What Is Environmental Due Diligence? Your Complete Guide

The Essentials of Environmental Due Diligence

What is Environmental Due Diligence?

Environmental due diligence is a compendium of legal and technical findings used to certify liability safeguards when using state and federal environmental laws and standards. These safeguards are used to assess any potential hazards and contamination caused by real estate development. These findings are also used to advance environmental research, accumulate data, allocate liability, and manage risk. Every assessment is regulated by standards set by the Environmental Protection Agency.

When to Perform an Assessment

Anybody that is on the verge of making a sizable real estate transaction should perform environmental due diligence. These transactions include purchases, sales, leases, or refinancing. Involvement in any of these transactions necessitates an environmental due diligence audit. Conducting an audit will reveal any unforeseen hazards. Potentially saving millions of dollars.

Most lending institutions require due diligence to be performed in any major commercial real estate deals. Public agencies also require due diligence before any grant funding is released for real estate projects.

How Assessments are Performed

Environmental due diligence typically begins with Phase I Site Assessment. A Phase I Site Assessment is performed by standards ruled by the American Society for Testing and Material (ASTM). Phase I is designed to protect commercial real estate buyers and financiers by satisfying requirements for landowner liability protections. Commercial sellers and their financiers may also qualify for these liabilities. More info about Phase I and the ASTM can be found <a href=”https://www.astm.org/Standards/E1527.htm”>here</a>.

Instead of a Phase I Assessment, a Transaction Screen Assessment (TSA) can be performed. A TSA is quicker and cheaper than a Phase I but does not offer the protection of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

What is CERCLA?

CERCLA determines the liability for any hazardous waste and/or contamination found on a property. Property owners found in violation during an assessment are fined and required to fix the issues at their own expense. Through CERCLA, a purchaser is protected from being liable for any pre-existing pollution.

The Value of Environmental Due Diligence

Phase I Assessment results have an enormous impact on real estate deals. Findings during an environmental due diligence audit determine the proper liability when and if contamination is found. Protection under CERCLA is provided to all those who qualify when inquiries are conducted before purchasing a property.

The purchaser will be exempt from any liability from pre-existing contamination when due diligence is performed before acquiring the property. The new owner will be held responsible for mending any existing contamination if an environmental due diligence assessment is not completed before the sale of the property.

The Cost of Environmental Due Diligence

Costs for due diligence vary wildly. Factors like location, size, and physical features of property make it difficult to estimate the cost of an assessment. The easiest way to determine the cost is to contact an environmental consultant. Despite the variations in cost, assessments should not be skipped. Not conducting an audit is a potentially very costly mistake. Being liable for environmental clean-up costs quickly spiral into exorbitant sums of money. These liabilities can easily be avoided by adhering to proper standards and guidelines.

If you need more information or help regarding environmental due diligence, the team at All American Environmental is here to help.