When purchasing commercial or industrial property, especially sites with a history of chemical use, an environmental review is a critical step in Massachusetts. This process can help protect property buyers from unexpected liability and financial risk related to potential contamination. In this article, we’ll look at a recent case involving an industrial property in Plymouth, Massachusetts, and discuss the phases of environmental review, their significance, and why every buyer should take this step seriously.
Background: An Industrial Property with a History of Chemical Use
I recently represented a client purchasing an industrial property that had previously been used by a printing company. Given the nature of printing, the property had likely seen extensive chemical use, and the lender required an environmental review to determine if any hazardous materials might still be present. The initial environmental assessment, or Phase 1 review, highlighted potential concerns due to the property’s history, so we proceeded to a Phase 2 investigation.
Understanding the Phases of Environmental Review
In Massachusetts, environmental reviews follow a structured, phased approach as outlined in the Massachusetts Contingency Plan (MCP), governed by M.G.L. Chapter 21E. Here’s a breakdown of each phase:
- Phase 1 Environmental Site Assessment: This initial review focuses on property records, historical use, and visual inspections. If potential contamination or hazardous use is identified, the process advances to the next phase.
- Phase 2 Environmental Site Assessment: In this stage, actual testing occurs. Soil samples, groundwater, and surface materials are analyzed for contaminants. This step is critical because it moves beyond the initial assessment to detect any hazardous substances on-site. For the property in Plymouth, the Phase 2 assessment revealed unlabeled 55-gallon drums on the premises—a significant concern that required further investigation.
- Phase 3: Detailed Assessment and Testing: When Phase 2 identifies contaminants or high-risk materials, a Phase 3 investigation may be necessary. This phase involves in-depth testing, often using test wells to monitor groundwater quality. For our client’s property, we had to install test wells to check for potential contamination from the chemicals previously used on-site. To manage costs, we negotiated with the seller to share the expense of drilling and testing, ensuring both parties contributed to determining the property’s environmental status.
The Risks of Skipping Environmental Review
While environmental review adds time and expense to the buying process, it’s critical for protecting buyers from liability. Under Massachusetts law, property owners can be held strictly liable for contamination on their property—even if they didn’t cause it. This means that without a thorough environmental review, buyers could inherit significant cleanup costs, along with the potential legal and regulatory consequences of contamination.
In our Plymouth case, the Phase 3 results showed no contamination, allowing us to move forward with the closing. But without that assurance, the client could have faced substantial future expenses and legal risk.
Why Environmental Review is Essential for Agents, Lenders, and Buyers
Although some buyers and sellers may feel frustrated by the additional steps and costs associated with environmental review, this process is necessary to ensure a safe investment. Here’s why it’s essential for all parties involved:
- Protects Buyers from Liability: By identifying any hazardous materials or contamination before closing, buyers can avoid inheriting liability and potential cleanup costs.
- Assures Lenders of a Safe Investment: For lenders, environmental review mitigates the risk of contamination affecting property value or requiring costly remediation.
- Guides Agents in Due Diligence: Agents can use environmental review results to make informed recommendations, ensuring clients understand any risks before proceeding.
Best Practices for Managing Environmental Review
For agents, lenders, and property buyers, these best practices can help streamline the environmental review process and minimize risk:
- Start Environmental Review Early: Beginning the review process as soon as possible can help avoid delays and allow time for any necessary negotiations or remediation.
- Negotiate Cost-Sharing for Additional Testing: If additional testing is required, consider negotiating with the seller to share the costs, as we did in the Plymouth transaction. This approach can save buyers money while ensuring due diligence is completed.
- Use Test Results to Inform Purchase Decisions: The results of environmental testing provide crucial information for deciding whether to proceed with the purchase or renegotiate terms. Clear results allow for a smooth closing, while positive findings may necessitate further discussions or adjustments.
Conclusion: Investing in Environmental Due Diligence
In Massachusetts, environmental review is a critical step in purchasing commercial property, especially when there’s a history of chemical or industrial use. While it can seem like an added burden, thorough environmental due diligence helps protect buyers, lenders, and agents from long-term risks and costs associated with property contamination.
By investing in a comprehensive review process, buyers can ensure a clean property title, lenders can safeguard their investments, and agents can guide their clients toward informed, secure transactions.
