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Environmental due diligence (EDD) involves the analysis of potential and existing environmental risks of a commercial or industrial property. In some places, EDD exams are standard or even required for most commercial and industrial land and property purchases. Among other things, the results of an environmental audit report can affect the availability of purchase loans and the purchase price of the property.
Not all lands are the same; Thanks to various natural and man-made activities, the land, groundwater, and even the air in an area can become dangerously polluted or polluted over time. Long-forgotten landfills can release dangerous gases, radioactive materials can contaminate the ground, and industrial runoff from miles away can poison groundwater sources. If there is an environmental health risk, it can pose dangerous and even deadly threats to people unaware of the situation. In the 1980s, environmental due diligence reports became commonplace in the commercial world as part of the liability of individuals or organizations trying to sell land.
Depending on the region, specific standards may apply to an EDD inspection and report. Under applicable regulations, certified inspectors may be required to collect soil and water samples, investigate public records, interview previous owners and workers, and consult topographical maps. All findings are carefully checked and recorded and presented to the property owner or selling company. In some cases, the owner may take steps to reduce the environmental hazards described in the initial report and then request a second or continuing inspection. Since an EDD report detailing many issues can materially affect the property’s price and financing, many homeowners find it more economical to comply with suggested corrections before putting the property on the market or setting a final price.
In addition to providing a list of environmental hazards and formulating possible solutions, environmental due diligence inspectors typically also conduct a cost analysis of damage and necessary repairs. This can help the owner determine the total cost of repairing environmental hazards compared to the negotiated settlement of the sales price and financing if the problems are not addressed. The report may also include a comparison of hazards to state, federal, or local environmental safety laws to show areas where the property does not meet legal standards.
In some cases, buyers may waive environmental due diligence requirements. This typically only occurs when the buyer has full personal financing, as most lenders will refuse to make home loans with an up-to-date EDD report. A buyer may also choose to accept a limited EDD report, which may be limited to public database and land registry information only.