If you are thinking about purchasing, refinancing, or leasing commercial property, then environmental due diligence is a term that you should be acquainted with.
What is Environmental Due Diligence (EDD)?
EDD is the assessment and management of environmental liabilities and risks. The Environmental Protection Agency (EPA) sets the regulations and standards for this process, and they determine which type of assessment is needed based on aspects of the property. The process of EDD evaluates properties for things like the presence of hazardous materials or contaminants in the groundwater or soil.
EDD is generally split into two categories:
Traditional Environmental Dues Diligence (TEDD): Ensuring that hazardous materials and pollutants are properly found, handled, permitted, and mitigated.
Natural Resources Environmental Due Diligence (NREDD): Ensuring that natural resources, such as historical sites, wetlands, endangered species, etc. are properly identified, mitigated, and permitted.
Why is Environmental Due Diligence Necessary?
It is critical in order to establish that you, as the real estate owner, are compliant with environmental regulations and are safeguarded against environmental accidents such as soil and/or groundwater contamination. Think of EDD as a kind of proactive environmental management. Many properties have environmental issues, and without performing environmental due diligence a real estate buyer and their lender may unintentionally risk the loss of property value or liability for remediation costs.
The Three Phases of Environmental Site Assessments (ESA)
Phase I: Preliminary Site Assessments
Most lenders will require a preliminary site assessment before loaning money for the purchase, lease, development, renovation, or demolition of a real estate property. Even if you do not need a loan, it is advisable to do a Phase I assessment in order to avoid potential environmental and financial liability in the future.
Phase I involves reviewing historical documents to determine past use, conducting site visits to observe present and historical conditions, interviewing present and past property owners, and reviewing regulatory records for the site and surrounding properties.
Phase II: Sub-surface Contamination Investigations
The Phase II assessment is conducted in response to issues identified in the Phase I report. If Phase I discovers possible environmental concerns, Phase II is usually required. This assessment includes limited surface and subsurface sampling of soil and water. It can also include groundwater sampling and laboratory analysis for solvents, metals and other chemicals.
Phase III: Remediation and Monitoring
This is an inquiry requiring the remediation of a property. The goal of the inquiries of Phase III is to delineate the physical extent of exposure based on the recommendations made in Phase II.
Phase III investigations can include intrusive testing and a plan to mitigate environmental issues based on the results of the previous assessments. Contaminated soil could either be treated on site or hauled away for disposal and replaced with clean soil. Groundwater may be remediated and monitored, and soil vapor could be extracted to eliminate hazardous chemicals. This remediation may be conducted until concentrations of contaminants meet acceptable regulatory guidelines.
Who is Liable for Environmental Damage?
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) establishes the process that determines who is liable for any hazardous substances or hazardous material on a property. When contamination is found on a land developer’s property a CERCLA protection, the landowner becomes responsible for the cleanup. The landowner could possibly be responsible for nearby properties where contamination has migrated.
Proper assessments made through environmental due diligence can protect you from the potentially crippling environmental liabilities under CERCLA, even if contamination is found after the purchase is made. This means conducting environmental due diligence through a Phase I Environmental Site Assessment, which is where most due diligence investigations begin.
Aside from CERCLA, it is also important to follow any laws set forth by state, local, or federal regulations for assessment requirements and liability protection.
Always on Your Side
When it comes to real estate transactions, it is important to be thorough in the evaluation of environmental liabilities and risks. It is equally important to address all issues promptly.
I’m Rob Robinson, and I am a Florida native. As a Board Certified City, County, and Local government attorney, I have spent numerous hours guiding my clients through environmental permitting issues. I have advised clients engaged in the sale or acquisition of property and businesses on the meaning of, the limitations to, and protections afforded by Phase I and Phase II environmental site assessments. Let me assist you with all of your environmental due diligence.
Please contact my office for the legal counsel you need and deserve.