Every now and then we’re visited by a new client who discovers he bought contaminated property and needs legal help. In almost all of these cases, our client bought the property without first getting advice from an environmental lawyer or conducting adequate environmental due diligence on the property. We’re always glad to help, but the frustrating part is that if that client met with us before buying the property, we could have worked with him to help manage the risks and potential liabilities that come with the purchase of potentially contaminated properties.
So what is environmental due diligence? In simple terms, it is a process by which trained professionals assess a property for any potential risk of environmental contamination. Most lenders require environmental due diligence be completed before they will issue commercial loans, but those who are self-funding purchases should strongly consider undertaking this due diligence, also.
The process typically begins with a Phase I Environmental Site Assessment. The Phase I assesses the current and historical uses of a property and examines local, state and federal records to identify past uses the property that may present an environmental risk. Often times, this assessment is sufficient for prospective buyers and their lenders. Sometimes properties will require a Phase II Environmental Site Assessment, which is a more intrusive assessment that includes soil and groundwater sampling from areas on a property that are deemed most likely to have contamination. The depth and scope of the process typically turns on the property that’s examined. A property that once had a gasoline service station probably will require a Phase II because of the higher likelihood of contamination. A commercial property with office space and a satisfactory Phase I assessment typically would not.
There are major benefits to conducting environmental due diligence prior to a purchase. Due diligence can uncover actual or suspected contamination, which may lead the prospective buyer to cancel a purchase, renegotiate the purchase price or—with the assistance of a knowledgeable environmental lawyer—negotiate protections in the purchase agreement, or determine a property’s brownfield eligibility to assist with cleanup costs. Under the All Appropriate Inquiries rule, a properly managed assessment can grant protection for bona fide prospective purchasers from CERCLA liability, even if contamination is found after the property is purchased. That is a potentially significant measure of protection as site cleanups can be very costly.
If you are looking into purchasing a property and need legal advice, our firm is glad to meet with you to discuss the due diligence process and the protection it affords.