Before you buy or expand: Environmental due diligence for agricultural operations

Whether acquiring a neighboring livestock operation, purchasing a grain elevator, expanding feed storage capacity, or investing in additional farmland, buyers routinely evaluate financial and operational considerations before closing. Environmental due diligence, however, is sometimes overlooked because agricultural properties may be perceived as presenting relatively less environmental risk than manufacturing plants and industrial properties.

Agricultural operations can have decades of history involving chemical storage, fuel tanks, manure management, waste disposal, and regulatory oversight. Those conditions can affect property value, financing, permitting, and future expansion. As agricultural operations continue to consolidate through acquisitions and expansion, environmental due diligence has become an increasingly important component of prudent risk management rather than simply another item on the closing checklist.

Due diligence: More than a Phase I Environmental Site Assessment

For many transactions, environmental due diligence begins with a Phase I Environmental Site Assessment (Phase I ESA). Conducted in accordance with American Society for Testing and Materials (ASTM) standards, a Phase I ESA evaluates historical and current uses of a property to identify recognized environmental conditions (RECs)—the presence or likely presence of hazardous substances or petroleum products that may warrant additional investigation.

A Phase I ESA conducted in accordance with ASTM standards can satisfy the federal All Appropriate Inquiries (AAI) requirements that are a prerequisite to certain Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) liability protections, including the innocent landowner and bona fide prospective purchaser defenses. When properly established, these protections can help shield a new property owner from CERCLA liability for pre-existing contamination. A typical Phase I ESA reviews historical aerial photographs, fire insurance maps, regulatory databases, environmental records, available permits, and other historical sources, as well as a site inspection and interviews with current or former owners or operators.

Phase I does not include soil or groundwater sampling. If it identifies potential concerns, a purchaser may elect to conduct a Phase II investigation which typically includes soil, groundwater, or other environmental sampling to better evaluate the nature and extent of potential contamination. For agricultural acquisitions, however, a Phase I ESA should be viewed as a starting point rather than the end of environmental diligence. Buyers should also review permits, inspection histories, notices of violation, consent orders, outstanding corrective measures, and other records that may reveal environmental obligations associated with the operation.

Spotlight on Ohio: Environmental history can follow agricultural operations

Ohio’s agricultural industry provides a real-world example of why environmental due diligence should extend beyond a traditional property assessment. In the early 2000s, Ohio Fresh Eggs, LLC, acquired commercial egg-production facilities formerly operated by Buckeye Egg Farm. Buckeye Egg Farm had an extensive history of environmental compliance problems, including permit violations and obligations under a state consent order.

Following the acquisition, those environmental issues did not simply disappear. A 2004 federal settlement required more than $1.6 million in pollution-control improvements at the facilities and imposed an $880,598 civil penalty on Buckeye Egg Farm. While Buckeye Egg Farm sold its facilities to Ohio Fresh Eggs, the settlement required Buckeye to bind the purchaser to implement the environmental improvements required under the consent decree. In 2011, Ohio Fresh Eggs entered another consent order resolving 71 alleged violations and requiring a $625,000 civil penalty, $300,000 in supplemental environmental projects, and $10,000 in enforcement costs.

Ultimately, Buckeye Egg Farm sold Ohio Fresh Eggs an expensive lesson: The environmental history of an agricultural operation is a critical part of the asset being acquired.

Where environmental risks are most often found

Agricultural properties often present environmental concerns that differ from traditional industrial sites. Because many agricultural operations have been in continuous use for decades, historical practices may not meet today’s regulatory standards.

Chemical and petroleum storage

Pesticides, herbicides, fertilizers, diesel, gasoline, and waste oil are common at agricultural operations. Historical mixing areas, spills, underground storage tanks, and abandoned tanks can leave residual contamination in soil and groundwater, even when the original activities ended decades ago. Identifying these features before closing allows purchasers to evaluate cleanup obligations, coordinate removal, and negotiate appropriate contractual protections.

Livestock operations

Livestock facilities present additional considerations, including manure storage and transfer systems, wastewater management, mortality disposal, silage areas, nutrient-management practices, and related permits. Purchasers should review the condition and compliance history of this infrastructure, as well as notices of violation and prior enforcement actions.

A recent Ohio case illustrates the point. In State ex rel. Yost v. Hastings Dairy, L.L.C., a manure-storage pit at a Geauga County dairy breached, discharging manure into neighboring waters. Ohio EPA and the Ohio Department of Agriculture identified additional alleged violations involving manure storage, freestall barns, silage, animal mortality, and discharges to waters of the state. The resulting proceedings required substantial corrective measures, including work on manure storage structures and a Comprehensive Nutrient Management Plan, and resulted in a $30,000 civil penalty.

Historical waste disposal practices

Many older agricultural properties contain legacy disposal areas that predate modern environmental regulations. Burn pits, buried debris, abandoned drums, dry wells, or former dumping areas may still exist even if they are no longer visible. While these practices may have been common decades ago, they can create environmental liabilities that become the responsibility of a new owner.

Emerging contaminants

Emerging contaminants such as per- and polyfluoroalkyl substances (PFAS) have become an increasing focus for agricultural producers. Potential sources include historical biosolid applications, neighboring industrial facilities, or contaminated groundwater. Although regulatory requirements continue to evolve, purchasers should understand whether PFAS may present a future operational or transactional risk and whether additional environmental evaluation is appropriate.

For a more detailed discussion of PFAS and the potential risks PFAS may pose to agricultural land, readers can refer to the June issue’s article discussing the dangers of PFAS to agricultural land.

Looking beyond today’s operation

Environmental due diligence should also consider what the buyer plans to do with the property. A purchaser intending to add livestock barns, grain storage, feed facilities, or other improvements may encounter wetlands, drainage issues, historical contamination, or permitting constraints that affect the project’s cost or schedule.

For example, a livestock producer purchasing acreage to construct additional confinement barns should determine whether wetlands or other regulated features affect the proposed footprint and whether existing environmental conditions or permits could constrain the project. Identifying these issues before closing allows purchasers to incorporate them into development planning rather than confronting unexpected delays after the acquisition.

Managing environmental liability

One of the most common misconceptions in real estate transactions is that a purchaser cannot be responsible for contamination they did not cause. Federal and state environmental laws may, in certain circumstances, impose liability on current property owners regardless of when contamination occurred. Conducting appropriate environmental due diligence before acquisition can help purchasers identify potential issues early and may preserve important liability protections available under federal law.

Environmental counsel can help purchasers evaluate identified conditions and allocate risk through representations and warranties, seller disclosures, indemnification provisions, escrow arrangements, or rights to conduct additional investigation before closing. For agricultural buyers, that means evaluating both the condition of the property and the environmental obligations associated with the business being acquired. In many cases, addressing an environmental issue before closing is significantly less costly than attempting to resolve it after the transaction is complete.

Environmental counsel can also help coordinate the consultant’s scope with the transaction timeline. Depending on the property and the issues identified, that may include targeted sampling, review of historical waste-management practices, confirmation of permit-transfer requirements, or investigation of specific areas identified during the Phase I assessment. The goal is to obtain enough information to make a business decision before closing—not necessarily to conduct every conceivable environmental investigation.

Environmental Due Diligence Checklist

• Before purchasing or expanding an agricultural operation, consider:
• Review historical uses and environmental reports.
• Identify chemical-storage areas, aboveground and underground storage tanks, and disposal areas.
• Review manure, wastewater, mortality, and nutrient-management systems.
• Review permits and their transfer requirements, notices of violation, enforcement actions, and consent orders.
• Evaluate wetlands, drainage, and other permitting constraints.
• Determine whether additional soil and groundwater sampling is warranted.
• Address known environmental risks in the purchase agreement.

Conclusion

Agricultural operations are substantial, long-term investments. Environmental conditions associated with decades of agricultural operations can present significant legal and financial consequences if they go unidentified. By engaging environmental counsel early, purchasers can identify potential liabilities, evaluate operational impacts, negotiate appropriate contractual protections, and make informed decisions about whether—and on what terms—to proceed.

That risk-allocation exercise is particularly important where the purchaser knows of an existing environmental condition but does not yet know its full cost to review and remediate. A purchase agreement can address who performs additional investigation, who pays for cleanup, and what happens if conditions are materially different from the parties’ expectations.

Ultimately, environmental due diligence is not about finding reasons to walk away from a deal. Rather, it ensures a new owner understands all environmental risk before it becomes an unexpected liability. For agricultural cooperatives, livestock producers, and other agribusinesses making substantial investments in facilities or farmland, that knowledge can be just as valuable as the property itself.  

Kevin is an associate in the Litigation Department and builds on his experience as an assistant attorney general in the Environmental Enforcement Section of the Ohio Attorney General’s Office. He can be reached at 614.227.2144 or [email protected].