Commercial real estate transactions need the great focus of all parties involved. In particular, there are hidden environmental obligations that can be costly afterward. Losses are not in the interests of the participants. Thus, they carry out environmental due diligence. This lengthy yet effective process reduces risks and helps avoid liabilities. It is suitable for those who are about to conclude a real estate transaction (rent, sale, purchase, etc.)
What is the point?
Environmental due diligence is an audit. That is a way to assess a target property on potential pollution risk. The Environmental Protection Agency sets the norms and standards. Companies follow them during the audit. Hiring a professional environmental consultant increases the chances of a successful operation.
One of the recommendations is to conduct due diligence in the early stages of the deal. In case of revealing obligations after the conclusion, they become the responsibility of the current owner.
This type of assessment helps the buyer to ensure the best investment value. If there are deficiencies, the buyer demands a price reduction. It is commensurate with the pollution. Sometimes they can call off the deal.
The operation consists of several phases that reveal its significance:
- familiarization with historical records for the first operation of the building
- checks for fires or spills
- site survey to find out about current operations at the facility
- interviewing personnel, as a result, it is possible to confirm or deny identified potential environmental problems
- assessment of compliance with the requirements of environmental protection rules
Documents for Environmental Due Diligence
- Company-owned permits, based on which all properties (rented and owned) operate
- Written reports concerning environmental testing or matters that affect the property or activities of the organization covering the last five years
- All written estimates prepared for the past five years regarding the future costs of environmental programs related to the company’s activities or properties
- All communications and requirements of the environmental authorities concerning the activities or properties of the company
- All records of the history of compliance with environmental permits, including permits for air, water, waste, and sewage following federal, state, and local norms and regulations
- Information about dumpsites where hazardous waste is
- Places of underground reservoirs and lines, including those no longer in use, indicating the history of leakage or spillage
Environmental due diligence is a defense against unwanted hidden liability that is expensive. Moreover, it is a tool for protecting the value of the real estate. The importance of this procedure is beyond doubt.