Periconi, LLC

Environmental Due Diligence in the Real Estate - Overview

This is the first of a series of blogs designed to provide a detailed "primer" for the commercial real estate professional and investor. My goal is unlock what some still see as the mysterious world of environmental risk in the sale or lease of virtually all non-residential properties; more importantly, how do you do it to protect yourself to the maximum practical extent? 

This is the first of a series of blogs designed to provide a detailed "primer" for the commercial real estate professional and investor. My goal is unlock what some still see as the mysterious world of environmental risk in the sale or lease of virtually all non-residential properties; more importantly, how do you do it to protect yourself to the maximum practical extent?

We will first review the background principles of law that the environmental lawyer (EL) on your "team" - and I do recommend that you have a team to cover all the relevant disciplines - has in guiding her or him to advise you.

What's next? The first significant task performed by your EL, applying those background legal principles, is understanding enough of the facts about the dynamics of the deal and the nature of the property to assist in the drafting of the contract (or critiquing of the other side's contract draft).

The second significant task is establishing the baseline property conditions so liabilities can be properly allocated between seller and buyer, or owner and lessee.

We start with an overview:

What is environmental due diligence generally?

  • a tool to identify and assess risk of environmental liability (hence, the process is a combination of contract drafting and site assessment), to protect you as Buyer or Seller (or Owner and Lessee) as against the other party, or the government; and to provide lenders with the information they require for loans;
  • a tool to make available defenses or even exemptions to liability, and remedies not otherwise available (or less available) unless you do your due diligence.

What is the range of properties for which good commercial practice now demands you do environmental due diligence - what kinds of properties:

  • individual piece of commercial or industrial property usually, or
  • whole company with several current facilities or other properties, and even some past ones;

OK, now what kind of problems?

  • contamination by hazardous materials - hazardous substances or petroleum products - on or below the surface, in soil and ground- (or surface- ) waters, or in buildings (think: asbestos), impacting the property or those adjacent to it, reducing the property value for you and for whomever finances your purchase, as well as needing to be "remediated" or cleaned up so that the adversely affected soil or groundwater are returned to their condition prior to contamination.

(These blogs don't encompass the other major area where environmental lawyers assist real estate professionals - environmental quality review of proposed property developments.)

Now let me tell you how I start my frequent presentations on this topic - I start with a review of what I call PERICONI'S SEVEN REALITIES OF ENVIRONMENTAL DUE DILIGENCE

  1. No way around it - there's strict liability for cleaning up contaminated property - virtually all federal and state statutes, and many common law claims, do not require intentionality. In fact, you don't even have to know about the problem to be liable to clean it up!
  2. If you own the property, you own the problem, even if you didn't cause the problem, unless you protect yourself
  3. If you used to own the property, and that's when it became contaminated, you probably still own the problem, unless you protect yourself
  4. If you lease and operate the property, same result, especially in the triple-net-lease deal, unless you can show the contamination predated your leasehold interest!
  5. You'd better know the condition of the property when you buy or when you lease it, or you're likely to be stuck with all or a substantial part of the costs.
  6. For the most part, you're guilty and have liability, unless and until you can prove your innocence, by taking certain steps
  7. Proof problems are difficult, in general, because much of the contamination is below the surface, probably took place in the past, sometimes remote past; and in particular, because the timing of the contamination is all-important, and because there may be similar but mixed waste streams to separate.

Don't be discouraged! Help is on the way!

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