Why Environmental Due Diligence is Important: 5 Top Reasons!

Posted by geologixaus on September 2nd, 2019

Is a property contaminated? Environmental due diligence is undertaken by environmental consultants to determine if any contamination risks are present on a site. Due diligence investigations can be invaluable when negotiating property transactions such as acquisitions, sales, real estate leases and financing.

A due diligence assessment will assess whether historical activities on a site (or those nearby) are likely to have contaminated the land. If contamination exists, environmental liabilities can transfer to the new owner unless the polluter can be identified and ordered to remediate. Environmental due diligence will uncover the true condition of the land and help define remediation liabilities. By understanding the nature and extent of any potential contamination, land negotiations can occur from a position of strength and development projects are less likely to be impacted by unexpected works or time delays.

Five Reasons for Environmental Due Diligence 

Due diligence can be an astute business strategy. Here are five good benefits of investing in environmental due diligence:

• Development Approvals - Local councils and other authorities need to determine whether land may be contaminated when making planning decisions. This is particularly relevant when transforming commercial land to a residential or other more sensitive use. A due diligence investigation will provide insight on development consent requirements.

• Buyer Beware -  If contamination is present on the site, the ultimate responsibility for remediation  falls to the landowner. Due diligence enables a purchaser to ensure they don’t unwittingly take on substantial clean up liabilities and development delays when buying land. 

• Finance - Lenders may require a contamination assessment to ensure any potential clean-up costs factored into project costs and investment decisions.

• Asbestos - An asbestos inspection can sometimes be a key part of a due diligence assessment. If a site needs to be demolished, asbestos in buildings or buried on site require special procedures and waste disposal that can substantially add to clean up costs.

• Brownfield Sites – Large urban industrial sites are very attractive to developers but have a high risk of being contaminated. Redevelopment proposals often need to include remediation plans and validation reports before construction commences. Due diligence can be critical for project planning to ensure sound estimates of clean-up costs and project timelines.

Extensive or Simple?

How extensively should a site be investigated? We recommend a records review be undertaken as a bare minimum since this will highlight potential contamination issues. If potential contamination is identified, more detailed information can be obtained through a site inspection, interviews with people previously connected with the site, and invasive testing of soil and groundwater.

Although sample collection and analysis provides the best of evidence of contamination, a due diligence strategy will be developed in light of the proposed land use and commercial objectives and may not need to be extensive.

Industrial Land

Industrial land generally poses a higher risk of contamination and will most likely be subject to development controls. Likewise, there are businesses that are highly contaminating such as service stations and dry cleaners and increase the potential for contamination issues. Geo-Logix believes environmental due diligence is a critical risk mitigation strategy and recommends that a due diligence investigation be undertaken when purchasing high risk sites or businesses and land worth million or more.