When it comes to any transaction in the commercial real estate world, it takes an entire team of professionals to ensure a successful outcome for all of the parties involved. Carefully choosing your team based on expertise and experience in the environmental field may be one of the most important decision that you make for your transaction. Having trusted advisers on your side, working together, enables you to successfully execute your project – whether buying, selling or refinancing. This formula for success can be applied and replicated regardless of geography or deal metrics, and gets better with every successive transaction that the team completes together. An experienced environmental and/or real estate attorney is paramount for client support. In addition, don’t underestimate the importance of working with a reliable environmental consulting firm, as it can make this process easier for your attorney and will cost you far less in legal fees.
As with any commercial real estate transaction, your due diligence reports (including Phase I Environmental Site Assessments, Property Condition Assessments, Asbestos and Lead Based Paint Assessments, and ALTA surveys) are the foundation upon which your successful real estate project is built. It is essential in assessing and mitigating risk and ensuring that your project is viable and ultimately profitable. An experienced environmental consultant can be an asset to your project team by assisting your attorney with identifying any potential environmental impacts onsite and consulting on any liabilities associated with the real estate investment.
More likely than not, a specialized attorney has had experience – good, bad, or indifferent – with a variety of environmental consultants over the course of their career. Consider the potential implications that could come with not getting the input of your attorney prior to engaging a consultant. If your attorney is familiar with a firm based on a good reputation, this knowledge could streamline the process as they will already have a full awareness of the policies and procedures of the environmental consulting firm. On the flip side, if you choose to engage a firm that your attorney knows of, but for all the wrong reasons, you may be creating more work for yourself and your attorney for a subpar product. In addition, you and your attorney may need to spend more time than necessary filling in any holes or limitations or, in some cases, completely reworking the contents of the report.
An environmental consultant dismissed a former dry cleaner as “just a drop off” in their Phase I ESA report. If they had performed thorough due diligence, they could have ascertained the true historic operations which included onsite dry cleaning, at which point the client would have been advised by their attorney to obtain an indemnification from the seller for prior onsite chlorinated solvent use, which could have resulted in soil, groundwater, and especially vapor encroachment impairment. An escrow account would have been established for the future cost of cleanup and regulatory compliance. With the increased scrutiny at the state level regarding vapor intrusion, some old sites that have previously been issued an NFA (or no further action letter), are now being re-opened by state environmental agencies to evaluate onsite conditions and consideration of lowered levels of reportable concentrations of chlorinated solvents and other industrial chemicals, which is a legal nightmare for the new owners, who have inherited the problem since the environmental consultant didn’t do their proper due diligence. They will now have to depend on their attorney to wade through this costly, time consuming issue, which will surely delay or slow any redevelopment or construction efforts. This was preventable, if only the consultant’s historic sources review had been thorough. A small investment up front would have avoided this additional legal time.
In a multimillion dollar real estate transaction, environmental consulting fees are often a “rounding error” in the grand scheme of things and it’s in the client’s best interest to pay a fair rate for a quality service in support for a transaction of such importance. While a low price might seem attractive at the onset of a project, those cost savings may be quickly eaten up (and then some) by your attorney fees, which may be a problem for two reasons. First, you hired your attorney for their legal expertise, not environmental reporting. Second, you’ve already paid for your environmental consultant to do the work. You’re essentially paying twice for a single deliverable. Sometimes the difference in price for the report could be a few hundred dollars but your attorney fees could be thousands more than originally forecast.
Hiring a skilled Environmental Professional who has local experience and proper licensure, as well as expertise in the specific technical area of commercial real estate transaction due diligence, will get your project off to a good start. You could save yourself and your attorney from unnecessary time and effort, a poor-quality report, additional back and forth between all parties, and perhaps even a delay in the completion of your entire project.