Gas Station Financing - How To Tell If A Gas Station Has An Environmental Issue

One of the main reasons it is difficult to obtain gas station financing is the notion that gas stations and convenience stores pose a greater environmental risk than other types of commercial properties.  While it is true that it is much less likely to get leakage or spillage at a multi-family, office building, golf course and other commercial buildings, the laws enacted and equipment used at newer gas stations drop the probability significantly.

Frequently when a gas station or convenience store has had environmental issues, the current seller might not have been the owner at the time of the release and they may or may not be aware of the true environmental status. 

Environmental issues are broken down into three main categories, 1) Leakage; 2) Spillage and 3) Migration.  Leakage is when there is leakage from either the Underground Storage Tank (UST) or from the lines running from the UST’s to the MPD’s (dispensers / pumps).  Spillage is when the Stage I or Stage II recovery system isn’t functioning properly and there is overspill from either the tanker filling the Underground Storage Tanks or a customer overfilling the tank of their automobile.  Migration is when fuel leaks from another facility onto the property in question.  Migration can be close by or from miles away.  This is why when doing a Phase I or Phase II, they check within a five mile radius.

Many times when a seller is selling a gas station or convenience store, they will represent to a potential buyer that a site is “clean” or has a “clean bill of health.”  If a site has had environmental problems, even problems that do not require action, there may be an open file with the State DEP or DEQ.  If a site requires a Correction Action Program (CAP) or some cleanup, they generally will fall into three phases: 1) Remediation (or cleanup); 2) Monitoring and 3) No Further Action status (NFA).

Often the seller will confuse when a site is in the remediation phase or the monitoring phase that it is “clean” or has a “clean bill of health.”  While it is true that if it is in the monitoring stage that the property has been cleaned or remediated,  the site still has an open file with the State that can remain open for years and can make financing problematic especially if a lender discovers this further into the process.

One of the ways you can make sure you can find out if this is the case is simply to contact your State’s DEP or DEQ and find out if the site has an open file.  You normally can just give them an address and they will tell you if there has been any remediation done on the site or if there is an open file. 

Statistically, sites with steel UST’s will have a greater likelihood of having leakage than those that are fiberglass, even though there might not have been a release at the site.  Many States are also enacting laws that require steel tanks to be replaced by fiberglass so you will want to investigate if this is the case in your State.

A traditional lender is always going to have a Phase I or a Phase II done to assess the environmental viability of a site.  With a Phase I, the environmental company will typically find if the site has an open file and will make a site inspection to look for telltale signs of leakage or spillage.  You can save yourself time and money by finding out the accurate environmental state of a site and save yourself future headaches.