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Environmental Due Diligence Boot Camp
 
 
Lesson 15:  Buyer Beware - Due Diligence Minefields to Avoid 
 
 

 
 

Don't be suckered into walking into any of these environmental due diligence minefields:

 

 

1.  Beware of any restrictions, placed by the seller, on your right or ability to conduct environmental due

     diligence for the property of interest.  
 

Years ago we started a Phase 1 Environmental Site Assessment (ESA) on a property that quickly became apparent was probably heavily contaminated from past on-site gasoline service station activities.  We reported our initial findings to the prospective buyer and lender, with a recommendation that Phase 2 assessment activities should be conducted. 

 

It was only then that we were told that the buyer had signed an earnest money agreement that stipulated that no environmental due diligence beyond a Phase 1 ESA would be allowed to be conducted for the property.  Obviously, the seller and his attorney knew the property was probably distressed, and were trying to conceal this information from prospective buyers.

 

If you are not going to be allowed to conduct all due diligence activities that are indicated as being appropriate for the subject property, you should run, not walk, away from the property. 
 

 

2.  Beware of unreasonably short amounts of time allowed for environmental due diligence activities

     to be completed. 

Too many times we’ve run into situations where the seller stipulates a ridiculously-short amount of time, like 15, 10, or even 7 days, to complete environmental due diligence activities.  This is a good indication that the seller knows there might be environmental issues associated with the property, and is looking for a sucker who will buy the site with either no assessment, or with reliance on the findings of a “fast and cheap" (aka, deficient) environmental assessment.

 

Often times the seller says, “that’s the terms, take ‘em or leave ‘em”.  Do yourself a big favor…. leave ‘em ! 
 

 

3.  Beware of the deal that is “too good to be true” – remember the second part of that adage….

     “because it probably is”. 

The EPA’s “all appropriate inquiries” regulation recognizes that there is a very high likelihood that a property that is being offered for significantly less than its fair market price might be environmentally distressed.  You should recognize this too.   A “really good deal” should be a red flag that very thorough environmental due diligence is probably warranted.  
 

 

4.  Beware of being pressured into signing an “as-is / where-is” contract. 

If you sign this type of contract, and the property later turns out to be contaminated, you will have an uphill battle so far as going back against the seller for environmental investigation and cleanup damages.  Basically, you’re going to have to prove that the seller knew that the property was distressed and intentionally concealed that information from you.

 

“As-is / where-is” should be an alarm that warns you that adverse environmental conditions are very likely associated with the property, and that very thorough environmental due diligence is probably warranted. 
 

 

5.  Beware of buying a property that is known to have environmental issues, without having sufficient

     information as to the extent and magnitude of, and an accurate estimate of the costs to correct, the

     problems associated with the site. 

We once got called into court as an expert witness in a case where an individual had bought an old gasoline station property.  The seller provided the buyer with a Phase 2 ESA report which clearly indicated that the property was still contaminated, and that additional remedial action would be required before the state environmental agency would issue a letter of “no further action” for the property.

 

After dinking-around with the property for a couple of years, the buyer experienced profound buyer’s remorse when he realized that it was going to cost a whole lot more than he had anticipated to cleanup this site and make it usable again.  So he sued the seller, claiming that the condition of the property had not been adequately represented to him.

 

Of course he lost the case…. the judge pointed out that he had been provided with documentation that the property was contaminated at the beginning of the transaction process.  It was up to him, the prospective buyer, to exercise further due diligence to determine the extent and magnitude of the problem, and to evaluate whether environmental restoration of the property was fiscally feasible or practical.

 

If you buy a property that is represented to you as having environmental problems, it is assumed that there was full disclosure and that you consummated the transaction with full knowledge of the condition of the property.   Your chances of going back against the seller at a later date, to invalidate the transaction or recover environmental cleanup costs, is pretty much nil in this situation.

 

 

An ounce of prevention (due diligence) is worth a whole lot more than a pound of cure (environmental remediation)

 

 
  
   
                                                                                                                                                                                                                
 
 

Copyright © 2011 OMNICON Environmental Management, All Rights Reserved

 

POSTED:  2 March 2011