Navigating Environmental Liability When Purchasing Commercial Property
Purchasing a commercial property can bring many uncertainties. On a list of due dilligence priorities, assessing the environmental conditions on a property should be toward the top and for good reason. The price of a clean-up or other administrative control can prove a blind spot in estimating total property cost.
Clean-up costs for environmental contamination are often tied to the property and fall on the property owner. While the original party that caused the contamination may be involved in some form (if they are still around), future property owners may assume environmental obligations tied with that property.
Lifetime costs associated with a contaminated site can be 5 to 6 figures or more, which can substantially affect overall cashflow, especially if this is not identified during the due diligence process.
How to Protect Against Unknown Environmental Conditions
Environmental liabilities are often not immediately observable and may not be mentioned in disclosure statements given by the seller. Most buyers will conduct a commercial property inspection. However, most property inspectors specialize in examining the building(s) and related components, but would not perform environmental due diligence, such as researching the historical site use.
Before pulling the trigger, one way to protect against potential environmental liability is by conducting a Phase I Environmental Site Assessment. This Assessment effectively screens the property for any potential environmental risks, through a desktop review process and by conducting an on-site inspection of the property.
Benefits of a Phase I Environmental Site Assessment
As a prospective purchaser, performing a Phase I Assessment does several things for you. It provides crucial information for negotiations going into purchase. It also fulfills a requirement to be granted landowner liability protection under federal law via the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). This can protect buyers if contamination (which occurred prior to purchase) is found on the property.
Getting the Benefits of a Phase I Environmental Site Assessment
Phase I ESA offerings vary by consultant with respect to activities and reporting. It ultimately falls on the buyer to ensure completeness and accuracy of the final report. This is where the choice of consultant becomes important.
In addition, other requirements are needed for a prospective purchaser to qualify for this protection. Always check with your attorney and consultant to be sure that you qualify.
This article is for informational purposes only. Poland Environmental Consulting does not provide legal services and nothing written on this website should be considered legal advice.