⚠️ The Hidden Risk Next Door: Why Adjacency Matters in a Phase I ESA

When people think about environmental risk during a commercial real estate transaction, the focus is often placed squarely on what has happened on the property itself. In reality, some of the most significant risks identified during a Phase I Environmental Site Assessment (ESA) originate off-site, from neighbouring or nearby properties.

This is known as adjacency risk, and in Alberta it is one of the most common — and most misunderstood — drivers of environmental concern.

Understanding adjacency risk, how it is assessed, and what it actually means for a property transaction can make the difference between a confident decision and an unexpected complication later in the deal.

🔍 What Is Adjacency Risk?

Adjacency risk refers to the potential for contamination from nearby properties to migrate onto the subject site. Even when a property has no known history of hazardous material use, it may still be at risk due to historical or current activities occurring next door or nearby.

Common sources of adjacency risk include:

• ⛽ Active or former gas stations

• 🚆 Rail corridors and rail yards

• 🏭 Industrial or light-industrial facilities

• 🧼 Dry cleaners

• 🌾 Agricultural chemical storage or mixing areas

• 🛢️ Bulk fuel storage or cardlock facilities

The critical concept is migration. Contaminants do not follow property lines. Under the right conditions, impacts can move through soil, groundwater, or vapour pathways and affect adjacent lands.

⚠️ Why Adjacency Risk Matters in a Phase I ESA

A Phase I ESA is not intended to confirm contamination. Its purpose is to identify potential environmental concerns that could affect a property’s value, financing, insurability, or future use.

Adjacency risk is important because it can directly influence:

• 💰 Property value

• 🏦 Lender willingness to finance

• 🛡️ Environmental insurance availability

• 🏗️ Redevelopment or land-use planning

• 📉 Long-term liability exposure

From a lender’s perspective, the concern is straightforward: Could contamination from a neighbouring property eventually become the borrower’s responsibility?

A strong Phase I ESA doesn’t simply list adjacent land uses. It evaluates whether those uses realistically pose a risk to the subject property.

🧠 How Adjacency Risk Is Assessed During a Phase I ESA

At Nexus Environmental, adjacency risk is evaluated using a weight-of-evidence approach, not a checklist. Multiple factors are considered together to determine whether an adjacent property represents a meaningful concern or a low-risk condition.

🕰️ 1. Historical Land Use Review

Historical sources are reviewed to identify past and present uses of nearby properties. These may include aerial photographs, fire insurance plans, city directories, land titles, and regulatory databases.

This review helps establish:

• What activities occurred

• How long they operated

• Whether hazardous substances were likely involved

For example, a gas station that operated for several decades presents a very different risk profile than a short-term commercial use with limited environmental impact potential.

📍 2. Distance and Relative Location

While proximity is important, it is not the only consideration. A site directly abutting the subject property typically presents greater potential risk than a similar site located several parcels away.

Equally important is relative positioning. An adjacent property located up-gradient or cross-gradient from the subject site may present minimal risk, even if it historically handled hazardous materials.

💧 3. Groundwater Flow Direction

Groundwater flow direction is one of the most critical — and frequently misunderstood — elements of adjacency risk.

Nexus reviews available regional hydrogeologic information, nearby environmental investigations (when available), and local groundwater data to assess likely flow directions. If groundwater flows away from the subject site, the likelihood of off-site impacts migrating onto the property is significantly reduced. Up-gradient sources, however, warrant closer scrutiny.

📑 4. Known Environmental Investigations

Where available, previous environmental investigations completed on adjacent properties are reviewed. These reports can provide valuable insight into:

• Whether contamination was identified

• The type of contaminants present

• Whether impacts were delineated or remediated

This information helps distinguish theoretical risk from documented environmental conditions.

🧪 5. Nature of the Contaminants

Not all contaminants behave the same way. Petroleum hydrocarbons, chlorinated solvents, metals, and agricultural chemicals each migrate differently depending on soil type, depth, and environmental setting. Understanding contaminant behaviour is essential to determining whether adjacency risk is plausible, limited, or unlikely.

🗺️ Why Adjacency Risk Is Especially Relevant in Alberta

Alberta’s land-use history presents unique adjacency considerations. Many commercial properties are located near former service stations, rail infrastructure, bulk fuel facilities, or agricultural operations that pre-date modern environmental regulations. In addition, variable soil conditions, shallow groundwater in some regions, and mixed commercial-industrial development increase the importance of proper off-site risk evaluation. An overly conservative approach to adjacency risk can lead to unnecessary Phase II ESA recommendations. An overly dismissive approach can expose buyers and lenders to long-term liability. The balance lies in defensible professional judgment.

🤝 What Adjacency Risk Means for Buyers and Lenders

The identification of adjacency risk in a Phase I ESA does not automatically mean that a Phase II ESA is required. It means the risk must be evaluated, documented, and clearly explained. For buyers, this provides clarity when making informed decisions about acquisition, pricing, and future land use. For lenders, a well-supported assessment of adjacency risk offers confidence that environmental liabilities have been properly considered — not ignored or overstated. The true value of a Phase I ESA lies not in identifying every possible concern, but in explaining which risks matter and why.

✅ Final Thoughts

Adjacency risk is one of the most nuanced aspects of a Phase I Environmental Site Assessment. Properly evaluating it requires experience, regional knowledge, and a strong understanding of how contaminants move through the environment. Nexus Environmental, adjacency risk is assessed carefully and systematically, using multiple lines of evidence to provide clients with clear, defensible conclusions that support confident real estate decisions.