Beyond the Phase One: Navigating Environmental Risk in Complex Transactions

Environmental issues can significantly affect the timing, structure, and economics of business transactions. In the latest episode of SPRingBoard, SPR Principal Maggie Macdonald is joined by Christina Lewis of Langan and Corinne Dougherty of Marsh for a practical discussion of environmental due diligence and risk management strategies in real estate and corporate transactions.

The conversation explores how attorneys, environmental consultants, and insurance professionals work together to identify potential environmental liabilities, tailor due diligence to a transaction's specific risks, and develop solutions that help deals move forward. The speakers discuss Phase I and Phase II Environmental Site Assessments, liability protections under CERCLA, environmental insurance products, and the growing impact of PFAS on transactional due diligence. Through a series of hypothetical case studies, they illustrate how buyers, sellers, lenders, and developers can evaluate risks, allocate responsibility, and address uncertainty in increasingly complex regulatory environments.

Key takeaways:

• Environmental due diligence is not a one-size-fits-all exercise. The appropriate scope of review depends on the transaction structure, the parties' risk tolerance, the property's history, and the client's objectives.
• A Phase I Environmental Site Assessment is often the starting point, but additional compliance reviews, targeted investigations, or portfolio-level analyses may be more appropriate depending on the circumstances.
• Environmental liabilities can arise differently in asset and stock transactions. In stock deals, buyers may inherit legacy environmental liabilities associated with historical operations and former properties.
• CERCLA liability protections, state voluntary cleanup programs, indemnities, escrows, and environmental insurance can all play important roles in allocating and mitigating environmental risk.
• Environmental insurance policies can provide coverage for both legacy and future pollution conditions, helping parties manage uncertainty and facilitate transactions that might otherwise stall over environmental concerns.
• Managing potential PFAS risk has become a common issue in transactional due diligence. Evolving regulation and uncertainty regarding potential sources, exposures, and cleanup obligations require careful evaluation on a site-specific basis.
• The discovery of a recognized environmental condition does not automatically mean additional sampling is required. Effective risk management often depends on understanding how contamination relates to current and future site use.
• Redevelopment projects require special consideration because construction activities may trigger remediation obligations, increase disposal costs, or uncover previously unknown environmental conditions.
• Early coordination among legal counsel, environmental consultants, and insurance advisors can improve diligence strategies, strengthen negotiating positions, and create additional pathways for addressing environmental liabilities.

Production support for this episode was provided by Charlotte Hawes, Legal Marketing Assistant at SPR.

Disclaimer: The content of this podcast, and its supplemental material, is for informational purposes only and should not be considered legal advice. The views and opinions expressed in this program are those of the speakers in their individual capacities and do not necessarily reflect the views or opinions of SPR and/or any of the clients they represent.