Buying a New York or New Jersey Car Wash or Gas Station: Dealing With Environmental Issues
Learn About Environmental Contract Contingencies and Assessments
In both New York and New Jersey, the purchase of a gas station or car wash involves the acquisition of rights (whether purchasing or leasing) in property that may have a history of ground contamination. The reality is that the many existing gas stations and car washes (including the car wash or gas station that you may be buying) possess histories of ground contamination. If the property is contaminated, you must understand the nature of the contamination the potential need for remediation and, most importantly, whether or not the contamination will require future abatement that will interfere with or possible shut down your newly purchased business. Even if you are just leasing the property or possess environmental contamination insurance, obtaining an environmental site assessment / Phase I Study is a necessary component to your pre-purchase due diligence.
Steps to Take
When purchasing a Gas Station or Car Wash in New York or New Jersey, some important environmental due diligence factors to consider, include:
Make Sure your Purchase Agreement includes an “Environmental Contingency Clause”
When purchasing a business you will be faced with a number of critical issues that must be decided in a relatively short period of time. However, when investing your life savings in a business, time constraints are not an excuse for shortcuts. An environmental Contingency Clause will allow you to enter into and sign a purchase agreement and still give you time to complete your due diligence evaluation of the property’s environmental history. For example, an environmental contingency clause could be structured to so that, after contract signing, you are given an additional period of time to obtain an environmental site assessment and complete your due diligence. If contamination is discovered, your contingency clause could be structured to let you cancel the contract and get your deposit back or require the seller to remediate the contamination. Keep in mind that your business purchase agreement is a “flexible” document that may be drafted by your business lawyer to protect your interests. Always discuss any concerns or issues that you may have with your business lawyer.
Obtain an Environmental Site Assessment
An environmental site assessment, also known as a phase I study or “ESA”, is a preliminary investigation and evaluation of a property’s “environmental history”. Typically viewed as the first step in the “environmental due diligence” process ESA’s focus on the documented history of a property and prior issues of contamination. ESA’s typically do not include soil samples or testing but may uncover serious incidents of prior contamination. If the Phase I study indicates the potential existence of prior contamination, additional studies may be warranted. When purchasing a New York or New Jersey car wash the cost of obtaining an ESA is nominal relative to the substantial investment that you are about to take.
Even if you are Leasing the Underlying Property, Prior Contamination Must Still be Evaluated
When purchasing a car wash or gas station involving only the lease of the underlying property (as opposed to the outright purchase), you must nevertheless be concerned about prior contamination.
- If the property is contaminated and requires remediation / abatement, even if you are not responsible for the cost of such activities (i.e., the Landlord is responsible), you will nevertheless be affected since the remediation activities may be intrusive (i.e., removal of substantial soil) and interfere with the day-to-day operations of your business or, worse, require you to shut down your business.
- If the prior condition of the property is not documented (i.e., as to prior acts of contamination), once you take over the property you may not be able to differentiate acts of contamination caused by your business activities and contamination that existed long before you purchased the business. This is important because under your lease agreement you may be responsible for future acts of contamination.