Due diligence is essential to all business purchase transactions. However, when the business transaction involves the lease or purchase of property that may be contaminated (such as a gas station, “quick lube” and car wash), your due diligence must expand to include the additional task of obtaining an environmental study.
So where do you start?
- Add an Environmental Contingency Clause to your Contracts – Make sure that your purchase agreements (such as your asset purchase agreement, lease agreement and/or real property purchase agreement) include an “environmental contingency” clause permitting you to order and obtain an environmental assessment and study of the property. If contamination is found, the contingency clause should be drafted in a way that permits you to back-out of the transaction and, importantly, get your deposit refunded.
- Obtain a Phase I Site Assessment – Obtaining an “environmental assessment” is not a complex process. This assessment, performed by a licensed professional is typically known as a “Phase I Environmental Site Assessment”. This initial assessment will review the history of the property and provide you with preliminary findings as to possible contamination. Depending on the results of the “Phase I” study additional studies may be required.
Keep in mind that when purchasing a business such as a gas station, “quick lube” and even car wash, typically, you will be leasing land or purchasing property that may have a long history of “industrial type” activity that may be contaminated. Once you purchase the business – even if you did not cause the contamination – you could be stuck with a big problem created long-ago. Environmental assessments are readily available, affordable (relative to the investment of your life savings) and should never be ignored.