The Importance of Environmental Due Diligence

Environmental Site Assessments are an often overlooked item during real estate transactions. As an environmental consulting firm we work with a lot of property owners who end up with large liabilities because the proper steps were not taken. Below is a real situation that happened with a retail fueling facility.
 

The Facility

A client built a retail fueling facility and convenience store in a densely developed commercial area. Once completed, the client leased operations of the facility to a third party. However, operations of the gas station/c-store proved to be too challenging and the tenant went out of business. The client then leased the facility to a succession of five other tenants over the next seven years, requiring the tenants to perform all environmental compliance activities and properly document these activities for the Georgia Environmental Protection Division Underground Storage Tank (UST) Program. These tenants proved themselves to be unsuccessful operators of the gas station, and they also neglected to perform and document the required environmental compliance testing. When the stress of being a serial landlord became too much, the client put the property on the market to be sold.
 

The Transaction

The owner of a large neighboring shopping center property eagerly purchased the gas station/c-store property with the intention of redeveloping the property for other uses.
 
No environmental due diligence was completed by the shopping center property owner prior to acquiring the gas station/c-store property because the fueling facility was only seven years old. The logic was that a brand new gas station, with a state of the art fueling system, would surely be in substantial compliance.\
 

The Result

When the redevelopment plans were put on hold due to financial constraints, the new owner found they could not lease out the fueling facility. The mismanagement of the environmental compliance by the string of bad tenants resulted in the facility being out of compliance with the USTMP rules. The USTMP required that the underground storage tanks (USTs) and the entire fueling system be removed, and determined that the environmental concerns at the site are not covered by the Georgia Underground Storage Tank Trust Fund. The shopping center property owner now owns the environmental liability, and the property still sits vacant to this day.
 
Don’t let this happen to you. If you are purchasing a similar property, please contact a professional environmental consulting firm first.