KEY CONCLUSION: Questionnaire and interviews are an important and integral part of due diligence projects.

A very important portion of a due diligence project is the completion of an ASTM Questionnaire, often called an interview form. As specified in ASTM E 1527-05, standard practice for Environmental Site Assessments, the objective of the interview is to “obtain information indicating recognized environmental conditions in connection with the property.”

The ASTM standard specifies the environmental professional (EP) should interview the key site manager; this could be the owner of the property, an operator of the business or occupants. In some cases, it is considered advisable to interview some or all of these parties and sometimes even previous owners or occupants. It is up to the discretion of the EP about whom to interview and also to decide when to obtain the interview information.

In practice, ERAS usually interviews, or even more commonly, requests the owner of the property to complete the questionnaire, BEFORE the project proceeds significantly. This is so that the information obtained from the owner, usually representing the most recent uses of the Property, can be dovetailed with file review requests and review of other historical information. Receiving timely interview information is even more important for Environmental Transaction Screen (ETS) projects where environmental research is usually much more limited than for Environmental Site Assessment (ESA) projects.

In some cases, the interview information can be used to greatly expedite the due diligence process by allowing assessment of what research information is actually required. In extreme cases, answers to an interview form can be used to document whether significant environmental information was withheld from the buyer or financier.

ERAS has noticed a significant increase in the number of properties for sale that once contained dry cleaners. Former dry cleaners will almost always require a due diligence Phase 2 investigation. Dry cleaners are a special problem because they were so easily installed, moved and many once existed. In addition, the owners of dry cleaners are generally Mom and Pop type folks and there is no State of California program to finance investigation and cleanup.

The current standard for investigation at dry cleaners involves collection of soil vapor samples in the areas of potential impact which includes the machine and chemical storage areas. Owners should expect an investigation to cost approximately $6,000-8,000 and require at least 4 weeks.

KEY CONCLUSION: Condominiums owners share ownership with others but still have possible significant financial liability and should demand complete due diligence.

Commercial and industrial condominiums are individually owned portions of commercial properties that have shared legal and environmental liabilities. The shared ownership reduces the individual liability of each owner.

However, there are numerous examples of condominium complexes that have been constructed on former factory or other industrial sites and gasoline stations. There are also numerous cases of large environmental remediation costs that can exceed the value of the Property.

Therefore it is still important to determine historical uses and potential liabilities associated with the entire condominium complex. The condominium association should be made aware of environmental issues and should disclose previous environmental investigations to all prospective purchasers.

As you may know, ERAS attempts to tailor the scope (thus the cost) of due diligence projects to what is required to reduce the risk to the buyer and lender for an individual Property.

Based on a number of factors, the users of ERAS report may need more or less due diligence on any given Property. Besides the location, the following is important information required for each Property.

  • Size of the Property and number and type of building(s) and useable spaces
  • All current and historic street addresses for the Property
  • Current uses and proposed future use (including planned change of use, remodeling or demolition)
  • Previous Phase 1, Phase 2 or remediation work
  • Known off-site sources of contamination

This information will enable ERAS to provide the due diligence services you require in the most cost effective manner.

Key Conclusion: Environmental due diligence for condominium complexes present a special challenge because the environmental liability of the individual condominium as well as the entire complex must be considered.

Commercial condominiums present unique challenges for environmental due diligence. The assessor must consider the uses of the individual unit or Property as well as the uses of businesses and parcels adjacent to the entire commercial complex which might impact common areas. Therefore the lender and buyer must be concerned with both individual and shared legal and environmental liabilities.

Recommendations - ERAS recommends that interested parties do not take the attitude that the Property is “only a condominium” and not assume that only the minimal due diligence investigation is necessary. In addition the interested parties should recognize that any recommendations for additional investigation may be very difficult to execute because of complications with the condominium association.