ENvironmental Due Diligence

May 2022 Newsletter

Environmental Due Diligence:
Phase 1 & Phase 2 Environmental Site Assessments

When a commercial real estate transaction is made, hidden environmental liabilities discovered after the closing can be shocking, and in some cases with steep costs.

Property transactions include:

  • purchasing
  • selling
  • leasing
  • refinancing

Environmental due diligence is a key aid for managing environmental risks and avoiding potential environmental cleanup liabilities, through a process of formal procedures that assesses a parcel of property for potential environmental contamination, such as soil, groundwater, surface water, and sediment contamination, and also for possible vapor impacts from petroleum or hazardous chemicals or wastes.

Environmental professionals determine the extent and type of assessment warranted, which varies based on the past and current activities at the subject property and surrounding properties.

How can Environmental Due Diligence protect the property owner?

Innocent landowners, and potential purchasers are protected under the CERCLA if they have no prior knowledge of the contamination nor have they caused or contributed to contamination identified at a property. All Appropriate Inquiries (AAI) must be conducted prior to acquiring the property to indicate qualification for either party. AAI is obtained by thorough the proper completion of environmental due diligence.

The purpose of a Phase I ESA practice is to define potential contaminants related to hazardous substances and petroleum products and related wastes.

The practice of a Phase II ESA is intended to evaluate the presence, or absence of, petroleum products or hazardous substances in the subsurface of the site.

In addition to the Phase I ESA and Phase II ESA, a Phase II environmental cleanup (or site remediation) may be conducted to clean up the site based on the nature and extent of the contamination caused by chemicals of concern.

Environmental Due Diligence Tips

CRG Texas recommends that entities request a due diligence period of no less than 45 days, and as many as 60-90 days in some cases, depending on the nature of the past and current operations at the property.

Short notice can increase the cost of the assessment work, and may not allow enough time to properly assess the subject property.

Always allow sufficient time to study the property to make informed business decisions with regards to environmental quality at the subject site.