Before you buy or expand: Environmental due diligence for agricultural operations
KEVIN PORTER
Whether acquiring a neighboring livestock operation, purchasing a grain elevator, expanding feed storage capacity, or investing in additional farmland, buyers routinely evaluate financial and operational considerations before closing. Environmental due diligence, however, is sometimes overlooked because agricultural properties may be perceived as presenting relatively less environmental risk than manufacturing plants and industrial properties.
Agricultural operations can have decades of history involving chemical storage, fuel tanks, manure management, waste disposal, and regulatory oversight. Those conditions can affect property value, financing, permitting, and future expansion. As agricultural operations continue to consolidate through acquisitions and expansion, environmental due diligence has become an increasingly important component of prudent risk management rather than simply another item on the closing checklist.
Due diligence: More than a Phase I Environmental Site Assessment
For many transactions, environmental due diligence begins with a Phase I Environmental Site Assessment( Phase I ESA). Conducted in accordance with American Society for Testing and Materials( ASTM) standards, a Phase I ESA evaluates historical and current uses of a property to identify recognized environmental conditions( RECs)— the presence or likely presence of hazardous substances or petroleum products that may warrant additional investigation.
A Phase I ESA conducted in accordance with ASTM standards can satisfy the federal All Appropriate Inquiries( AAI) requirements that are a prerequisite to certain Comprehensive Environmental Response, Compensation, and Liability Act( CERCLA) liability protections, including the innocent landowner and bona fide prospective purchaser defenses. When properly established, these protections can help
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