two ESAs can be, and sometimes are, completed on a ‘voluntary’ basis, for due diligence purposes (i.e. not for a purpose of obtaining an RSC).
By comparison, the CSA Standard-based environmental due diligence process is substantially less prescriptive than O. Reg. 153/04 Phase One and Phase Two ESAs as there are no pre-determined, default conclusions. This is because conclusions of the CSA-based Phase I and Phase II ESAs on the presence/absence of significant potential and/or actual risks being associated with a property depend on the buyer’s/lender’s risk tolerance, the nature of the transaction, and the anticipated future use of the property rather than being based on pre-determined rules and the mandated use of Generic MOE Standards. Unfortunately, some consultants use the Generic MOE Standards ‘by default’ when conducting CSA Standard-based due diligence, without giving any consideration to whether or not the exposure pathways and/or receptors used to derive these Generic MOE Standards are relevant or applicable to a particular site and without giving any consideration to the stakeholders’ risk tolerance, the nature of the transaction or the anticipated future use of the property. This can add costs, take additional time and unnecessarily complicate the transaction.
The use of the Generic MOE Standards by ‘default’ for assessing environmental conditions on properties for which an RSC is not being sought, is often unnecessarily conservative and restrictive without providing additional protection and may result in new costs associated with implementing recommendations for unnecessary additional site investigation/delineation and remedial activities.
XCG knows that each due diligence project starts by understanding the needs and risk tolerance of each client and its stakeholders. Our 30 years of experience in completing due diligence projects gives us the expertise to use appropriate criteria which are selected based on the exposure pathways and/or receptors relevant to a particular site as well as the stakeholders’ risk tolerance. XCG will listen to you, understand the nature of your transaction and the anticipated future use of the property and then work with you to apply the most appropriate solution.
XCG knows how to identify risk and conduct the due diligence you need – which is often not what other consultants want to sell you.
Visit us at www.xcg.com for more information on the services we offer and to view our portfolio of projects that we have completed for our many real estate, insurance and municipal clients across Canada.