What is environmental due diligence and why is it so important? Due diligence is defined in the dictionary as reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something. Due diligence is responsible for uncovering hidden environmental liabilities that in some cases can cost millions of dollars.
Environmental due diligence is a formal process that assesses real estate for potential risk of environmental contamination, such as soil or groundwater contamination. The standards for this assessment are set by the Environmental Protection Agency (EPA).
The extent and type of assessment warranted varies based on the individual property itself though.
Unfortunately, environmental due diligence is often overlooked during real estate transactions. - Let's look at an example
A client built a retail fueling facility in a densely developed commercial area and then leased operations to a third party. Unfortunately, the third party was unable to handle running a gas station and went out of business. The client then went on to lease the facility to a succession of five other tenants over a seven year period
Tenants were required to perform all environmental compliance activities and properly document them. After all tenants proved themselves to be unsuccessful operators of the gas station and neglected to perform and document the required environmental compliance testing, the client decided to put the property on the market to be sold.
The owner of a large neighboring shopping center purchased the property with the intention of redeveloping the property for other uses. No environmental due diligence was completed by the buyer prior to acquiring the property because the fueling facility was only 7 years old. The logic being that such a new facility would surely be in substantial compliance. When the new owner had to halt the redevelopment due to financial constraints, it was discovered that the facility could not be leased out due to mismanagement of the environmental compliance by the previous tenants.
The facility was out of compliance with the Underground Storage Tank Management Program rules. The USTMP required that the USTs and the entire fueling system be removed, and that the environmental concerns are not covered by the GA UST Trust Fund. The property owner now owns the environmental liability and the property still sits vacant.
Don’t let this happen to you! If you are purchasing a similar property, please contact us to have our professional environmental consultants perform a Phase I and/or Phase II assessment. Our Phase I ESAs adhere to ASTM Standard Practice E1527-13 and constitute a legally defensible document for the client should environmental contamination be discovered at some point in the future. If the Phase I ESA identifies any RECs, AET can initiate a Phase II ESA which will document the existence of actual contamination (if present). Having your site assessed properly can result in saved money and time as well as one less headache to deal with!