Real Estate Due Diligence and Environmental
Does your commercial real estate due diligence checklist consider environmental contamination and insurance coverage?
Rarely can a commercial real estate purchaser look at a piece of property and know whether or not the property is contaminated, and, if so, whether the contamination will require an expensive cleanup.
Many of the most persistent and difficult-to-clean-up environmental contaminants are measured in parts per billion, like one droplet of water in an Olympic-sized swimming pool or a pinch of salt in 10 tons of potato chips.
Under federal and state environmental laws, people who buy a contaminated property are strictly liable for the investigation and remediation of every molecule of environmental contamination on the property from the beginning of time, no matter how it got there and no matter how much it costs to clean it up, until they achieve regulatory closure.
Many of the most persistent and difficult-to-clean-up environmental contaminants are measured in parts per billion, like one droplet of water in an Olympic-sized swimming pool or a pinch of salt in 10 tons of potato chips.
Under federal and state environmental laws, people who buy a contaminated property are strictly liable for the investigation and remediation of every molecule of environmental contamination on the property from the beginning of time, no matter how it got there and no matter how much it costs to clean it up, until they achieve regulatory closure.
Before you buy commercial real estate, consider conducting environmental due diligence and consider your insurance needs. The time to find out whether your $100,000 property will require a $1,000,000 cleanup is before you close.
The ultimate purpose of due diligence is to enable the buyer to discover as much as possible about the property before he or she is obligated to buy it. This includes discovering information that the seller may not want the buyer to know or perhaps information of which the seller isn’t even aware.
The buyer should prepare a thorough due diligence checklist and should present it to the seller early in the negotiations of the deal.
First-time sellers or those who are not very experienced in commercial deals may find the checklist daunting. Occasionally, a seller will be insulted. But it is better for the buyer to be up-front with the seller about the level of due diligence he expects, rather than surprise the seller with the level of due diligence after signing the P&S.
The ultimate purpose of due diligence is to enable the buyer to discover as much as possible about the property before he or she is obligated to buy it. This includes discovering information that the seller may not want the buyer to know or perhaps information of which the seller isn’t even aware.
The buyer should prepare a thorough due diligence checklist and should present it to the seller early in the negotiations of the deal.
First-time sellers or those who are not very experienced in commercial deals may find the checklist daunting. Occasionally, a seller will be insulted. But it is better for the buyer to be up-front with the seller about the level of due diligence he expects, rather than surprise the seller with the level of due diligence after signing the P&S.
In multi-unit residential buildings, tenant files can reveal the most critical information. These files usually contain tenant applications, credit reports, references, and information about personal guarantees. Incomplete files and files with no credit reports should also be of concern to the buyer, reflecting a likelihood of sub-par tenants.
https://www.linkedin.com/company/bradburne-briller-&-johnson-llc
The “expense side” of financial due diligence is equally important. A thorough understanding of the property’s operating expenses is essential to develop a baseline for the buyer’s projections for its first year of ownership. Digging into the expenses relating to a property may also point out issues that the buyer will want to further explore in the legal/physical due diligence phase.
https://www.linkedin.com/company/bradburne-briller-&-johnson-llc
The “expense side” of financial due diligence is equally important. A thorough understanding of the property’s operating expenses is essential to develop a baseline for the buyer’s projections for its first year of ownership. Digging into the expenses relating to a property may also point out issues that the buyer will want to further explore in the legal/physical due diligence phase.