17    ENVIRONMENTAL ASSESSMENTS AS COMPONENTS OF
PRE-ACQUISITION DUE DILIGENCE
Douglas F. Rohrman, Senior Partner
Keck, Martin and Cate
Chicago, Illinois 60606
Michael J. Hoffman, Manager of Industrial Services
Environmental Science and Engineering, Inc.
Peoria, Illinois 61615
INTRODUCTION
Alteration in state and federal environmental regulations and statutes in the last ten years has had
unexpected impacts on the acquisition, sale, and financing of businesses and commercial real property. Corporate management and real estate owners are expending significant temporal and financial
resources to assess environmental consequences of transactions which had been previously ignored.
Businesses are finding that poorly timed or inadequate assessments of environmental liability can
have unforeseen and costly effects. Indifference to contaminated ground and surface water, soil and
buildings can lead to exposure far exceeding the purchase price of the property or the assets or stock
of a business. The casual, unthinking and negligent disposal of hazardous wastes and substances was
an ingrained behavior so common in this country that many corporate managers, even to this day, are
genuinely surprised at the impact of new environmental laws. Businessmen and their advisors are
having to recognize and negotiate transactions of particular environmental vulnerability, and the legal
and factual issues pertaining to them. They are having to devise ways in which pre-purchase assessments by legal and engineering consultants should be organized so that environmental contamination
and risks can be evaluated prior to closing. The form and substance of transactions are being altered
to address environmental issues which impact on corporate and property values.
What transactions may be susceptible to environmental liability? In what ways has the law been so
altered to depart from traditional approaches? How should businessmen efficiently and effectively
assess the environmental condition of a business or a parcel of real property? This article examines
briefly the motivation for the environmental component of the pre-acquisition due diligence process,
why it has become a necessity, and how prudent buyers and sellers should implement the process.
Property Transfers
In years past informed sellers of real estate generally sought to transfer environmental liability to
purchasers. The principle of caveat emptor, except in cases of outright fraud, was the acceptable
means of transferring all manner of responsibility to a buyer who was unwary or unwilling to exercise
a diligent examination of the property.' However, new statutes and case law have created expansive
responsibility for the past and present ownership of contaminated land. Sellers cannot, by passage of
title, simply erase the consequences of problems they have caused or tolerated on their land. Even "as-
is" sales are no longer an absolute assurance that the new owner will not have some recourse against
the seller.2 Purchasers are unwise to assume that they are responsible only for their own, post-closing
environmental maintenance. Some of the significant environmental laws impose potential liability on
virtually all past and present owners and operators of real property for contamination of soil,
buildings, surface water and ground water, and the actual and potential dispersion of pollutants
elsewhere. This potential for liability applies not only to the costs of property remediation, but also to
reparation and compensation costs for injury to humans, animals and vegetation.
The authors gratefully acknowledge the assistance of Michael J. Hughes in preparing this article.
45th Purdue Industrial Waste Conference Proceedings, © 1990 Lewis Publishers, Inc., Chelsea, Michigan 48118.
Printed in U.S.A.
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