In a recent transaction (where I represented a client purchasing a gas station business on “leased property”) an issue was raised as to whether or not an environmental assessment is necessary when (a) the property is leased – and thereby not owned by the business purchaser, (b) the landlord agrees to be responsible for any pre-existing land contamination, and (c) the landlord maintains an environmental contamination insurance policy.
Basically, the question that has been raised is: “if I am buying the gas station business only (not the land) and the landlord is responsible for past contamination, do I still need to obtain Phase One Environmental Site Assessment?
Answer: Yes, because even if the landlord is responsible for past contamination (i.e. the landlord will pay for the cost of remediation) as a business purchaser you nevertheless want to avoid contaminated property since any future remediation will require that you shut down your newly purchased business during the “clean up” process. So even if the landlord or the landlord’s insurance company is paying for the remediation costs, you will nevertheless lose thousands of dollars since you will be required to close your business during this process. Another reason why you will require an environmental assessment is to determine a baseline as to the condition of the property prior taking over the station’s operations – this will be critical to avoid future conflicts with your new landlord who may claim that you caused contamination that may have existed long before you.
For a brief but helpful review of insurance options that you should consider for a gas station business, Solomon Williams has written a helpful article on this topic. As to why insurance is “vital” to your gas station business, Mr. Williams, offers the following summary:
Opening a gas station requires certain insurance policies. These policies need to cover everything from employee protection to public liability insurance as well as environmental and storage tank insurance. If you sell groceries or other items as well as gas then you should also include the necessary insurance for this type of business. The easiest option is to find an insurance company that will tailor a single insurance package to meet your needs.
However, while insurances will serve as a critical component to the overall success of your business, when purchasing a gas station you will nevertheless need an environmental assessment.