Environmental Assessments as Components of Pre-Acquisition Due Diligence

Douglas R. Rohrman and Michael J. Hoffman, P.E.

Alteration in state and federal envionmental regulations and statutes in the last ten years has had unexpected impacts on the acquisition, sale, and financing of buinesses and commercial real property. Corporate management and real estate owners are expending significant temporal and financial resources to assess environmental consequences of transactions which had been previously ignored. Businesses are finding that poorly timed or inadequate assessments of environmental liability can have unforseen and costly effects. Indifference to contaminated ground and surface water, soil and buildings can lead to exposure far exceeding the purchase price of the property or the assets or stok of a business. The casual, unthining and negilgent disposal of hazardous wastes and substances was an ingrained behavior so common in this country that many corporate managers, even to this day, are genuinely surprised at the impact of new environmental laws. Businessmen and their advisors are having to recognize and negotiate transactions of particular environmental vulnerability, and the legal and factual issues pertaining to them. They are having to devise ways in which per-purchase assessments by legal and engineering consultants should be organized so that environmental contamination and risks can be evaluated prior to closing. The form and substance of transactions are being altered to address environmental issues which impact on corporate and property values. What transactionsmay be susceptible to environmental liability? In what ways has the law been so altered to depart from traditional approaches? How should businessmen efficiently and effectively assess the environmental condition of a business or a parcel of real property? This article examines briefly the motivation of the environmental component of the pre-acquisition due diligence process, why it has become a necessity, and how prudent buyers and sellers should implement the process.

 

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