Phase I Assessments Critical in All Non-Residential Property Transfers

It happens more than you’d think. After keysyears of operations, a company leaves town and donates a property to a local economic development office or local government. Or someone with an eye for buying low and adding value gets a “steal of a deal” on a property with abounding possibilities.

So how could these efforts turn out badly? After all, both hold the prospects of improving a local economy, adding jobs and improving tax base for a property that may be underutilized or on its way to becoming vacant

Much like buying a home, the problem may lie in what you don’t know and the answer may be simpler than you think. Always have a Phase I assessment completed before taking title to any non-residential property.  It really is that simple.

Most of us would never buy a home without an inspection. Granted, as-is transactions happen every day. Cable television has seen numerous programs come and go that detail the efforts of entrepreneurs to Much likebuy residential properties, sometimes sight unseen, for the lowest possible price, make some improvements and sell them for profit. Those programs almost always seem to turn out fine, regardless of what unknowns pop up along the way.

But life is not television, and commercial and industrial properties differ significantly from residential. For starters, environmental concerns, where the fix can routinely surpass the value of the property, aren’t often a part of a residential property transaction. And often, in the environmental world, it doesn’t matter if you caused the problem or not. Also, environmental problems can pop up in places we may not expect on first glance (such as a drycleaner in a retail strip). Ownership of the property may be enough to saddle you with the costs of dealing with environmental problems that you never saw coming.

There is a bit of relief that keeps these properties viable by minimizing the risk that one takes in purchasing a non-residential property. Both federal and Kentucky laws give buyers who take certain steps a reprieve. And it’s about as simple as a home inspection. Have a Phase I Environmental Site Assessment (Phase I) performed before you take the title to any non-residential property. A Phase I assessment, very simply put, is the environmental version of a home inspection.

In 2002, the federal government adopted the Small Business Liability Relief and Brownfields Revitalization Act. While there certainly is more to the story beyond the Phase I assessment, if one isn’t conducted prior to taking title to a property, an owner isn’t eligible for any of the liability limiting provisions. And as long as a Phase I assessment is performed according to the required standard, it can cover you, making you a “bona fide prospective purchaser,” (someone who may not be forced to be responsible for environmental cleanup by virtue of owning the property) even if environmental issues are discovered months or years into ownership. But without that Always havefirst step, the Phase I assessment, there is little an owner can do to overcome the “buyer beware” dynamic.

Kentucky adopted the provisions of the bona fide prospective purchaser shortly after the federal law was put in place, but in 2012, Kentucky law took the protections the federal law provides a bit further. Kentucky law was aimed at helping property purchasers and redevelopers take full advantage of those federal provisions and to offer some additional assurances in writing. There is a common theme, however, in that in order to take advantage of what’s provided in Kentucky law, you must have a Phase I assessment prior to taking title to a property. And, like the federal provisions, it can cover you down the road if you have a Phase I assessment performed at the time you take title, even if there are no environmental concerns found.

In the end, if you have a Phase I assessment performed prior to taking title, you may have a lot of options should any environmental issues arise later. If it reveals that there are environmental concerns, it doesn’t have to be a deal breaker – Kentucky’s brownfield law can help you safely use a property even if contamination is present.  But if it doesn’t, it could still be the best business move to ensure that discovery of an environmental concern in the future doesn’t saddle you with more than you bargained for.

For more information, contact Shawn Cecil, P.G., environmental scientist consultant for the Kentucky Department for Environmental Protection at Shawn.Cecil@ky.gov or 502-564-6716, ext. 4754.

 

 

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