Escalating Environmental Due Diligence Costs Ahead?

Escalating Environmental Due Diligence Costs Ahead?

In 2019, we may see an increase in due diligence costs associated with many commercial real estate transactions in Michigan. There is proposed legislation to impose government fees on customary environmental due diligence reports, as described below.

Pending before the Michigan legislature is a bill (Senate Bill 943) that would increase funding for environmental cleanups, redevelopment, recycling and waste management.  While the majority of the funds would be generated through landfill tipping fees, there is a proposal to amend this bill to impose fees on certain environmental reports, as follows:

• A $1500 fee for each Baseline Environmental Assessment (BEA), paid to the Michigan Department of Environmental Quality (MDEQ) at the time of submittal of the BEA; and
• A $500 fee for each Phase I Environmental Site Assessment (ESA) “or other type of evaluation…constituting all appropriate inquiry” paid to the environmental consultant, which the environmental consultant must then remit to the MDEQ on a quarterly basis.

The proposal would also require environmental consultants to keep records of the number of Phase I ESAs (or other all appropriate inquiry evaluations) performed and the amount of fees collected, and allow the MDEQ to inspect and audit such records upon request.  Failure to charge or remit one or more of such fees on a quarterly basis would subject the environmental consultant to fines and potential license revocation for up to 1 year.

If these provisions are added to the bill and passed into law, we can expect increased costs associated with conducting customary environmental due diligence for commercial transactions, even for properties with no known environmental issues (e.g. properties with a “clean” Phase I ESA).

We understand these proposed changes have been under discussion for some time and it is expected that we will see this bill move through the legislative process before the end of 2018.  Whether the bill will include the terms described above as it progresses is unknown, but this is an issue that has the potential to impact transaction costs as soon as January 2019.  We will monitor the bill as it proceeds through the legislative process and post an update if these or similar changes are enacted.

Please contact Emily Green or a member of the Rhoades McKee Environmental and Natural Resources Law Practice Group with questions.