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Environmental Due Diligence in Real Estate Transactions Blog Series: Part IV - Working with Environmental Consultants

In our series highlighting the tools of environmental due diligence in real estate transactions, we've covered the basics of (1) what is "environmental due diligence," (2) what are the important environmental provisions you need in a purchase and sale contract, and (3) what environmental investigations and audits you need to undertake after signing the contract. In our final post, we'd like to discuss what to consider when selecting and working with the environmental consultant who, with the help of the environmental attorney, will be performing much of the due diligence work on the property.

Throughout this series, we've highlighted why it's important to have an environmental attorney, and not just a real estate attorney, represent you when buying or selling a contaminated property. Another key reason to have an environmental attorney on board when buying or selling contaminated property is that he can act as a liaison between the environmental contractor or consultant and you, the buyer or seller. He can help you vet a proper environmental consultant and will work to ensure that the consultant is doing everything they are required to do but nothing unnecessary. Moreover, the environmental attorney can also act as a liaison between the environmental consultant and the governmental agency overseeing the remediation of the property, thus ensuring that your interests are protected but are not being taken advantage of.

Environmental Consultants: issues to consider: choice of consultant, scope of work, contract, and procedure.

Several factors that are important to consider when choosing and working with your environmental consultant who will undertake your environmental due diligence: education, experience or expertise of the type relevant to the client's needs, the consultant's reputation with government agencies, references from others, report-writing abilities, and rates.

In addition to undertaking or overseeing the environmental due diligence or remediation of the property, the environmental consultant is responsible for drafting all necessary environmental reports, in order to not only satisfy the "all appropriate inquity" standard, but also to give the prospective buyer an understanding of the level of contamination on the property.

Prior to even a draft report (e.g., a Phase I ESA or Phase II ESA report), the environmental consultant and the environmental attorney should be in regular contact, and should discuss the results of the assessment orally and how the environmental consultant plans to present the results. There is a need for good working relationship between the environmental consultant and the environmental attorney, so that the consultant understands that the attorney may need to edit to account for legal concerns and the attorney understands that the consultant may have to refuse if attorney edit is technically inaccurate. (Another benefit of hiring an environmental attorney is that he or she can officially retain the environmental consultant and therefore any reports can be protected under the attorney/client privilege.)

Following the oral report, discussed above, the environmental consultant should prepare a draft report, insuring the report is limited as much as possible to factual observations. There should be no conclusions or opinions, e.g., about status of regulatory compliance or speculations on the sources of potential contamination. The report should not be finalized until the attorney has reviewed the revised draft (if attorney revisions are anything other than minor editing, spelling corrections, etc.).

Similar to concerns of confidentiality with releasing environmental reports to a prospective purchaser, there also may be confidentiality issues with allowing an environmental consultant to review prior environmental reports and/or inspect the subject property. Confidentiality issues should be addressed in a separate agreement, usually before the environmental consultant undertakes any work.

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Please contact us if you have any questions about environmental due diligence in real estate transactions, or if we can help you select or work with an environmental consultant to perform a Phase I ESA, Phase II ESA, compliance audit, or remediation on your property.

This blog series is based on an article written by James J. Periconi and published in the Winter 2008 Bloomberg Corporate News Journal. Mr. Periconi also discusses the details and the nuances of environmental due diligence of commercial real estate transactions in his bi-monthly continuing legal education course.

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