Virtually every significant real estate transaction now requires environmental due diligence. Even if the buyer is willing to take a chance on buying property without investigating the environmental conditions of the property, no lender will move ahead without an environmental report. Given the importance of these reviews to your transaction, it is a good idea to know how to read and understand these reports.
I. Start at the Conclusion
I usually start by reviewing either the conclusion or the executive summary. This section provides the meat of the report, namely whether the property is “clean” (that it does not have any conditions of concern) or has “Recognized Environmental Conditions” (RECs). It is important to know that the concept of a “clean” site is not entirely objective. The American Society for Testing and Materials (ASTM) https://www.astm.org/Standards/E1527.htm defines “Recognized Environmental Conditions” as “the presence or likely presence of any hazardous substance or petroleum project on the site under conditions that indicate an existing release, a past release or a material threat of release into structures . . . [the] ground, groundwater or surface water.” If there are RECs on the site, it does not necessarily mean that the site is contaminated but it does call for further investigation. A classic example of this is buried or underground storage tanks. Such tanks may not have leaked but their presence could mean that there is a “material threat” of a release. Contrariwise, if there are no RECs, this does not equate to no contamination whatsoever. There may be historic conditions on the site that simply don’t rise to the level of a material threat.
II. Site History
I also read the report’s site history. This is important for several reasons. First, if the property has RECs, the buyer needs to know who might be responsible for those conditions. If it is the seller, the buyer should have a conversation with the seller about paying for any further investigation or remedial work that must be done.
The site history can also be helpful if there are title issues that must be addressed. The buyer’s title examination only looks at the history of the site for a period of fifty years (or the next furthest deed that does not show a cloud on the title). Environmental consultants have access to other historical resources that can assist in understanding the property’s easements and title restrictions. Buyers and their attorneys can and should make use of that information to better understand the history of the site.
III. Consider the Source
Here’s a tip from Chris Myhrum, environmental lawyer extraordinaire (https://myhrumlaw.com/ ): if you are buying, be skeptical when reviewing reports produced by the seller. Is the firm that did the work reputable? Are there inconsistencies or unanswered questions? Remember that the seller may have preemptively investigated the site to put the best possible spin on site conditions. This is not the same as “fake news” but it is best to remember the motivations that might be behind the seller’s reports
Environmental reports are a great source of information but read them carefully and don’t hesitate to have someone more experienced (your lawyer or your own consultant) read them over too.