How Environmental Risk Shapes U.S. Real Estate Deals
How Environmental Risk Shapes U.S. Real Estate Deals
Environmental considerations are an important part of many U.S. real estate transactions, particularly for investors entering unfamiliar markets. During a recent discussion hosted by World Law Group's Real Estate & Construction Group, Chris Alviggi of NFP Property & Casualty outlined how environmental risks can influence negotiations, due diligence, and whether a transaction ultimately moves forward.
Environmental issues do not always stop a deal, but they often affect how the transaction is structured and how risk is allocated between the parties.
Environmental Risk Starts Before the Deal Is Signed
Environmental review often begins well before a buyer formally commits to a transaction. Early diligence helps identify potential liabilities tied to a property's historical use, surrounding land conditions, or regulatory requirements.
In the United States, buyers commonly rely on environmental consultants to conduct Phase I Environmental Site Assessments, which review the property's historical use and nearby sites to identify potential contamination risks. If concerns arise, additional testing—known as Phase II assessments—may be conducted to analyze soil, groundwater, or other environmental conditions.
These investigations typically involve coordination among legal counsel, environmental consultants, and insurance professionals to determine whether the risks are manageable and how they should be addressed.
Location and Land History Matter
A property’s environmental profile is closely tied to its history and location. Former industrial facilities, agricultural land, and redevelopment sites can present very different risks.
Properties previously used for manufacturing or industrial activity may raise concerns about chemical contamination. Agricultural land may be exposed to fertilizers or to emerging contaminants such as PFAS (per- and polyfluoroalkyl substances), a group of highly persistent chemicals sometimes referred to as "forever chemicals."
At the same time, redevelopment trends in many U.S. cities have increased interest in converting former industrial sites into residential or logistics facilities, projects that often require careful environmental review.
Regulatory requirements can vary by state and local jurisdiction, requiring investors to account for different environmental standards and enforcement practices across the United States.
Environmental Due Diligence Requires Careful Planning
Environmental due diligence involves more than commissioning reports. In some cases, sellers may limit physical testing before closing, particularly if intrusive investigations could disrupt ongoing operations or create regulatory concerns.
As a result, buyers and their advisers may rely on existing environmental reports or conduct limited testing under confidentiality agreements. Legal counsel may also structure the diligence process so that environmental findings are protected under attorney work-product rules.
If new issues arise during negotiations, the parties must decide whether to conduct further investigation, adjust the purchase price, or revise the transaction structure.
Contracts and Insurance Help Allocate Risk
Environmental risks do not necessarily prevent a transaction from moving forward, but they often require careful contractual solutions.
Buyers and sellers frequently negotiate who will be responsible for addressing contamination. This may include remediation before closing, indemnities after the sale, escrow arrangements, or adjustments to the purchase price.
Environmental insurance has also become an important tool in resolving these issues. Pollution liability policies can protect against unknown contamination, cover cleanup costs, and fund legal defense if environmental claims arise. In some situations, insurance allows a transaction to proceed when the parties cannot otherwise agree on how to allocate environmental risk.
Emerging Issues Continue to Affect the Market
Several environmental issues are increasingly influencing real estate investment and development in the United States.
One example is growing attention to PFAS contamination, which has drawn heightened regulatory scrutiny in the United States. Flood risk and evolving building elevation requirements are also affecting development planning in certain regions.
At the same time, housing shortages and urban growth are encouraging investors to revisit sites that may once have been considered too complex from an environmental perspective.
Looking Ahead
Environmental risk has become routine in real estate transactions in the United States, particularly for properties with long operational histories or redevelopment potential. While these issues can introduce uncertainty, they are increasingly addressed through structured due diligence, contractual risk allocation, and specialized insurance solutions.
For investors and advisers, understanding how environmental considerations affect transactions is essential when operating in the U.S. real estate market.
Author: Hanna Shea | World Law Group
Contributor: Chris Alviggi, NFP Property & Casualty