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Environmental due diligence: 3 key questions

On Behalf of | May 17, 2024 | Real Estate Law

Purchasing commercial real estate can be a lucrative investment. However, you may be at risk of legal issues if that property is polluted. You might also face challenges if previous owners did not follow the law.

Before you purchase property, environmental due diligence can help you understand the true condition of that property. What should you know?

What is environmental due diligence?

Under Michigan law, property owners have “due care” obligations. This means you must take steps to avoid making any existing pollution worse and to protect the public. Conducting thorough environmental due diligence can help property owners uphold this duty.

The goal of this process is to uncover any issues that could affect the value or usability of the property. This could include detecting soil or water contamination, asbestos, lead-based paint or wetland concerns.

Identifying these concerns helps buyers make informed decisions about whether to purchase the property. It can also help them understand the work required to manage any issues that they uncover.

What might this process involve?

A Phase I Environmental Site Assessment (ESA) is the first step in environmental due diligence. A Phase I ESA involves reviewing historical records about the property. These records can include aerial photographs, city directories and past environmental reports. This assessment also involves a visual inspection of the property and discussions with qualified professionals.

If the Phase I ESA identifies potential issues, you may need to perform a Phase II ESA. This involves collecting soil, water and building material samples for laboratory analysis. These tests can confirm the presence of hazardous substances. They can also reveal the extent of the issue on the property.

How can an attorney help?

Working with an attorney during commercial real estate transactions can bring many benefits. These advantages include:

  • An experienced guide – Environmental law can be complex. A lawyer with knowledge about these laws can guide you through the intricate web of rules that are specific to properties in Michigan.
  • Advice on risk management – Attorneys can assess the environmental risks associated with a property and advise on risk management strategies. They can gauge the extent of due diligence needed for a given purchase and suggest actions to limit potential risks.
  • Assistance with preparing and filing Baseline Environmental Assessments – In Michigan, a Baseline Environmental Assessment (BEA) can shield new property owners from liability for pre-existing issue. A lawyer can help prepare and submit a BEA.

Environmental due diligence is a vital step in commercial real estate transactions. By doing detailed checks on the site and seeking sound legal advice, buyers can protect their investment.