Assessing Environmental Risk is a Basic Part of Due Diligence By Mike Renz Asses

Environmental risks are a bit like sharks at the beach: The odds of meeting one are low, but because of the consequences, they are serious enough that it’s smart to look first. The best way to do this is by having a Phase I Environmental Assessment performed as part of your due diligence effort.

 The issues can be right under people’s noses and go unnoticed for decades. A few years ago, a client contacted me in the field and asked us to conduct a Phase I Environmental Assessment of a park he was under contract to purchase for about $3,000,000. I was in the park area, so I visited it that afternoon. Although the park had been bought, sold, and financed several times, no one noticed that it was built on an old industrial landfill. The evidence was obvious if you knew what to look for. The land had undergone subtle differential settling as the aging wastes decomposed, containers collapsed, and materials shifted. This resulted in undulations in the ground surface. If the client bought the property, they would have been legally responsible for the waste, potentially liable for health impacts to residents, and stuck with a property they would take a huge loss on when they sold it… if anyone would buy it. So what are the potential environmental risks associated with mobile home parks? You can generally divide the common risks into four categories:

 1) Contaminated soil and/or groundwater on the property One of the unique aspects of a mobile home park is the contact that many residents have with the soil. Kids play in it, residents plant gardens in it, and at times, the wind can lift dust from the soil and bring it into homes. Contaminated soil may be present due to a number of reasons: mine tailings, spills or leaks from home heating oil tanks, or the dumping of waste oil, fuels, paints, or solvents by residents or others. 

It is not uncommon for a mobile home park to have an on site water supply well. This makes groundwater contamination a concern. Pollutants in the soil often enter the groundwater. What’s on the ground generally gets carried by infiltrating rain to the water table. If soil is contaminated, there is a good chance groundwater has been affected as well. 

Groundwater contamination may also be natural. In some areas, radionuclides such as radium and strontium are present due to the local geology. 

2) Off-site sources of soil and/or groundwater contamination Contamination can move underground and migrate into a park from an adjoining property or even a more distant source.

We have seen mobile home parks impacted by contaminants migrating from airfields, military installations, factories, gas stations, farmers’ cooperatives, dry cleaners, and landfills. Additionally, contaminants in the form of vapors also move around through soils and cross property lines.

3) Operational Units

Functional parts of a park, such as water supply wells, waste water treatment plants, and home heating oil tanks, pose risks in more than one way.  When these types of units fail, they can pollute soil and/or groundwater.  Additionally, they are regulated.  Failing to meet current regulatory standards can result in significant losses.

4) Legacy Wastes 

Owners and residents often collect hazardous waste. These are left behind when the park is sold or a resident moves out. The materials can range from waste oil, paints, and fuels to pesticides, solvents, and unidentified materials. Improper disposal or mishandling can result in legal and financial burdens for the new owners. 

Know what you are buying

 Environmental risk is not always apparent, but often serious. Mobile home parks are highly valuable and typically highly productive investments. However, environmental liabilities can range from diminishing a park’s value to regulatory entanglements and toxic tort lawsuits. Environmental assessments are as much a part of due diligence as financial audits, engineering evaluations of on-site wastewater treatment plants, land surveys, and property condition evaluations.