Legislative issues

Until a decade ago the evaluation of environmental liabilities and risks associated with a merger or acquisition was rare, particularly outside the US. However, environmental liabilities can have a significant impact on the value of a business or property transaction, particularly with regard to manufacturing businesses and industrial sites.

Risks and liabilities can include:

• known or possible soil and groundwater contamination;
• legal risks and financial costs of non-compliance;
• risks to the health and safety of employees and the public; and
• third party liability and damage to business reputation.

As a consequence, the Environmental Audit was created to fully assess the level of perceived environmental risks and liabilities that may exist prior to any business transaction. This is now widely included in the current auction process and has become a critical aspect of risk management and due diligence. It is recognised that some level of Environmental Audit is needed for every transaction, even if it is simply to make an informed decision that due to the nature of the business, no further action is needed. Potential for contamination is discussed in more detail in Sources and causes of contamination.

Occasionally, environmental liabilities render a planned transaction unviable. More often, they affect the transaction price or the legal protection that is required in a sale and purchase contract.