When purchasing a business due diligence is critical. From the perspective of a business purchaser due diligence involves an evaluation and assessment of each and every aspect of the business that you are purchasing, such as (a) tangible assets, (b) tax returns, (c) financial statements, (d) customer lists, (e) contracts, (f) lease agreements, (g) franchise agreements and (h) vendor supply agreements. However, when the business purchase transaction involves the purchase or lease of real property that was or may have been the site of “industrial activity” or an activity prone to causing land contamination then additional due diligence in the form of an environmental assessment is critical. This additional due diligence is essential for the prospective purchaser of a gas station, car wash, lube center or any other business that utilizes hazardous materials
So how does the buyer of a gas station, car wash or lube center, get started?
(i) Add an Environmental Contingency to your Business Purchase Agreement Discuss with your business lawyer about adding an “environmental contingency” clause to your purchase agreement. This clause (added to your purchase agreement) will grant you the right (as a potential business purchaser) to hire an expert to conduct an environmental site assessment (“ESA”), also sometimes referred to as a phase one study . If a possibility of contamination is discovered, this contract contingency should be drafted to permit you to cancel the transaction and, most significantly, have your contract deposit refunded. If the seller will not agree to this contingency clause then your environmental due diligence must be conducted before you sign any agreement and pay a deposit.
(ii) Obtain a Phase One Environmental Site Assessment Have an independent and qualified professional perform a Phase One Environmental Site Assessment. This assessment may be obtained at a relatively low cost (compared to your investment in a new business) and will involve a review of the history of the property and documentary evidence as to the possible existence of contamination. Since the initial phase one assessment is limited to historical property records and information (not actual samples or live testing) additional studies may be required.
For the purchaser of a gas station, car wash or lube center, environmental contingency clauses and environmental site assessments should never be ignored. Ignoring this necessary components of due diligence may jeopardize your business investment and subject your new business to extensive costs and expenses for the remediation of contamination that was created long ago.