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Environmental

There is an environmental issue on the property

The Phase I flagged something, or the property has a history, a service station, a dry cleaner, an auto shop, an old mill site. Environmental findings do not automatically end commercial financing in British Columbia, but they change which lenders will look at the file, at what leverage, and how long it takes.

Halftone illustration of a soil core sample cylinder.

Phase I, Phase II, and what triggers each

A Phase I environmental site assessment is a records, interview and site review with no sampling. It either gives a clean opinion or it identifies areas of potential environmental concern.

Those findings are what trigger a Phase II, which involves actual sampling of soil and groundwater and takes considerably longer.

Why lenders are so careful here

Under British Columbia's contaminated sites regime, responsibility for remediation can attach to a range of parties connected to a site, and a lender that ends up taking possession of a property has to think about where it sits in that picture. Whether it applies to your specific property is a question for your lawyer.

Commercially, it explains why a bank will decline a file that a private lender will price.

Who will still lend

A clean Phase I keeps the file in bank and credit union territory. Identified concerns without sampling usually mean a Phase II before anyone will commit.

Confirmed contamination generally moves the file to lenders with specific appetite for it, or to private capital, at lower leverage and higher cost, often on a short term basis while remediation is carried out. Fuel history sites are their own category, which is covered on the gas station financing page, and older industrial property raises the same questions.

What actually gets these deals done

Order the environmental work early rather than discovering it at the last minute, and search the site registry before you are committed.

Use a vendor holdback or a price adjustment where contamination is the vendor's to deal with. And where remediation is the answer, understand that lenders will want to see it completed and certified rather than promised.

FAQ

Environmental questions we hear most.

On a commercial purchase, almost always. Many lenders also want one on a refinance, particularly for industrial property or anything with a history of fuel storage, chemicals or vehicle servicing. Budget for it from the start rather than treating it as an afterthought.

Weeks rather than days. Drilling and sampling have to be scheduled, laboratory turnaround takes time, and the consultant then has to write and issue the report. If your closing date assumes a Phase II can be done quickly, the date is the problem.

It can be, but it is specialist lending. Underground storage tanks, whether removed or still in place, drive both the environmental work and the lender list.

The borrower, in almost every case, even though the report is addressed to the lender. Where the finding is clearly the vendor's responsibility, the cost is sometimes negotiated into the purchase price, but the invoice still starts with the buyer.

Not always. It depends on what was found, how much of it there is, whether it has migrated off the site, and whether there is a remediation plan with a professional standing behind it. What banks will not do is lend into uncertainty.
Keep reading

Related situations

Gas station financingFuel history, storage tanks and the lenders who price them.Industrial property financingHow industrial buildings are underwritten in British Columbia.The lender does not like your buildingSpecial purpose assets and why leverage drops.Have a broker read your dealSend the property and the numbers and get a straight answer. No fee, no credit check.

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A senior broker will tell you whether this is a bank file, a credit union file, or a private file, and what it changes about leverage and timing.

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