Environmental Due Diligence Can Preempt Costly Liability

If you buy property with environmental issues, you may be liable, even if you were not responsible for the presence of contaminants. To best protect yourself, be sure to include environmental review as part of your due diligence.

Why Conduct Environmental Due Diligence

The most obvious reason investors conduct environmental due diligence is to know what potential liability exists under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and to calculate the remediation cost into the purchase price. CERCLA rules may result in fines and require you to remove hazardous materials at your own expense.

If environmental due diligence exposes previously unforeseen issues, an appraiser may reduce the property's value. This could prompt a buyer to renegotiate the purchase price or abandon the deal altogether. A buyer could also be alerted to the need for environmental liability insurance coverage.

How to Conduct Environmental Due Diligence

Depending on the property and transaction involved, due diligence procedures might include environmental questionnaires, transaction screens or internal environmental screens. Common types of environmental site assessments (ESAs) include:

Phase I ESA Here, the expert (often an environmental engineer) generally examines a property's past and current uses to identify any environmental conditions that might pose a liability.

Phase II ESAs These assessments delve deeper by, for example, collecting and analyzing soil and other samples to determine if contamination is present.

If you decide on a Phase I assessment and want to pay for this with EPA Brownfields Assessment Grant funds, you will need to conduct it in accordance with the All Appropriate...