Environmental audits – acquisition (environmental due diligence)

Robert-Pascal FONTANET, notary in Geneva, and Philippe FRESARD, notary and lawyer in Berne

1. What is an environmental audit?

To determine the price of a piece of property or company, it is necessary to know its features and any defects it may have.

Among these defects, there is one – the risk of pollution – that has become significantly important, not only because it affects relations between parties but also because it is now governed by public regulations which are constantly developing and increasingly strict.

2. The legal bases

Although the major technical standards are American, this field is also covered by an ISO standard (ISO 14010: Guidelines for Environmental Auditing – General Principles) and various legislative documents, in particular:

– Federal Act dated 7th October 1983 on environmental protection, in particular major modifications applicable as of 1st November 2006 (LPE, RS 814.01),

– the Order dated 27th February 1991 on protection against major accidents (OPAM, RS 814.012),

– the Order dated 26th August 1998 on contaminated sites (OSites, RS 814.680).

3. A few issues to be examined

Here is a brief list of issues that you can discuss with an expert in this field, depending on whether the acquisition involves bare land, a building or a factory:

– pollution of the ground and subsoil, risks of environmental contamination,

– presence of asbestos and heavy or radioactive metals in the buildings,

– hydrological risks,

– respect for norms and the buildings’ safety, hygiene, fire or seismic risk characteristics,

– waste and emissions by the installations.

To determine the breakdown of costs between the different parties in a possible (future) dispute, it may be necessary to ask the expert to date the pollution as well.

4. Frequent practical problems

The presence of asbestos should be checked in all buildings built before 1991, as this silicate mineral was often mixed with other materials in the past. Polluted land generates high extra excavation costs.

Furthermore, buried cisterns are frequently the cause of pollution as they start to leak as they get old.

The presence of special waste (e.g.: old neon lights, old lead paint) are a latent loss factor.

Finally, the risks linked to operation (non-compliancy of installations, risks of explosion) should be examined when purchasing a company.

5. Why audit an audit?

Just because a seller presents an audit to the buyer, the latter should not feel immediately reassured. On the contrary, an audit of the audit should be demanded. This would take into account, for example, the following factors:

– Which documents were supplied to the first auditor?
– Which samples were taken and which analyses made by the first auditor?
– What was the reasoning behind the conclusions?

6. How to go about it?

If you believe that an environmental audit is necessary, the first thing to do is clearly word the goals of the audit and the auditor’s mission, not forgetting to enquire about any forthcoming legal changes which could modify the costs incumbent to you.

You should then provide the expert with the most exhaustive basic documentation possible.

This should define foreseeable risks and measures to be taken and their probable cost, within the framework of federal and cantonal – sometimes even communal – norms, applicable to the building or company.

Generally speaking, this type of audit takes somewhere between a week and a month. Considering the financial stakes, often involving hundreds of thousands and even millions of Swiss Francs, its cost is more than reasonable.

Do not hesitate to consult your notary, who may firstly help you to define the legal framework of this issue, then introduce you to a competent environmental expert.

Geneva and Berne, 9th January 2011