Concentration of CO2 in the Atmosphere

Why Developers Should Care About Environmental Due Diligence

by Erika Cruz

Land development is a complex business where small mistakes can lead to hefty issues down the line. Design flaws can result in costly rework and unhappy clients. They can also affect the business’s reputation. Likewise, environmental liabilities can surface unexpectedly and lead to immense damage. You may lose the deal and even encounter hefty penalties from the authorities. The best way to manage risks and avoid environmental liabilities is with due diligence. Essentially, environmental due diligence is a formal process to assess a property for potential risk of contamination, such as groundwater or soil contamination. Here are some reasons developers should care for it.

Addressing the risk for liability

Land developers have to follow regulations to prevent liability for hazardous substances while working on projects. The authorities can impose a massive fine and require the removal of hazardous materials from the property. While the penalty is painful for the owner, they even have to bear the cost of removal. The worst part is that the liability falls on owners even if they are not responsible for the contamination. Remediation costs can run into the millions because they include site cleanup, non-compliance penalties, and third-party legal actions. Developers may face liability during the construction phase and suffer losses later while selling the property. Ensuring due diligence in advance can address the risk and make the road smooth.

Protecting business reputation

Reputation matters a lot in the real estate industry, and even a single incident can tarnish it for good. Buyers may not take a second look at your project, and you may face the wrath of the authorities. Investing in Environmental Due Diligence is a small price to protect your reputation in the long run. The process involves conducting All Appropriate Inquiries (AAI) before acquiring the property. You must not miss out on this step, no matter how confident and experienced you are as a land developer. A Phase I Environmental Site Assessment (ESA) covers the investigation of the current and historical uses of the land to detect potential environmental risks. Ensure completing the process while purchasing, refinancing, or occupying the property to safeguard your reputation.

Get the best investment value

Besides liability protection and reputation management, environmental due diligence is the best investment value for real estate. As a real estate developer, you can construct a building on the land without worrying about selling problems eventually. For example, you may lose the selling price if the property has contamination issues. A buyer will surely negotiate a reduction in the price or even decide not to purchase. Due diligence before starting the project ensures the safety of your investment and the saleability of the project in the long run. You can mitigate the risk of reduced value and steer clear of the financial cost of remediation.

Land developers must not miss out on environmental due diligence at any cost. Rather, they must do it correctly and well on time, even before acquiring a property. Consider it your protection against the daunting environmental liability and a viable tool to preserve the value of your investment.

Erika has been a digital marketer, she has been working with different companies for various niches. Her contribution to the marketing field has helped many.

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