Six Environmental Due Diligence Truths

31 Jan 2026

Avoiding Costly Surprises in Property Transactions

Environmental issues often stay in the background until a failed inspection or a surprise liability discovery halts a property deal. While these risks lack the visibility of architectural design, they dictate regulatory compliance, financial liability, and construction velocity in a landscape where the U.S. Environmental Protection Agency (EPA) levied $1.7 billion in penalties in fiscal year 2024 alone. Thorough environmental due diligence is a crucial step in protecting your investments.

Misconceptions about environmental risks continue to surface during negotiations. These misunderstandings can lead to hidden costs, unnecessary rework, and late-stage surprises. Here are six environmental due diligence truths for property transactions.

1. Environmental Due Diligence Helps Manage Liability
   The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) establishes a strict liability framework for contaminated sites. However, by conducting all appropriate inquiries through a Phase I Environmental Site Assessment (ESA), buyers can qualify for liability protections. These include defenses for innocent landowners and bona fide prospective purchasers, potentially saving significant cleanup costs.
2. A Phase I ESA is the First Step
   A Phase I ESA identifies Recognized Environmental Conditions (RECs) by reviewing historical records and regulatory databases, conducting site reconnaissance, and interviewing knowledgeable parties. It looks for past uses that could have introduced contamination, such as underground storage tanks or chemical storage. Identifying a REC does not automatically disqualify a property; it highlights where additional investigation may help reduce uncertainty in the transaction.
3. Non-Scope Risks Can Drive Major Costs
   Standard Phase I ESAs do not always cover Business Environmental Risks (BERs). These include asbestos, lead-based paint, mold, and radon. In one case, a hotel chain faced over $1 million in unexpected remediation costs because an asbestos survey was not performed prior to acquisition. Including these non-scope items in an initial assessment can help reduce post-purchase financial surprises.
4. Subsurface Conditions Drive Phase II Timing
   When a Phase I ESA identifies a REC, a Phase II ESA may be warranted to sample soil, groundwater, and/or soil vapor. This process typically takes three to five weeks. For example, understanding the presence of chlorinated solvents or heavy metals early supports stronger negotiation. If contamination is identified, these results can help establish remediation goals or shift liability between the buyer and seller.
5. Emerging Contaminants are Changing Expectations
   Per- and Polyfluoroalkyl Substances (PFAS), known as “forever chemicals”, are an evolving concern. These chemicals are found in everything from firefighting foams to manufacturing residues and are increasingly scrutinized by lenders and regulators. Vapor intrusion, where subsurface vapors migrate into buildings, can also create health concerns that affect property value and marketability.
6. Early Planning Can Create a Competitive Advantage
   Some investors use environmental intelligence to identify opportunities others avoid. By initiating assessments early in the due diligence period, you gain more flexibility in deal structuring. This approach supports:
   • Documentation of potential environmental risks and remediation costs
   • Enhanced negotiating power with sellers and lenders
   • Faster transaction closings through proactive risk management

What This Means for Your Next Transaction

Environmental due diligence is a coordinated strategy, not a stand-alone task. Addressing these truths early helps protect the schedule, limit hidden costs, and supports a smoother path to closing.