Ask an Expert: Property transaction? Risk management approach depends on the type

In this month’s feature, BC subject matter expert Julie Byrd talks about addressing environmental risks, liabilities, and permitting during property purchases, sales, or leases.

Question: Our company is preparing for a real estate transaction. We are aware that there are potential risks and liabilities, especially around the environment, but are unsure of what we should be doing during the transaction process to mitigate them?

Answer: Every real estate transaction or merger and acquisition brings a unique set of circumstances with the potential for environmental, compliance, health and safety, and sustainability risks and liabilities. For many of our clients, risk management is the primary driver around transaction environmental evaluation.

Understanding key issues related to existing environmental liability and compliance, along with a keen ability to evaluate and project future costs of these issues, is critical to planning. Each type of transaction has a slightly different approach to addressing environmental risks, liabilities, and permitting based on client needs and risk tolerance:

Property purchase

• Phase I environmental site assessment and identification of key environmental liabilities
• Assessment of compliance status
• Review of remedial site status
• Evaluation of current or emerging regulations and requirements
• Estimation of current and potential future costs
• Execution of confidentiality requirements, including privileged documentation

Property lease

• Phase I environmental site assessment and identification of key environmental liabilities
• Evaluation of current or emerging regulations and requirements
• Leverage findings to establish a baseline environmental understanding and lease expectations

Property sale

• Creation of data room of environmental documents
• Phase I environmental site assessment and identification of key environmental liabilities and risks prior to sale
• Review of remedial site status
• Estimation of current and potential future costs
• Permit transfer or closeout

It is also important to remember that transactions commonly include a variety of environmental obligations, including liability transfers, retentions, indemnities, covenants, and other buyer/seller obligations that can continue long after the deal has closed. Permit transfers, updated facility plans (e.g., spill response), modernizing environmental management information systems, and environmental staff training can all be part of the due diligence process following the transaction completion.

Time is often money when an asset is being transferred. Bringing in a fresh, independent perspective paired with proven strategies and technical approaches can help you navigate the transaction process and make informed decisions with your best interest in mind.