Home Off Beat What is Environmental Due Diligence? – Learn the Basics

What is Environmental Due Diligence? – Learn the Basics

by Dr Prem Community Writer

The commercial real estate industry is massive and constantly getting larger. In fact, the market in the USA alone is believed to be over $16 trillion. Businesses and individuals alike are buying, building and selling a wide range of real estate properties for a number of different things.

Before you buy, sell or refinance a property, there are a few things you need to do. One of the most important is doing your due diligence. In particular, your environmental due diligence. This is all about taking the necessary steps to assess the real estate and identify if there is any risk of contaminating the environment. (learn more about it on the BBJ Group blog).

There are standards and regulations in place to ensure every piece of real estate and owner is compliant. The due diligence can also protect the buyer. The last thing you want to do is miss a potential issue or problem in a building you just purchased, and have it come back and cost you millions.

However, environmental due diligence can be a confusing topic for some people. As a result, we have decided to craft a little guide to cover the basics. Without any further ado, let’s look at the basics of environmental due diligence.

Phase I ESA

buy, sell or refinance a propertyGenerally, the first step of any environmental due diligence is a Phase I ESA (Environmental Site Assessment). This involves a site visit that is fairly non-invasive, to check for environmental contaminants and other issues. They will check for all hazardous substances, as well as check paperwork to see if any past or future release of hazardous materials are documented.

These are often conducted in accordance with standards set out by either the ASTM (American Society for Testing and Materials) or AAI (All Appropriate Inquiry). In many cases, this assessment will be all you need to feel comfortable and confident enough to go through with the sale. However, it also doesn’t cover you fully as it doesn’t address some of the other concerns a buyer might have. Also, if the results of the Phase I assessment are inconclusive from the assessor, additional steps might need to be taken.

Phase II ESA

If a Phase I test wasn’t enough, or there are still concerns, a Phase II test will often need to be done. A Phase II ESA is often more involved and detailed than a Phase I, as you could imagine. This phase aims to get a better picture of the environmental conditions surrounding the real estate asset, and any potential damage being done.

It involves the gathering and testing of on-site materials like soil and groundwater. Samples are sent to labs to be tested for any sort of contamination. If there are contaminants found, steps will need to be taken to remedy the problem.

Extra Due Diligence Options

surveyThese two phases are often enough to reveal any contamination, but there are indeed additional options and methods that can be employed. This includes compliance audits, asbestos and wetlands surveys, online database research and others.

How far you decide to go with the extra due diligence depends on your comfortability with the result, how the other party feels about the results or the standards and regulations in your area. Always do your research beforehand, to understand what is required and expected in your area when it comes to environmental due diligence.

In conclusion, hopefully this article has been able to help show you what environmental due diligence and all the basics you need to know about it.

Article Submitted By Community Writer