Clean and Tidy - Introduction to Environmental Due Diligence in Victoria

Spot contamination before you buy or it could cost you more than just the clean up bill.

(5 minute read)

Smoke Stacks - Adobe Stock

For owners, investors and occupiers in Victoria, land is more than just a site, it’s a potential liability. The introduction of the Environment Protection Act 2017 (EPA) changed landowners legal obligations and requirements.

Why should your building inspector know about this? Section 25 of the Act introduced a General Environmental Duty (GED) to “eliminate or otherwise reduce risks of harm from waste or pollution as much as reasonably practicable”. This makes environmental due diligence a must in the acquisition process for most properties.

The Environmental Protection Authority Victoria (EPAV) set out clear guidelines owners must follow and purchasers must consider.

Stage 1: The Preliminary Site Investigation (Phase 1)

If you are selling, you have an obligation to disclose known land contamination to potential buyers. Under the EPA you have a duty to manage and a duty to notify.

If you are buying then request disclosure of contamination incidents, reporting, investigations and EPA correspondence as part of a Preliminary Site Investigation (PSI) (known in the industry as a Phase 1).

The PSI is non-intrusive; no holes are dug, and no soil is taken.

What happens: We review historical information like titles, aerial photography, and government databases. A common one is the EPA Priority Sites Register. We search for past uses that have a high risk of contamination, like tanneries, gas stations, or dry cleaners.

Investor Risk: When you are subject to the EPA duties to manage and to notify. Skipping the PSI could mean buying a contamination liability with all the duties and obligations that come with it. Some sellers won’t know their site has a history of contamination, and you’ll only find out when you come to develop and get the clean up bill.

The PSI identifies Recognised Environmental Conditions (RECs) like Historical (H)RECs where the contamination has been addressed to the satisfaction of the regulatory authority, or Controlled (C)RECs that still require active management. If the site history is clean the process may end here. If not, we move to Stage 2.

Desktop Review - Adobe Stock

Stage 2: The Detailed Site Investigation (Phase 2)

If the PSI identifies potential risks, a Detailed Site Investigation (DSI) (Phase 2) is often required.

What happens: We may take soil, groundwater or soil vapour samples. These are tested against the National Environment Protection Measure (ASC NEPM) framework for assessing contaminated land to see if the samples exceed Health Investigation Levels (HILs).

Investor Risk: This stage quantifies the financial risk. Discovering heavy metals or petroleum hydrocarbons can significantly impact property valuations and your ability to secure financing.

A DSI tells you what is in the ground where the investigations took place and if it is likely to be safe for your intended use (e.g. commercial vs. high-density residential). It is worth noting this doesn’t protect against more contamination or different ground conditions being identified later, but it does provide more information than the PSI.

Stage 3: The Audit and Planning Process

Many sites are subject to an Environmental Audit Overlay (EAO). This is a planning tool that prevents sensitive uses like residential or public open space on contaminated land. This risks should be assessed by your planning and/or legal advisor as part of the due diligence process if you intend to develop or sell the land in the future.

How it works: You may need a Preliminary Risk Screen Assessment (PRSA) or a full Environmental Audit. This involves an EPA-appointed auditor providing an independent Statement of Environmental Audit.

Investor Risk: Audits take time and are expensive. If your investment strategy relies on a quick turnaround (flipping the site) or a sensitive use (residential, parks etc.), an unexpected audit requirement can stall your project and threaten your return on investment.

Soil Investigation - Adobe Stock

Managing the Risk: The LRM Approach

Environmental risk isn’t always a deal-breaker. Being informed so you can price it into your negotiations is essential. To protect your investment:

• Catch It During Due Diligence: We have the knowhow to deliver a PSI or DSI. Done during your due diligence period, it is a small upfront cost for peace of mind.

• Check for Overlays: Always have your planning and legal advisors check for planning conditions that could obligate an Environmental Audit or limit the use of the site thereby limiting its value.

At LRM Property Advisory, we help investors navigate these complex Victorian standards, ensuring you don’t just buy a property, you buy a secure future outcome.