Buying a Gas Station: Why Insurance Is not an Alternative to an Environmental Assessment for the Business Purchaser

Posted on May 1, 2009 by Charles Internicola

In an earlier post I discussed the critical importance of obtaining an environmental assessment prior to purchasing a car wash or gas station.  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.

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Buying a Car Wash or Gas Station: You Need a Phase I Environmental Study

Posted on February 21, 2009 by Charles Internicola

Due diligence is essential to all business purchase transactions. However, when the business transaction involves the lease or purchase of property that may be contaminated (such as a gas station, "quick lube" and car wash), your due diligence must expand to include the additional task of obtaining an environmental study.

So where do you start?

 

  • Add an Environmental Contingency Clause to your Contracts - Make sure that your purchase agreements (such as your asset purchase agreement, lease agreement and/or real property purchase agreement) include an "environmental contingency" clause  permitting you to order and obtain an environmental assessment and study of the property.  If contamination is found, the contingency clause should be drafted in a way that permits you to back-out of the transaction and, importantly, get your deposit refunded.
  • Obtain a Phase I Site Assessment - Obtaining an "environmental assessment" is not a complex process.  This assessment, performed by a licensed professional is typically known as a “Phase I Environmental Site Assessment”. This initial assessment will review the history of the property and provide you with preliminary findings as to possible contamination. Depending on the results of the “Phase I” study additional studies may be required.

Keep in mind that when purchasing a business such as a gas station, "quick lube" and even car wash, typically, you will be leasing land or purchasing property that may have a long history of "industrial type" activity that may be contaminated.   Once you purchase the business - even if you did not cause the contamination - you could be stuck with a big problem created long-ago. Environmental assessments are readily available, affordable (relative to the investment of your life savings) and should never be ignored.

 

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