Environmental Advice to Buyers and Tenants

Commercial real estate buyers should be aware of potential environmental contamination before they purchase an industrial building.

Environmental contamination may exist in an industrial or commercial building without the knowledge of the owners or tenants. The signs of contamination are difficult to see with the naked eye; as a result, a potential buyer of a commercial property should consult an environmental research company to conduct a Phase 1 investigation on the property before the purchase. A Phase 1 investigation is a review of public records for contamination at the site or a site in close proximity where contamination may have drifted to other neighboring sites.

The environmental consulting company should also conduct a walk through the building and interview the tenant prior to the time of purchase. The buyer should never rely on the Phase 1 report conducted by the tenant or property owner’s environmental company. In addition, he or she should inform the consultant preparing the phase 1 report to refrain from providing any recommendations in the report, before the environmental lawyer approves it.

The phase 1 report will cost approximately $1,500 to $3,000 depending on the size of the property. A real estate broker or seller may indicate that a phase 1 report is not necessary if a buyer is paying cash for the property. Consequently, a buyer may later finance the property; as a result, lenders will require the phase 1 report. The cost of a phase 1 report is a small investment to establish a baseline for future buyers and peace of mind.

The Environmental consultant (Phase 1) may require a further investigative report of the property called a phase 2 report. This is a much more costly investigation because of drilling into various depths of the soil checking for contamination as deep as the water table in some cases. The Phase 2 report will inform the buyer on the extent of the contamination in the soil. For example; a contaminated property of only 5 inches in the soil may cost very little to clean up. On the other hand, a very deep and wide contamination could cost more than the value of the property.

As a result, a current owner or tenant should always take action in cleaning up any environmental spills or contamination. Tenants should always be aware of any contamination from chemical spills. In addition, they should consult a good environmental attorney if they have an environmental accident to determine the cause and time of the contamination.

This is only a snapshot of the environmental process.

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Segal Commercial
2221 Barry Ave., Suite 200
Los Angeles, CA 90064