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Environmental Due Diligence is a Crucial Step

Nov 06
Purchasing a new business property is busy and exciting, with a lot of responsibilities and usually a long to-do list. One of the most crucial items is to ensure that you conduct environmental due diligence so that you are not burdened with expensive cleanup fees and other liabilities after the closing.

The first step is to hire a reputable environmental consulting firm and insist on careful inspection of any environmental issues that might be present in, on, or around the property. Typically, the bank providing the mortgage can recommend a consultant. The results of the due diligence investigation should be reviewed with the seller prior to the sale. If the investigation determines that contamination is likely, due diligence may be broadened to include soil and groundwater testing. The responsibility for the costs of any remediation work should be clearly stated in the agreement of sale.

The environmental firm should complete the following steps in order to gather as much information as possible about a property's past. By doing so, they will be able to get a better idea of potential environmental issues that should be more closely examined.

• Records on file with the local municipality and the DEP should be reviewed.

• Interviews with past and present owners, operators, and occupants of the facility should be conducted in order to determine previous uses of the property and how they may have changed over the years.

• Historical sources since the property was first developed - including chain of title, aerial photos, and land-use records - should all be reviewed.

• Federal, state, tribal, and local government records need to be reviewed to learn about any spills or releases that occurred on the property.

• Searches of recorded environmental liens against the facility that are filed under federal, state, or local law should be conducted to examine any unresolved issues.

In addition, visual inspections of the facility and adjoining properties should be conducted in order to learn about potential impacts from existing use and offsite sources that may contribute to environmental issues on the property. By adhering to state and federal procedures and making sure to complete your due diligence, you can usually protect yourself from environmental liability.

For example, Brennan Environmental, Inc. was retained by a potential property buyer to conduct a Phase I Environmental Site Assessment prior to the buyer's purchase. Through our research, we identified one problem area that would have cost the buyer approximately $50,000 to clean up. The buyer went back to the seller with this information and negotiated a lower selling price based upon this added expense. We were able to complete the remediation for well under the amount of $50,000 and the buyer ended up gaining money from the transaction. This is a key illustration of why it is so crucial to complete your environmental due diligence prior to closing on a commercial property.

John Brennan is the president of Brennan Environmental, Inc., an environmental consulting firm located in Summit, New Jersey. The company's growing roster of Northeast clients covers a broad range of law firms, real estate brokerages, as well as insurance, engineering and financial institutions. Visit the company's website at