DIY Environmental due diligence? Not a good idea.

27 Jan 2012

A recent decision by the Michigan Court of Appeals highlighted the wisdom of more than merely “going through the motions” of environmental due diligence when doing a real estate deal.  As the opinion (found here) explains, a property owner bought 29 acres in anticipation of a pending deal.  The owner was advised by her lawyer to do a Phase I Environmental Site Assessment and hired a consultant to do just that.  She also asked for a “wetland review” and nothing was ever put in writing defining what that meant.

A typical Phase I ESA does not include any sort of wetland evaluation and the consultant only did a review of the MDEQ wetland inventory map and did note in its Phase I report that “potential wetlands near [the creek] that flows through the site…. A wetland delineation should be completed if any filling of a water feature … occurs.”  The owner spoke to the consultant who assured her that she was “good to go” and she closed on the property.  However, when she tried to develop it, she found that it had 15.2 acres of regulated wetlands on it, rendering the properly useless for her plans.  If you are wondering how she didn’t know this, it is possible as wetlands are not wet all the time and in some cases may not be visibly wet at all, but I digress.

Owner sues consultant and consultant wins.  Owner appeals and consultant wins again.  The Court of Appeals opinion focuses on the trial court’s definition of “wetland review” vs “wetland delineation” and a very subtle discussion of a negligence cause of action in a contractual relationship under Michigan law and, for lawyers, is well worth reading.

The lesson that the business community should take away from this is – environmental due diligence is not a do-it-yourself proposition.  The owner should have had her lawyer:

1. help hire the environmental consultant to be sure she was getting what she needed; and

2. read the environmental reports and discuss them with the consultant to be sure that she got what she needed.

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