5 tips for Environmental Due Diligence in Business Transactions

Before we began exploring more about tips for Environmental Due Diligence in Business Transactions, let us quickly understand what Environmental Due Diligence is and when do we need it!

Environmental Due diligence is the formal procedure of analyzing an asset, property, or business before its purchase to let buyers comprehend and oversee potential risks and liabilities related to the purchase. It may include activities to examine financial matters & contracts.

Environmental due diligence audit is an essential tool for any buyer looking to purchase any existing asset.
How much and to what level organizations should address Environmental Due Diligence relies typically upon the idea of the exchange and use of the property after buying.

Learn about these essential five tips to consider for apt levels of environmental due diligence that must be performed in business transactions:

1.  Audit needs identification of liability and costs associated with businesses:

• Eradicate contamination on owned or leased property;
• Cleaning contamination on nearby property owned by others, where contamination has migrated from company property;
• Cleanup of contamination on the property where the company’s waste has been sent for treatment or disposal;
• Property damage resulting from exposure to hazardous substances;
• Fines for violations of environmental laws and permits;
• Increased costs of demolition or site redevelopment associated with contamination of the property; and

2. Confidentiality agreement – This confidentiality agreement establishes the scope, process, and limitations of the due diligence before documents are exchanged, and site visits are scheduled. Also, it should protect information prepared by the purchaser, describe a process for the return or destruction of all due diligence documents, report if the transaction is not completed, and establish the procedure for reporting adverse environmental conditions at the property.

3. Conducting EDD early –
Conducting environmental due diligence during the early stages of a transaction is beneficial. The buyer will be in a better situation to draft indemnities or even arrange the negotiation. Likewise, the buyer will get sufficient opportunity to lead a Phase II Environmental Site Assessment (ESA) is required. Also, any specific details can be used to acquire environmental insurance.

4. Getting Complete details list of environmental documents and info from the seller –
It would include existing environmental permits, compliance reports, government notices and violations, prior environmental reports, a description of response actions or remediation projects, a description of claims by any government agency or a third party, contingent liabilities, and the company’s environmental reserves.

5. Connecting with an environmental consultant – An environmental due diligence consultant will conduct a Phase I ESA and environmental compliance review. The attorney involved must review the consultant’s contract for the performance of the Phase I ESA and environmental compliance review to ensure the proper scope of work. The buyer must not rely on seller’s old Phase I ESA(s) or environmental compliance review(s) or any Phase I ESA or compliance review that is more than six months old.  Connect with a professional and experienced consultant!

Identify environmental permits or contracts that are transferred to another proprietor before the exchange of possession. Also, complete the necessities to transfer the licenses as per relevant law. The environmental due diligence information can be used to assess the Securities and Exchange Commission (SEC) disclosure obligations.

Final Reviews –The environmental due diligence reports must include the facts and circumstances of the particular transaction.  The results of the environmental due diligence can help to assess the current facilities considering the buyer’s business needs and determine the prospective environmental implications.

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