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Buyer beware: Hidden environmental issues could be costly

On Behalf of | Dec 30, 2017 | Blog |

When you find a piece of commercial property here in Atlanta that you want to purchase, you may expect the seller to be completely forthcoming with any current or potential issues with it. Unfortunately, not everyone believes in full disclosure.

For this reason, you conduct exhaustive due diligence on the property before purchasing it, some of which may be at the behest of your mortgage lender. These steps may seem unnecessary to you, but without it you could inherit a slew of costly problems. One of those problems could surround environmental issues.

What is environmental due diligence?

Environmental due diligence involves searching for, well, environmental problems of the property. You search for sources of contamination with the water or soil, for example. The Environmental Protection Agency outlines certain standards for such assessments. The engineers involved in your potential purchase determine the kind of assessments and the extent of those assessments needed for the property involved in the transaction.

Could you be liable for any environmental issues?

The Comprehensive Environmental Response, Compensation and Liability Act governs the process of assigning where the blame for environmental contamination falls. Even if you aren’t responsible for the contamination, the government could force you to clean up the mess, get the property into compliance with EPA regulations and pay fines as well.

In order to avoid becoming the unwitting owner of contaminated property, and thus liable under CERCLA, an environmental assessment is crucial. You must make All Appropriate Inquiries (AAI) prior to your purchase in order to receive protection under the act. Of course, you must also comply with any state and local environmental laws as well.

The Phase I Environmental Site Assessment

The records regarding prior use of the property go under investigation during a Phase I ESA to determine whether any actual or potential environmental risks to the property exist.

A Phase I ESA may turn out to be your best friend when it comes to avoiding liability for contamination on the property you intend to purchase. In addition, the assessment could keep you from purchasing a piece of property whose issues are larger than you intend to take on with your purchase. In the alternative, you may decide to renegotiate the purchase price of the property in light of any issues found during the assessment.

Enlist the right help during environmental due diligence

The people you choose to involve in your commercial real estate transaction can make the difference between a successful transfer of ownership and a potential disaster. You more than likely spent a good deal of time and effort choosing the right location, and the same effort needs to be applied to choosing those who advise and assist you throughout the transaction.

The last thing you probably want is for the EPA or a state or local environmental agency to come knocking on your door levying substantial fines against you and forcing you to pay (potentially) millions of dollars to bring the property into compliance.


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