In the world of commercial real estate, there’s no shortage of factors to consider before finalizing a transaction. From financial due diligence to property inspections, every detail must be carefully examined. One area that should never be overlooked is environmental due diligence. It may not always be top of mind for buyers and sellers, but it plays a critical role in ensuring the long-term success and sustainability of any commercial real estate deal. Let’s delve into the importance of environmental due diligence and why it’s an essential part of every commercial real estate transaction.
What is Environmental Due Diligence?
Environmental due diligence is the process of evaluating the environmental risks associated with a property. This typically involves a Phase 1 Environmental Site Assessment (ESA) completed by an environmental professional. The ESA includes a review of historical site uses, regulatory agency databases, visual observations, and interviews with relevant individuals. The goal of the ESA is to identify any potential or real environmental contamination on the property.
Why it Matters
Environmental contamination poses risks to human health and safety and can result in significant financial liabilities. Property owners, developers, and other stakeholders may be held accountable for cleaning up the contamination on a property, which can be a costly and time-consuming process. Additionally, if a contaminated property is discovered after a transaction has taken place, it can result in legal disputes, lost investments, and reputational damage.
Conducting environmental due diligence proactively identifies potential environmental issues prior to finalizing the property transaction. If issues are found, they can be addressed before the transaction, or the parties may choose to cancel the transaction. This saves all parties involved time, money, and legal headaches.
Environmental due diligence is beneficial to both parties involved in the commercial real estate transaction.
The Role of a Title Company in Environmental Due Diligence
The counsel, realtors, and/or lender for the parties generally conduct the due diligence review of environmental reports and related environmental insurance. The title company’s role is limited to evaluating those environmental related matters recorded in the public land records as established by state statute for disclosure as an exception in a title policy and/or title commitment. Although environmental matters may be available online, that online repository could be outside the state statutes defining where land information is filed or recorded in public records to provide notice. Title companies also perform endorsement and underwriting due diligence with those public records for environmental liens when a customer requests an ALTA 8 Series Environmental Protection Lien Endorsement for a title insurance policy.
Due Diligence Done Right at Metropolitan Title
Environmental due diligence is a critical component of any commercial real estate transaction. As both a residential and commercial title company, we at Metropolitan Title understand the importance of conducting thorough due diligence in every transaction we facilitate. Whichever side of the process you are on, trust us to utilize our extensive experience to facilitate a successful deal for you. Contact us today to learn more about our title and escrow services and how we can help you navigate the due diligence process.