News Environmental Due Diligence: What It Is & Why It Matters

Before undertaking a property purchase or development project, it is always recommended that a prospective purchaser or developer assess the legal, financial, and environmental risks that could disrupt the project, increase costs, and create liability. Environmental due diligence is one of the primary tools used to identify environmental concerns and develop a strategy for addressing them.

What is due diligence?

Due diligence is the investigative process a party undertakes before completing a transaction to evaluate its risks and determine whether the investment remains acceptable. In real estate transactions, much of this work occurs during the contractual due diligence period. Due diligence is often described as “all appropriate inquiry” or “careful examination”, but put simply, due diligence is doing your homework in situations where buyer beware applies. Not fully understanding the environmental disposition of a piece of property before closing can lead to trouble.

What is environmental due diligence?

Environmental due diligence is the process a current or potential property owner undertakes to understand environmental risks before purchasing a property or pursuing a project on it.

The process is designed to reveal legal liabilities arising from regulatory non-compliance and environmental contamination.

It also exposes specific environmental risks and lays the groundwork for avoiding, remediating, or mitigating them.

Why should developers pursue environmental due diligence?

Environmental due diligence gives developers more information to make informed decisions, particularly when they are considering purchasing property.

Specifically, environmental due diligence offers the following benefits:

• Supporting informed property decisions. Under federal law, a current or former owner or operator may be held strictly liable for addressing hazardous substances at a property, including contamination that predates the purchase. A Phase I Environmental Site Assessment (ESA) completed in accordance with the current ASTM standard and the federal All Appropriate Inquiries framework can help a purchaser identify environmental conditions early, evaluate their implications, and make a well-informed property decision.
• Understanding the nature and extent of contamination. Environmental due diligence can reveal what kind and how much contamination is present at a site. This is particularly useful when property ownership or usage is uncertain and when evaluating costs for potential remediation or regulatory compliance necessary. In some cases, environmental conditions may limit future land use even after remediation or mitigation measures have been implemented.
• Informing schedules and costs. Environmental remediation typically delays construction and increases project costs. Environmental due diligence can help to estimate how much cleanup will be required and how it will impact timelines and budgets.
• Laying the groundwork for a Brownfields program application. Assessments completed as part of the environmental due diligence process, such as a Phase I and Phase II ESAs, help to expedite the Brownfields program application process.

What types of risks does environmental due diligence uncover?

The U.S Environmental Protection Agency classifies environmental risks in two categories: human health risks and ecological risks.

Human Health Risks

Human health risks include adverse health effects experienced now or in the future when people are exposed to environmental contamination. They vary dramatically based on factors such as:

• The type, amount, and concentration of contamination
• The length and frequency of exposure to the contamination
• The age and overall health of the person, including pre-existing and chronic health conditions
• Other environmental stressors like fatigue, infection, or poor nutrition

Human health risk assessments aim to answer the following questions:

• What kinds of health effects are associated with this contamination?
• How likely is someone to be exposed to this contamination? Does that likelihood increase based on where they live, work, learn, or play? Does it increase based on what they have available to eat or drink?
• What is the chance that someone will experience health problems when exposed to this contamination? Is there a level below which adverse effects are unlikely?
• Are some people more susceptible to health problems from this contamination based on their age, sex, genetic conditions, or other health concerns?

Ecological Risks

In addition to contamination concerns, properties may contain environmentally sensitive features or protected natural resources that can affect development plans, permitting requirements, and project feasibility.

Ecological risk assessments vary based on the proposed project or activity, but common questions they seek to answer include the following:

• Are there jurisdictional Waters of the United States (WOTUS) or wetlands present on the property?
• Are there protected Threatened and Endangered Species nearby, and is their habitat found on the property where it may interfere with proposed uses?
• Are there other regulatory buffers on the property or other sensitive habitats that have local, state, or federal protection?

How can developers address the risks revealed by environmental due diligence?

It’s impossible to remove all risk, but many environmental risk factors can be mitigated with time and resources. Proper due diligence can inform a purchaser or developer so that they can make sound decisions about a property transaction.

When environmental due diligence exposes unexpected risks, developers may consider the following approaches:

1. Pursue more targeted environmental assessment. Depending on the environmental concern, an environmental specialist may recommend further investigation. For instance, if a wetlands assessment establishes the presence of wetlands, then a formal wetlands delineation survey can map where wetlands boundaries are located. Similarly, if a Phase I ESA indicates a Recognized Environmental Condition, then a Phase II ESA can help clarify the nature and extent of the problem. More data enables better decision-making.
2. Adjust financial projections based on risk. Environmental risks can affect project economics. Incorporating anticipated remediation costs, permitting requirements, schedule impacts, and long-term obligations into project budgets can help maintain financial viability.
3. Modify project plans to avoid risks. Consider whether there are elements of the project that can be changed or omitted. Relocating or removing amenity areas, adjusting a building’s footprint, or choosing different stormwater control measures can help to avoid risk areas without needing to select a different site.
4. Apply for the state’s Brownfields program. The Brownfields process is designed to evaluate environmental risks and manage them appropriately so redevelopment can move forward in a way that is protective of people and the environment while remaining economically feasible. Risk mitigation may include cleanup activities, engineering controls, land-use restrictions, and long-term monitoring or maintenance requirements.

Sometimes, the nature of the environmental risk will be such that the desired development isn’t compatible, even with mitigation. In that case, the developer may need to pursue a different project or seek a different property.

How does WithersRavenel support environmental due diligence?

Our environmental team provides a full suite of services, including Phase I and Phase II ESAs, WOTUS delineation, physical land surveying and subsurface utility engineering, threatened and endangered species surveys, and other regulatory program coordination. Our environmental experts also understand local, state, and federal permitting options that help a prospective purchaser or developer fully understand the implications and economics involved. Depending on site history and project needs, our team can also perform targeted inspections for asbestos-containing materials, lead-based paint, mold, radon, vapor intrusion, and other environmental concerns.