Environmental Risks and Liabilities
Environmental due diligence is an important aspect of responsible investing and can help to ensure that existing or potential environmental risks and liabilities are identified and evaluated before a real estate transaction is completed. The goal of real estate environmental due diligence is to provide buyers, and lenders with a comprehensive understanding of any existing or potential environmental risks and liabilities associated with a property that may affect the value and or use of the property.
Potential environmental liabilities can arise from a wide range of activities, including the release of hazardous substances, and the failure to properly manage waste or other environmental impacts, and the violation of environmental regulations. Examples of potential environmental liabilities include the cost of cleanup or remediation of contaminated sites, fines and penalties for regulatory violations, and damage to reputation or brand due to environmental incidents.
There are several reasons why it is important to complete environmental due diligence when making an investment, or purchasing property:
- Identification of Environmental Risks: Environmental due diligence can help identify existing or potential environmental risks and liabilities associated with a property, including the presence of hazardous substances.
- Compliance with Environmental Regulations: Environmental due diligence can help ensure compliance with applicable environmental regulations and avoid the costs and liabilities associated with non-compliance.
- Protection of Financial Investments: Environmental due diligence can help protect investments by identifying existing or potential liabilities and provide information that can be used to make informed investment decisions.
- CERCLA “innocent landowner defense,” which allows a landowner to avoid liability under CERCLA by conducting all appropriate inquiry / Phase I ESA prior to transaction completion.
- Improved Environmental Performance: Environmental due diligence can help improve environmental performance by identifying opportunities to implement best practices for environmental management and by reducing the risk of future environmental liabilities.
- Enhanced Reputation: Environmental due diligence can enhance the reputation of a property or business by demonstrating a commitment to responsible environmental management and sustainable practices.
- Improved Decision-Making: Environmental due diligence provides valuable information that can be used to make informed decisions regarding the management and use of a property, including the need for environmental remediation and the costs associated with environmental liabilities.
The results of environmental due diligence can provide valuable information for managing environmental risks and liabilities associated with a property, help to minimize the risk of exposure to environmental liabilities, such as costly cleanup or enforcement actions, and can provide valuable information to support investment and decision-making.