Until recently, the vast majority of real estate deals have been completed without consideration of PFAS during the due diligence process, with most environmental reports not even mentioning these substances. However, the rapidly evolving regulatory landscape, along with increased public awareness, mean PFAS is now a key transactional consideration for buyers and sellers of commercial real estate.
Background to PFAS
Per- and polyfluoroalkyl substances (PFAS) are a broad group of over 4,700 manmade chemicals (OECD, 2018) of increasing global regulatory concern. PFAS are oleophobic (oil repelling), hydrophobic (water repelling), heat and chemical resistant, and have been used historically within a wide range of industrial and consumer products since the 1940s, including some firefighting foams, non-stick surfaces and water-proof coating for clothes and textiles (Figure 1 for more). They are often referred to as ‘forever chemicals’, as they are exceptionally persistent within the environment, in addition to being highly mobile, having the ability to bio-transform and bioaccumulate within humans and other organisms and are exceptionally toxic to humans and animals causing a range of health implications. Various PFAS are now globally prevalent within groundwater, surface water, biota, plants, humans, and air. The use of multiple PFAS compounds including perfluorooctane sulphonic acid (PFOS) and perfluorooctanoic acid (PFOA) and their related substances are now prohibited in the UK and Europe, however, widespread legacy sources remain.
As the science continues to develop around the understanding of PFAS, so will the global regulatory climate. As it stands, numerous countries have already proposed the regulatory tightening of certain PFAS compounds, as well as increasing the number of PFAS compounds regulated. In January 2023, the national authorities of Denmark, Germany, the Netherlands, Norway, and Sweden submitted a proposal to ECHA to restrict ALL PFAS under REACH, the European Union’s (EU) chemicals regulation.
Figure 1 – Some Known PFAS Sources
The Inclusion of PFAS in Environmental Due Diligence for Property Transactions
Despite the growing coverage in the media, PFAS issues are still often overlooked or under-emphasised when undertaking real estate due diligence or due diligence for corporate M&A transactions, potentially opening the door for future regulatory intervention or legal risks. This is a result of slow evolving regulations and lack of awareness within the property transaction industry.
In the UK for example, there is still no regulatory requirement to specifically discuss PFAS during Phase 1 Environmental Site Assessments (ESAs). However, there is a requirement to identify possible sources of contamination and subsequent chemicals of concern when undertaking an ESA. It is especially important to understand PFAS sources (both historical and current) when assessing a site to avoid potentially significant financial risks.
Similarly, Phase II / Site Investigation assessments carried out as part of the due diligence process (upon which clients often seek to take reliance) do not typically test for PFAS, meaning liabilities may go undetected. This opens the door for potential action by local regulators and/or environmental agencies (including on sites that were previously investigated and considered “remediated” or “closed”). This means that contamination issues from a given site may not materialise until they are later detected off-site (e.g. at a public potable water supply borehole), potentially leading to significant costs and challenges for site owners. This is especially relevant with increasing regulatory awareness and tightening of UK PFAS thresholds.
Environmental Due Diligence assessments should now include consideration of whether PFAS related compounds could be present. Depending on the level of anticipated risk, some ground investigation and monitoring may be required to quantify the liability. As necessary, appropriate assessment and remediation of PFAS should be undertaken alongside consideration other relevant contaminants. Purchasers should make sure that Sellers disclose any Phase I and Phase II assessment findings, and these reports should consider the risk of PFAS being present on or below the site.
Whilst consideration of PFAS within the scope of an Environmental Due Diligence Land & Groundwater Quality Assessment isn’t currently mandatory, regulators are closing in. By adopting a proactive approach and considering all significant (current and historical) PFAS sources upfront, Tetra Tech have been protecting Vendors and Purchasers alike by providing them with clear reliable advice as part of the acquisition due diligence process, whilst also helping to prepare their assets for future refinancing or divestiture.
If you suspect that your target site may have manufactured, stored, or used PFAS or PFAS related compounds, a risk assessment should be completed to understand the extent of the possible liabilities.
Considerations for Real Estate Owners and Asset Managers
Purchasing a property with known (or suspected) PFAS contamination can carry significant legal and financial risks. Globally, there has been a significant increase in litigations surrounding PFAS contamination, following multiple manufacturing sites impacting drinking water supplies in the US, Australia and Europe.
Buyers should also consider the potential challenges of selling an asset, as in the coming years, the regulations will have likely tightened meaning PFAS could be a bigger issue at the time of sale. Potential Purchases and Lenders may require additional testing and remediation before proceeding with a transaction. This can add significant costs and delays to the process, and in some cases may make the property unmarketable. Additionally, the presence of PFAS can mean it is increasingly difficult or costly to obtain environmental insurance.
It should be noted that if PFAS contamination is identified at a site, there is a chance that this contamination originates from an off-site source. Potential sources of PFAS contamination in the vicinity of the subject property should also be considered as part of the due diligence process.
Sellers are also affected by PFAS contamination. They may be liable for clean-up costs and face legal action if they fail to disclose known contamination to buyers. They also may have to lower the price of the property, or accept contingencies in the sales contract, in order to compensate Buyers for the potential risks.
Can PFAS contamination have an effect on the value of an asset?
The presence of PFAS contamination can significantly affect the value of a property. Some key considerations which can have implications on asset values include:
- Is the source of PFAS contamination on-site or off-site? Is there a single source, or are there multiple sources?
- Is there a PFAS management plan?
- What type of PFAS are present?
- Is the site discharging PFAS waste legally (i.e. do they have a permit)?
- What are the current regulations in the relevant jurisdiction regarding PFAS?
- Can the polluter be identified under the polluter pays principle? If so, has the responsible party remediated the contamination, or are they in the process of doing so?
- What is the sensitivity of the site and surrounds, and what receptors are being impacted by PFAS?
- Is remedial action warranted at this property and what are the remedial targets likely to be?
- Is there a secondary source of PFAS contamination (i.e. PFAS impacted concrete, sediment or sludge) that may continue to impact receptors in the future?
How do I remediate or mitigate PFAS contamination? – Tetra Tech’s PFAS Services
Tetra Tech leverages our best-in-class environmental management resources and Leading with Science® approach to provide cutting-edge consulting and engineering services for emerging contaminants. If you have any questions or would like to know more, one of our industry-leading scientists, technicians, engineers, or public outreach specialists would be delighted to assist you.