Environmental Due Diligence
If you’re acquiring a new property, whether it be for residential or commercial purposes, environmental due diligence is crucial. Environmental due diligence uncovers any hidden liabilities that any property could be affected by. If you don’t do proper due diligence on a property, you could be putting people’s health and safety at risk, and it could come back to hurt you and your business legally and financially. That’s why it’s vitally important to have environmental due diligence performed before going through with any real estate transaction.
What is Environmental Due Diligence?
Environmental due diligence is an investigative process in which a property is assessed for environmental contamination, such as groundwater or soil contamination. A professional environmental due diligence consultant abides by standards set out by the Environmental Protection Agency when auditing a property for environmental risks.
Carrying out environmental due diligence may result in the discovery of hazardous materials and chemicals on a property. Knowing whether a property is contaminated or not gives you the necessary information to go forward with a deal or not. Upon discovery of contamination, it’s possible to require the previous owner to clean up and decontaminate the property. Or it could result in you declining a deal entirely. The important thing is that you have the knowledge to act according to the results of an environmental due diligence report.
The Importance of Environmental Due Diligence
Environmental due diligence is of utmost importance for the health and safety of the people who are going to be using the property day in and day out. Not getting an environmental assessment means you could be putting your or others’ health and safety at risk unknowingly.
Additionally, there are not only health and safety concerns but also your legal and financial liabilities to be concerned with. Failure to adhere to environmental regulations could put your organization at risk of facing litigation or paying a hefty fine.
Environmental due diligence will prevent you from financial and reputational harm to your organization before it’s even a possibility to become a problem. Having a scientific understanding of a property means you can pass on properties that could put you at risk of a lawsuit and move forward with properties that are environmentally sound.
Who Benefits from Environmental Due Diligence
Environmental due diligence isn’t just about protecting buyers against potential problems with a house. In fact, anyone buying a home—whether they are looking to purchase or sell—can benefit from having a thorough understanding of the environment around them. This includes everything from water quality to air pollution.
By conducting an environmental audit, you can help ensure that the property you buy won’t negatively impact your health or the health of others nearby. You can also protect yourself legally if something goes wrong. If there are toxic chemicals present on the property, for example, you could potentially sue the previous owner for failing to disclose those risks.
In addition, an environmental audit helps identify any existing environmental liabilities that might affect the value of a property. For instance, if a home contains lead paint, the buyer might want to consider getting rid of it before moving in. A professional inspector can help determine whether the problem exists and what steps must be taken to remediate it.
Situations When Environmental Due Diligence is Required
Environmental due diligence is generally required before a lender finances a real estate transaction. This includes loans secured by properties, such as mortgages, deed of trust deeds, and even leases. In addition, lenders sometimes require environmental due diligence before accepting collateral for a construction loan, refinancing an existing mortgage, or taking over a previous lender’s outstanding debt. Public agencies like the Federal Housing Administration, the National Flood Insurance Program, and the Rural Utilities Service also frequently require environmental due diligence prior to releasing grant funds for projects related to real property development and improvement.
How Environmental Due Diligence Protects You
Environmental due diligence is one of the most important steps you can take before buying real estate. This type of research helps protect you against potential liability issues down the road. For example, suppose an old landfill site is located near your future home. If the seller does not disclose this fact, you could face legal action if there are any problems with the soil or groundwater later on.
The federal government passed legislation called the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which requires sellers of contaminated properties to inform buyers about any possible risks associated with those sites. However, it doesn’t stop there. Under the CERCLA law, purchasers are protected from liability for any damages caused by the pollution that existed prior to their purchase. This includes both physical damage to buildings and personal injury claims.
So if you want to buy a house without worrying about the possibility of having to pay out money in the event something goes wrong later on, make sure to perform some environmental due diligence before making the big move.
The Comprehensive Environmental Response, Compensation, and Liability Act (CERLCA)
The Comprehensive Environmental Response, Compensation and Liability Act (commonly known as CERCLA), otherwise referred to as Superfund, is one of the most important pieces of legislation governing how companies clean up hazardous waste sites. This act sets forth the legal requirements for those who are responsible for cleaning up such sites. In short, it makes those responsible for polluting our environment legally accountable for doing so.
This act was passed into law in 1980 in response to the widespread pollution of the nation’s waterways during the 1970s. Prior to the passage of CERCLA, there was no federal statute requiring cleanup of abandoned toxic waste dumps. As a result, many states had enacted their own laws regarding the responsibility of parties involved with the disposal of hazardous materials. However, CERCLA provides a uniform national standard for holding responsible parties accountable for the costs associated with cleaning up toxic waste sites.
In addition to establishing liability standards, CERCLA also established the framework for the EPA to oversee the cleanup of these sites. When a site needs to be cleaned up, the EPA must determine whether the party responsible for contaminating the site is required to perform the work itself. If the responsible party cannot do so, the EPA steps in to take care of the situation. If the EPA finds that the responsible party is financially unable to cover the cost of the cleanup, the agency will seek reimbursement from the responsible party.
Types of Environmental Due Diligence
There are several types of due diligence that are important to be aware of, depending on the property and its intended use.
Phase I and II Environmental Site Assessments (ESA)
The Phase I Environmental Site Assessment (also known as the Preliminary Evaluation) is the standard used to determine whether or not there is a potential environmental liability with a piece of property. This evaluation is typically done prior to purchase, and it is a good idea to do one regardless of what you plan to use the property for.
A Phase I ESA consists of three phases: site characterization, sampling, and analysis. During the site characterization phase, the assessor collects information about the soil and groundwater conditions at the property. During the sampling phase, samples are taken from the area around the property and analyzed for contaminants. Finally, during the analytical phase, the assessor analyzes the data collected during the previous phases to determine if there is any risk posed by the property.
Once the data is gathered, the assessor presents his findings to the client. If he finds no evidence of contamination, the report is sent to the buyer and seller. However, if the assessor identifies a problem, the client must decide how to proceed. For example, if the assessor found hazardous waste on the property, the client could choose to clean up the mess or pay someone else to do it. Or, if the client wants to sell the property anyway, she might want to try to mitigate the issue. Either way, the client needs to make a decision based on her knowledge of the situation.
A phase 1 assessment involves observing the physical environment of a facility, reviewing previous operations, and assessing any potential risk factors. In addition, a phase 2 assessment may include sampling and testing to determine if contaminants are actually present.
All Appropriate Inquiry (AAI)
The Environmental Protection Agency (EPA) published the All Appropriate Inquiry (AAIs) guidelines in 2016. These are the guidelines that companies must follow when assessing properties for potential environmental contamination. They include specific requirements about the education, training, and experience needed to complete the assessment.
In addition, the EPA provides the AAI Guidelines and Recommendations for guidance regarding how to perform the process. This document outlines the steps involved in performing the AAI and suggests best practices, including what types of records should be collected during the process.
Records Search with Risk Assessments (RSRA)
The Environmental Protection Agency (EPA) requires owners of certain types of facilities to conduct a survey and perform a Records Search with Risk Assesment (RSRA). This assessment searches government databases and historical records such as deed books and tax rolls to determine whether there has been previous environmental contamination at a site. In addition to assessing the risk posed by potential contaminants, the EPA evaluates whether the facility is eligible for a Low-Risk Property Listing (LRP), which allows it to avoid costly remediation requirements and associated costs.
Transaction Screen Assessment (TSA)
A Transaction Screen Assessment (TSA) is a scaled-down version of the full Environmental Site Assessments (ESAs). This type of assessment is used for smaller projects where the scope of work is limited and there are no significant site conditions requiring an ESA. In addition, TSA provides a quick way to assess potential impacts on air quality, water resources, land use, cultural resources, and hazardous materials.
Unlike an ESA, a Transaction Screens Assessment does not fully meet EPA requirements for environmental due-diligence and does not offer the protections of CERCLA. It is the only environmental screening tool that meets ASTM standards for conducting a transaction screen.
What Land Developers Need to Know About Environmental Due Diligence
Environmental due diligence is defined as the evaluation of environmental conditions and risks associated within a particular geographical area. This type of assessment typically occurs prior to purchasing real estate. In some cases, it may occur during construction, but most often it takes place once the project is complete.
The purpose of doing an environmental due diligence report is to make sure that the site you are about to buy or build upon is safe for human habitation, and that there aren’t any toxic chemicals present. These reports usually look into things like proximity to sensitive habitat areas, historical structures and materials, and whether hazardous waste is being disposed of in the surrounding area.
This report is important because it helps ensure that the buyer or developer knows what he or she is getting themselves into, and that the project is sound financially. It also helps protect the buyer/developer against future lawsuits regarding health issues related to the project.
Environmental Liabilities for Land Developers
A land developer could face multiple types of environmental liability for contamination on his or her property. This includes potential liabilities for the neighboring properties where pollution has migrated. In addition, the land developer could become legally responsible for the contamination found on the land he or she owns. If the land developer does not have a comprehensive environmental response plan, the land owner may be held liable under the Resource Conservation Recovery Act (RCRA).
Tort Liability (TEDD & NREDD)
When it comes to developing real estate projects, there are many legal issues that must be addressed. One issue that often arises is whether a particular project involves a known risk. For example, could a building collapse because of poor design or construction? Or, could a toxic substance seep into groundwater and contaminate nearby wells? These types of risks can potentially cause harm to people living near the site of the development. In some cases, those harmed might even file lawsuits against the builder.
The law recognizes that certain kinds of situations present risks that the builder cannot reasonably foresee. This is called “tort liability.” When a person suffers bodily injury, wrongful death or property damage caused by another party, he or she can sue that person for damages. To win such a lawsuit, the plaintiff must prove that the defendant owed him or her a duty of care. A duty of care exists when one party owes another a responsibility to act carefully. If someone fails to act carefully enough, he or she can be held liable for injuries or damages suffered by others.
Legal Fines
The Environmental Protection Agency (EPA) and the Natural Resources Conservation Service (NRCS) are working together to help landowners avoid financial liability for violating federal environmental law. This includes fines and penalties. A fine is money paid to the government because someone did something wrong. Penalties are punishments imposed by the court for breaking the rules.
A penalty can include anything from a small amount of money to jail time. For example, if you violate a permit, the EPA could require you to spend $10,000 per day for each day you continue to operate without a permit. If you don’t stop operating within 10 days, you could face up to six months in prison.
Hire An Environmental Due Diligence Consultant
If you are performing environmental due diligence on a building that was built prior to 1989 and you have concerns about asbestos-containing materials, ask your environmental professional about collecting asbestos samples during the site visit. It’s a low-cost way to make a more informed decision about the property.