by Kerri Boddy
Senior Environmental Scientist

When considering environmental due diligence, one must consider the environmental conditions of the property in question (herein the subject property) and adjoining and nearby properties that might impact the subject property. This includes impacts to soils, surface waters, and groundwater from hazardous substances and/or petroleum products. When performing environmental due diligence (mostly likely a Phase I Environmental Site Assessment [Phase I]) one must look at potential sources of contamination from not only the subject property, but also from adjoining and nearby properties. So the actions of your neighbors might affect the value of your property, the perceived value of your property, the ability for you (the owner) to sell the property, the ability of a bank to foreclose on a property, plans for redevelopment of the subject property, and restrictions on the use of the subject property.

I provide the following as an example:

You own a property that is occupied by a restaurant. The property has operated as such since you developed it from undeveloped land in 2005. Your neighbor is a strip center with a drop-off dry cleaner, located in the suite nearest your property boundary and is approximately 15 feet from that boundary. The strip center dates back to 1970 and unbeknownst to you, the dry cleaner operated as a on-site cleaner from 1970 to 2000 using PERC (perchloroethylene). 

Upon conducting your due diligence as required by the bank for your loan, which you are refinancing from another bank for a better interest rate, it is determined that the groundwater beneath the strip center is impacted with PERC. Such impacts were discovered during a regulatory file review conducted within the scope of the Phase I.  The extent of the impacts is unknown as the owner of the prior dry cleaner is out of business and the State has not funded additional study at this time. Your Phase I recommends a Phase II, including soil and groundwater sampling. The Phase II is conducted, which indicates both soil and groundwater on your property is impacted. The Phase II recommends additional study to include a vapor intrusion assessment inside your restaurant to determine if indoor air quality has been compromised.  That additional study indicates indoor air has been impacted by the dry cleaners. 

As the responsible party is no longer in business, you are left to consult legal counsel and/or contact the State to report the release. While the State will not require you to remediate the impacts as you are not considered the responsible party, you are left at the mercy of the State to address the impacts in a timely manner, which relies on a State fund that is nearly out of money and has a two-year backlog of impacted sites.  Meanwhile, you are advised by legal counsel or your consultant that you should not use any on-site potable wells (including irrigation wells), you must address air quality inside your restaurant, and you are advised that the process of addressing on-site impacts might take years. The bank decides it is not worth the risk to loan on this property as they would not want to foreclose on such a property in the event of foreclosure.  Additionally, you cannot sell the property as any perspective purchaser conducting their own due diligence likely would uncover the same issues and would not want to purchase a property that could be subject to years of remediation. 

The moral of the story here is, the actions of your neighbors matter.

If you have due diligence needs or other questions regarding other environmental concerns, please contact EI’s Senior Environmental Specialist, Kerri Boddy, at (502) 499-2985 or [email protected].