INFOTOX | Due Diligence

When buying real estate, due diligence usually refers to thorough investigations before signing a purchase agreement. The prospective buyer must obtain disclosures concerning various environmental characteristics of the property and must undertake a detailed investigation of potential environmental liabilities prior to consummating the acquisition.

Due diligence is extremely important when assessing properties that had been contaminated as a result of industrial activities and that were subsequently remediated. In accordance with Part 8 of the South African National Environmental Management: Waste Act (Act No 59 of 2008) an owner of land that is significantly contaminated, or person that undertakes an activity that has caused the land to be significantly contaminated, must notify the authorities as soon as the person becomes aware of the contamination. A remediation order may then be issued by the authorities. Part 8 of the Act was only enacted in 2014, but many industries have conducted contaminated site investigations and remediated contaminated sites for more than a decade.

In 2014 the Department of Environmental Affairs (DEA) also published National Norms and Standards for the Remediation of Contaminated Land and Soil Quality, Government Notice No 331 of 2 May 2014. The Norms and Standards provide soil screening values (SSVs) for specified land use scenarios. It is stated specifically that the SSVs are not default remediation targets. There is a significant limitation in the Norms and Standards in that the list of contaminants that are of relevance is incomplete. Furthermore, the DEA is not prescriptive about target contaminant concentrations for remediation of contaminated land, thus leaving potential risks to human health and the environment largely open to interpretation. There is very little expertise in health-risk based contaminated site assessments in South Africa, primarily because of a general lack of qualified health scientists working on remediation projects. This presents a situation where remediation efforts may either be inadequate, leading to residual health and environmental risks after remediation, or clean-up efforts may be disproportionate to the level of risk, leading to excessive costs. Residual risks due to inadequate remediation may lead to financial risks for the buyer of the property.

Communication between INFOTOX, clients and lawyers regarding a prospective purchaser’s long-term goals can assist in viewing the situation in more detail than the initial real estate transaction or contract. Common pitfalls encountered by investors in environmentally impacted properties can thus be avoided. A pre-transaction due diligence assessment of the site conducted by INFOTOX would inform prospective purchasers, lending institutions, insurance providers and legal firms about potential risks associated with the contamination and the related compliance costs.

The specialists in health sciences at INFOTOX have wide experience in contaminated site investigations and the assessment of associated health and environmental risks. INFOTOX has proven experience of due diligence assessments, even in multi-million Rand property transactions. The professionals at INFOTOX are trusted and respected within the industry and offer practical and well-considered professional due diligence advice.