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Environmental Evaluations and Liability Protection

September 27, 2022

The acquisition of real estate can also involve the potential acquisition of environmental liability. Before property acquisition, environmental risks and potential liability can be evaluated through the completion of environmental due diligence in order to help the prospective owner/operator properly value and safely use their property. Environmental assessment can also be performed for existing property owners to help them manage their assets. Envirologic’s Due Diligence Services Team provides the environmental expertise necessary to ensure liability protection and risk management.

If appropriate environmental due diligence is not conducted, then a new property owner or operator could be exposed to multiple types of potential liabilities. Additionally, any liabilities that will need to be managed after acquisition may not be identified.

Regulatory Liability

The first type of liability that comes to mind as property acquisition is being evaluated is often the remedial cost associated with cleaning up existing contamination. While each site is unique, it’s not uncommon for remedial efforts to total hundreds of thousands of dollars and represent a significant portion of the perceived value of the property/asset being evaluated. A Baseline Environmental Assessment (BEA) can be prepared in advance to provide the prospective owner or operator with liability protection for cleanup of any pre-existing contamination. Failure to conduct a BEA at the time of property acquisition can result in exposure to remedial liability for parties that did not cause the contamination.

Envirologic has over 25 years of experience preparing and disclosing BEAs to the State of Michigan. Our team also has significant experience in various other processes for conferring liability protection required in states besides Michigan.

Compliance Obligations

Regardless of liability status for remediation, there can be additional compliance obligations associated with owning and operating property that has contaminant conditions or is subject to regulatory oversight. The acquisition and/or operation of a business subject to compliance obligations will involve administrative costs for staff training and record keeping, as well as potential costs associated with controls for managing hazardous substances. Further, compliance documentation (e.g., Spill Prevention, Control, and Countermeasure Plans; Pollution Incident Prevention Plans; Storm Water Pollution Prevention Plans; relevant air, water, or storm water permitting; etc.) may need to be prepared. Failure to maintain appropriate compliance with regulatory requirements can result in additional liability in the form of fines and penalties.

Envirologic’s staff can support your in-house compliance program on an as-needed basis, tailoring our services to your specific project needs. By completing an environmental audit, Envirologic can help identify which major environmental programs and regulatory requirements, if any, may apply to a facility’s operations.

Financial Liability

In addition to regulatory and remedial liability, there can also be financial liability associated with potential compensation obligations for active operations. Compensation obligations address damages that an owner or operator caused to individuals or their property through the release of harmful substances to the environment. A property owner can face compensation obligations even if they’re in compliance with all their other environmental obligations. Compensation obligations may be classified as the following:

  • Personal injury: bodily injury, pain, and wrongful death
  • Property damage: loss of farm crops and livestock, as well as damage to real estate and vehicles
  • Economic loss: loss of equipment, lost profits, and loss of the sources of livelihood

As Envirologic performs site assessments, team members evaluate environmental conditions through this lens in addition to the traditional liability protection evaluation. We ensure that clients are aware of these potential financial liabilities, so they can best manage their site going forward.

Continuing Due Care Obligations

There can also be continuing due care obligations associated with managing contaminant conditions and health exposures, regardless of the owner or operator’s remedial liability status. The potential need to integrate vapor intrusion mitigation measures into new or existing structures to ensure safe indoor air building conditions can represent a significant investment not initially anticipated in a project pro forma. Additionally, a thorough understanding of how pre-existing contaminant conditions on a site may result in site or resource use restrictions (e.g., no residential use is allowed, development of groundwater is prohibited, etc.) is critical to appropriately valuing assets.

Envirologic provides the following due care services, among others: performing due care evaluations, preparing the relevant due care documentation, and determining cost-effective and innovative approaches to achieve and ensure regulatory compliance.

How Can Envirologic Help?

From pre-purchase due diligence to post-acquisition compliance management, Envirologic has the personnel and experience necessary to efficiently identify and help mitigate the multiple types of liabilities and obligations that may be associated with the acquisition and management of contaminated property and regulated businesses. To learn more about how Envirologic can provide solutions to your specific environmental liability or due diligence challenges, contact Erik Peterson, Manager of Due Diligence Services.

Posted in Blog, Due Diligence

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