Phase 2 Environmental Study


#1

Does anyone have experience with Phase 2 environmental studies during a due diligence period? I am trying to get under contract on a park, but the seller wants to include a no mortgage contingency and also not allow a phase 2 environment study.

The seller’s reasoning is that if we do a phase 2 and it leads to fines, actionable items for them, and then the sale falls through, they would be stuck with the ramifications of the phase 2 and no sale. I understand this, but I am hesitant to get under a contract that would not allow a phase 2 if one was needed.

I am working with a broker that says he rarely sees a phase 2 happen for mobile home parks. I am wondering if anyone has had any issues with phase 2 studies or phase 1 study findings leading to require a phase 2. Thank you!


#2

If the Phase one ESA recommends you perform a Phase two, simply walk away.

The seller acting this way should probably deter you from even contracting it. What else is being swept under the rug?

I have purchased a former gas station and have been there done that. I did a Phase one and two prior to closing though. When you do this right you can get a designation called “innocent owner” which is what you want from a liability perspective…


#3

@lizoved , as per your post:

  • “…the seller wants to included a no mortgage contingency…”

I am a Licensed South Carolina Real Estate Broker-In-Charge.

As a Buyer you want lots of “Contingencies” (lots of outs).

As a Buyer a Mortgage Contingency (with a Specific Time Frame) should be included in the Agreement to Buy And Sell Real Estate (unless you have all Cash).

We wish you the very best!


#4

As @jhutson said, if there’s a phase II required, you typically walk away. Is this deal really worth the issues that a potential phase II study brings with it? The potential liability alone should be enough to deter you.


#5

Good advice above. Remember, that with most environmental liability, the Pottery Barn rule applies - you touch it, and it’s broken, it’s yours. Only it’s worse with environmental liability. Once you have it, even via an LLC or other corporate entity, liability can stick to you PERSONALLY FOREVER. That’s why you sometimes see large vacant properties in areas you’d think would be improved - because nobody would buy them for $1.


#6

Run, don’t walk away. The seller has a real reason for not wanting a Phase II survey. He knows something he is not disclosing. I’ve been through a Phase II and it is not so bad. It is 1000% more revealing than a Phase I, which is basically useless.

Insist on the Phase II.

As to the no mortgage contingency, this seller knows that any lender who is awake will require a Phase II, and will not finance an ecological disaster about to happen. You don’t want this park if you can’t get a financing contingency.


#7

Thank you all for your advice. You’ve confirmed what my gut feeling is and I’ve decided not to pursue this deal further. Seems like the seller is trying to hide something and it is not worth the effort at this point.

Thank you!