When purchasing or refinancing a commercial or industrial property, it is important to understand what lenders often require as part of their environmental due diligence. Having this knowledge prior to purchasing or refinancing a property can make the process much smoother and will provide a better understanding of the environmental risk and liability associated with the property.
Typically, lenders will look for one or more of the following three documents:
- Phase I Environmental Site Assessment (ESA): A Phase I ESA provides an assessment of the evidence for potential or actual environmental impacts at a property based on various sources of information. Sources of information include a visual inspection, review of site history and information from regulatory bodies, and review of the surrounding properties. The results of a Phase I ESA will establish the potential requirements for further environmental investigation.
- Designated Substance Survey (DSS) or Hazardous Building Materials Survey (HBMA): A DSS or HBMA is carried out to determine if designated substances or hazardous materials are present at a property which may pose an issue relating to the health and safety of its workers. A visual inspection is carried out to determine if hazardous materials such as asbestos, lead, and mercury are present, and quantify the amount present and assess the potential risk to workers.
- Property Condition Assessment (PCA): A PCA is carried out to identify major defects in materials or systems which may require expenditures beyond routine maintenance at a property. A visual review is carried out as part of a PCA and includes assessments of the windows, doors, roof, structural elements, and mechanical, electrical, and fire safety systems.
Knowing that these documents are typically expected, a potential purchaser can work with a qualified consultant to have them prepared prior to refinancing. Thus reducing the stress and headache of meeting a deadline and being able to move through the deal with a much better understanding of site conditions.
Written by Matt Huson