Environmental Due Diligence
Due (Diligence) Your Homework
As brokers and advisors, the nerds are all too familiar with the process of checking every nook and cranny for accuracy and making sure whoever we represent is well aware of the transaction details and all that they entail. During this period, a broker or representative will ask the selling party for relevant records so that this research and inspection can be done by the time the money “goes hard”.
Due diligence (in nerd speak) is like doing your homework.
Many times, brokers & other CRE professionals kick their feet up and sit back during the period of due diligence. This is risky and as Globe St. puts it in many “…states, most commercial property deals are completed on an “As-Is” basis, with the seller or landlord providing limited or no warranties.”
Meaning the buyer is taking on all the baggage that comes with the property and once the deal is done, that is their responsibility completely. One facet of due diligence that many often neglect or don’t understand is environmental, which can have a huge impact on the buyer & the future value of the property.
A little history:
“In the United States of America demand increased dramatically for this type of study in the 1980s following judicial decisions related to liability of property owners to effect site cleanup. Interpreting the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the U.S. courts have held that a buyer, lessor, or lender may be held responsible for remediation of hazardous substance residues, even if a prior owner caused the contamination; performance of a Phase I Environmental Site Assessment, according to the courts’ reasoning, creates a safe harbor, known as the ‘Innocent Landowner Defense’.” (Source: Wikipedia)
In most cases, many properties only need the first phase of an environmental report. Does this site check out?
However, relying on Phase I report standings older than 180 days or not conducting Phase I Report based upon current standards is a big mistake. Buyers and brokers alike should be aware that standards for these reports changed in 2015, as well as environmental reports not run recently can have huge deficits in information that can be detrimental.
Environmental reports are very useful for properties and especially dry-cleaners, automotive parts & repair, industrial, even restaurants & medical facilities. As noted in this insightful breakdown on environmental due diligence, “if contamination is found on the property, a Buyer can negotiate a commensurate reduction in the price of the real estate or decide not to purchase.”
Here’s a helpful tool provided by American Environmental Corporation on what you need to know and look out for during due diligence periods.
Courtesy of American Environmental Corporation
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Research & commentary by Taylor Henderson, a millennial nerd.
Guide provided by American Environmental Corporation.