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Environmental Due Diligence – Why Bother?

October 30, 2017
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By: Christopher Nielsen, Senior Director – Environmental Services

Environmental Due Diligence Can Stop A Bad Deal

Over the years I’ve seen quite a variety of environmental site conditions that have adversely impacted the value of a property.  Many of these conditions were discovered during the environmental due diligence period and either stopped the deal in its tracks, or were taken into consideration by making adjustments to the purchase price.  Others were missed by other consultants and were discovered at very inopportune times by the owner.  In my experience, there are two main reasons for the failure to identify these problems.  The first reason is an inexperienced environmental consultant was selected to do the Phase One Environmental Site Assessment (ESA), or no ESA was conducted.  The second reason has a fairly clear explanation: the purchaser used private or self-financing and was not required to conduct an ESA as part of the purchase process.  The first reason gets a bit more complicated and is often the result of a short-sighted purchasing process.  It is hard to understand how saving a few hundred, or even a few thousand dollars as part of the procurement of a multi-million dollar property could be worth the risk.  If any single issue is missed as part of the environmental due diligence assessment, the cost to remedy that issue will undoubtedly be many fold the difference between the cost of an ESA conducted by a “low cost provider” versus one conducted by a high-quality firm with extensive experience in the field.  A recent article titled “Don’t Purchase a Lemon: Top 5 Mistakes to Avoid When Closing the Deal!” by the environmental lawyers Donna Shier, Robert Woon and Serin Remedios1  highlighted this fact.

What Is A Good Environmental Site Assessment and How It Can Make A Difference

Don’t make the mistake of believing that all Phase One ESAs are of the same quality or that the experience of the firm and the senior assessor involved in the project doesn’t matter.  Over nearly 30 years in the environmental consulting business, the number of errors and omissions I have identified in the work of others is significant.  There have been multiple instances of underground fuel storage tanks being identified after others have boldly stated that there were none present.  My favourite example is a peer review conducted recently where the author and senior reviewer concluded that there were no underground storage tanks on the property and that there had never been any.  I was able to refute this statement without even visiting the site by simply reviewing the property using Google Street View and observing evidence of an underground tank.  Omissions like these can be potentially costly as old tanks are often the source of significant contamination, and any tank not in use must be removed according to current legislation.  This is at best a $10,000 consideration in the purchase price in order to remove the tank and potentially much higher if there is significant soil and groundwater contamination associated with the tank.

The experience of the assessor and senior project professional can easily make the difference between identifying potential environmental risks and purchasing a property without having all of the relevant information.  Something that often gets overlooked is the importance of interviewing people with knowledge of the area.  Although it can be difficult to identify knowledgeable individuals, a little creativity and experience can go a long way.  As part of a recent site assessment, the broker trying to lease a unit in an adjacent strip mall containing a dry cleaner was contacted.  The broker indicated that the dry cleaner was diligent with their recordkeeping and ran a very clean shop.  However, he also indicated that another nearby property formerly housed a dry cleaner and that there was contaminated groundwater associated with that property.  This information did not show up in the standard information reviews, but awareness of this situation led to some additional investigations which teased out a few more details relevant to the assessment.  Another example I am reminded of is a vacant site which was assessed several years ago.  There was no one directly familiar with the history of the site, so during my site visit I stopped into a small store across the street to talk to the occupants.  Their front window overlooked the site.  It didn’t take long to find out that for several years a local fuel delivery company parked some of their trucks on the site, backing up against a ditch and swampy area.  They would open the fuel tank valves on Friday night so the trucks would be empty on Monday morning.  This valuable information would have been nearly impossible to find using common search methods and without talking to the right person.

What To Look For During A Property Purchase

There are a few things that should be considered when purchasing any property.  The first is to make the most of the due diligence period.  Before you make an offer, it would be prudent to talk to a trusted and experienced environmental consultant about potential issues associated with the property and the required due diligence period to ensure the process is not overly rushed.  This will minimize costs associated with rush surcharges and more importantly, last minute surprises or missing critical information due to time constraints.  Next, retaining a qualified consultant to conduct a thorough Phase One ESA will go a long way to ensuring that an environmental issue won’t haunt you in the future.  A quality ESA is even better than insurance.  Insurance covers you if something goes wrong, and a quality ESA minimizes the risk of purchasing a property where something is already wrong!  In my opinion, that is good value!

And finally, don’t forget to ensure that engage a qualified professional that is legally entitled to do the work required.  Under Ontario’s Professional Geoscientist’s Act, for example, only a registered Professional Geoscientist, or suitably qualified Professional Engineer, may conduct environmental geoscience work, including Phase One ESAs.

If you have any questions about environmental liabilities at your property or a property you may be looking to acquire, feel free to contact me directly.  The first call is always complimentary.

About the Author: Christopher Nielsen

Christopher Nielsen is a Senior Director, Environmental Services with T. Harris Environmental Management Inc. (THEM).  Chris is a registered Professional Geoscientists with the Association of Professional Geoscientists of Ontario and has been providing professional environmental consulting services to public and private sector clients since 1988. He is also an active volunteer, mentoring new professional geoscientists through a program organized by the Association of Professional Geoscientists of Ontario, and is currently the President of Muskies Canada Sport Fishing & Research Inc., a volunteer, not-for-profit conservation organization

Christopher Nielsen can be reached at 1-888-ASK-THEM (275-8436) or cnielsen@tharris.ca

 


About T. Harris Environmental Management

T. Harris Environmental Management Inc. (THEM) is a leading Canadian environmental consulting firm in the fields of environmental services, hazardous materials management, industrial hygiene, and occupational health and safety. Our professional staff serve a wide range of clientele including commercial, government, industrial institutional, and residential. We are passionate about health & safety and committed to excellence. Since 1979, we continue to provide high quality services, taking pride in building long-term relationships with our clients. We are dedicated to understanding your concerns and meeting your needs by delivering efficient, cost-effective solutions.

Mission: To be the preeminent niche environmental and occupational health and safety consulting firm in Ontario and Quebec.

Vision: To enhance our position as a premier niche environmental consulting company based on knowledge, innovation, technology, and be at the forefront of emerging EHS concerns and regulatory changes. We will achieve this by further developing our expertise, fostering growth of our team, synergistic relationships, excellence in performance, and strengthening client relationships.

Value Statement: We are committed to understanding client concerns and meeting our client’s needs by formulating practical, efficient, and cost-effective solutions.


References:

Wilms & Shier Environmental Lawyers, published on-line, www.mondaq.com on September 11, 2017,  (http://www.willmsshier.com/docs/default-source/articles/article—don%27t-purchase-a-lemon-top-5-mistakes-to-avoid-when-closing-the-deal!—ds-rw-and-sr—september-11-2017.pdf?sfvrsn=4?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original

About the Author – T. Harris Environmental Management

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