Your Phase 1 Environmental Site Assessment evaluates recognized environmental conditions associated with the property. It doesn’t tell you whether this facility can legally operate on day one after closing.
Most buyers acquiring an industrial or commercial facility in California already have a Phase 1 ESA in the works. It’s an ASTM-standardized evaluation of the property for recognized environmental conditions, historical land use, and potential contamination. That assessment answers an important question: is there contamination liability associated with this real estate?
But it doesn’t answer a second question that matters just as much to what you’ll spend in year one: are the EHS programs, permits, and training that California requires actually in place, and if not, what will it cost to get there?
That second question is what a compliance due diligence assessment answers. The regulations that apply don’t depend on the size of the transaction. They depend on the facility’s operations: what chemicals it handles, what it releases into the air, drains, or stormwater, what safety hazards employees face, and what equipment requires maintenance procedures. Any industrial or commercial facility with physical operations and employees in California has compliance obligations. A $2M auto body shop and a $50M distribution center can have equally complex compliance profiles.
The Two Halves of Environmental Due Diligence
Environmental due diligence for a California business acquisition has two distinct components, and they’re usually performed by different firms with different expertise.
Phase 1 Environmental Site Assessment. This evaluates the property itself: recognized environmental conditions, historical land use, regulatory database records, and potential contamination. It follows the ASTM E1527-21 standard and is typically performed by environmental consulting firms with geologists and qualified environmental professionals on staff. The Phase 1 is standard practice in commercial real estate transactions and often required by lenders. Most buyers and their brokers are already familiar with this step. This is not a CDMS service.
Operational compliance assessment. This evaluates how the facility operates: the EHS programs, permits, training records, and regulatory filings that California requires to be in place, and whether the facility is actually meeting those requirements. It answers the question your Phase 1 doesn’t touch: what is the compliance status of the operations running inside this building?
Buyers doing thorough due diligence need both. The Phase 1 tells you about contamination liability attached to the real estate. The compliance assessment tells you about regulatory exposure attached to the business. They’re complementary, not substitutes for each other. Learn what specifically falls in the gap between the two →
What a CDMS Compliance Due Diligence Assessment Covers
We come to the facility and evaluate its compliance posture across applicable California regulatory programs identified during scoping and site review. The scope depends on what the facility does, what materials it handles, and which agencies have jurisdiction, but a typical assessment covers:
Cal/OSHA safety programs. The Injury and Illness Prevention Program, lockout/tagout procedures, confined space entry, respiratory protection, hearing conservation, emergency action plan, hazard communication. These are the programs California requires employers to have in writing, with trained employees and documented implementation. Safety program gaps also affect the facility’s workers’ compensation experience modification rate, a number that directly impacts operating costs and that any buyer reviewing financials will see on the P&L.
Environmental permits and programs. The Hazardous Materials Business Plan filed with the local CUPA (which may be a county environmental health department, fire department, or another local agency depending on jurisdiction) and reported in CERS (California’s online environmental reporting system), Spill Prevention Control and Countermeasure plan, Stormwater Pollution Prevention Plan, air quality permits through the local Air District, wastewater discharge permits. These are the regulatory filings and plans that govern how the facility manages its environmental obligations. California’s environmental regulatory framework is more complex than most buyers expect, with multiple agencies with overlapping jurisdiction, each with their own requirements, inspection cycles, and enforcement timelines.
Hazardous waste handling and recordkeeping. Generator classification, EPA ID status with DTSC (the Department of Toxic Substances Control), waste characterization, storage practices, manifesting, and Land Disposal Restriction documentation. The assessment confirms whether the facility is handling hazardous waste in accordance with California and federal RCRA (Resource Conservation and Recovery Act) requirements.
Training records and employee compliance awareness. Many Cal/OSHA standards require employee training, and inspectors commonly expect documentation showing that required training has been completed for applicable programs. We review what training has been documented, what’s overdue, and whether employees have been trained on the programs that apply to their work.
Agency filing status. Whether the facility’s CERS/HMBP filings are current, whether SMARTS (the State Water Board’s online stormwater reporting system) enrollment and reporting are up to date for stormwater, whether Air District permits are active, and whether any reporting deadlines have been missed.
Outstanding violations and pending enforcement. Whether the facility has open notices of violation from the local CUPA (which may be a county environmental health department, fire department, or another local agency depending on jurisdiction), Cal/OSHA citations, DTSC enforcement actions, or Water Board orders. Outstanding violations and correction orders don’t disappear with an ownership change. They remain tied to the facility and become the current operator’s responsibility. In our experience, a significant number of industrial and commercial facilities have compliance issues that haven’t been discovered or addressed, problems that accumulate quietly until an inspection, a transaction, or a workplace incident brings them to light.
Evaluating an acquisition in California? Call (925) 551-7300 to discuss what a compliance assessment would cover for the facility you’re looking at.
What the Deliverable Looks Like
The assessment produces a compliance report organized by regulatory program. Each section covers what was found and what needs to be addressed. Every report includes:
A compliance summary showing the status of each reviewed program area: which programs are in place and current, which need updating, and which are missing entirely. This gives the buyer and their advisors a clear picture at a glance.
Specific findings paired with recommendations. Each identified gap comes with a description of what’s required and what it takes to resolve it. Problems with solutions, not just a list of problems. The report is structured so compliance costs become line items in the buyer’s post-close planning, not unknowns.
The deliverable works for everyone who needs it. We’ve provided compliance reports that served both the acquiring company’s corporate team (for budgeting the initial assessment and remediation work) and the local facility management team, who used the same report to guide the ongoing compliance program once the transition settled. The same document serves both purposes because the findings and recommendations are specific enough to act on and organized clearly enough to present upward.
Who Uses This Service
Buyers acquiring individual businesses. Someone purchasing an auto dealership, a warehouse or distribution center, a food processing facility, a fleet maintenance operation, a manufacturing shop, or another industrial or commercial business with physical operations in California. The compliance assessment covers the operational regulatory side that the Phase 1 and financial due diligence don’t reach.
Corporate buyers integrating acquired facilities. When a larger company acquires a California facility, the compliance assessment is often the first step in the integration process. Identify what programs exist, what’s missing, then build or update what’s needed. We’ve worked with acquiring companies where the gap assessment led to EHS program development and then to ongoing compliance services, all triggered by the ownership transition. Read more about new ownership compliance obligations →
Sellers preparing for incoming due diligence. A seller who knows their compliance posture before the buyer’s assessment team arrives controls the narrative and protects the deal price. Compliance gaps discovered during buyer DD only adjust the number down. No buyer’s assessment team has ever come back and said the facility’s compliance picture is better than expected. A pre-sale assessment lets the seller document, address, or price compliance items on their own terms before they become re-trading points. Sellers and their brokers benefit from including this assessment in the packet as they prepare a business for sale. Preparing your facility for sale →
Business brokers and transaction advisors. A compliance assessment protects the deal by preventing post-close surprises that reflect on everyone involved in the transaction. What brokers should know about California EHS compliance →
We also work with court-appointed receivers who need a compliance baseline before making decisions about a facility’s future.
Need a compliance assessment as part of a transaction? Call (925) 551-7300. We work with buyers, sellers, brokers, and advisors across California.
Frequently Asked Questions
What is environmental due diligence?
Environmental due diligence is the process of evaluating the environmental and regulatory risks associated with a business acquisition or real estate transaction. In practice, it has two components: a Phase 1 Environmental Site Assessment evaluating the property for contamination, and an operational compliance assessment evaluating whether the facility’s EHS programs, permits, and regulatory filings meet current requirements. Most buyers and their brokers are familiar with the Phase 1. The compliance assessment addresses the operational side that the Phase 1 doesn’t cover.
Is a Phase 1 ESA the same as a compliance audit?
No. A Phase 1 ESA evaluates the property: soil conditions, groundwater risk, historical land use, recognized environmental conditions. It’s an ASTM-standardized assessment focused on contamination liability. A compliance audit or gap assessment evaluates how the facility operates: the programs, permits, training, and recordkeeping that California requires. They answer different questions, cover different risk categories, and are typically performed by different firms. A buyer acquiring a California industrial or commercial facility should consider both.
How long does a compliance due diligence assessment take?
The scope depends on the facility: its size, the number of regulated activities, and how many regulatory programs apply. We work within the transaction timeline. If you’re on a closing schedule, tell us your dates when you call and we’ll let you know what’s realistic.
What happens if the assessment finds compliance gaps?
Most facilities have some gaps. That’s normal, and it’s exactly what the assessment is designed to find. The report identifies each gap, explains what’s required, and lays out what it takes to address it. Gaps aren’t deal-killers. They’re line items. Knowing about them before close means the buyer can budget for post-close compliance work, but it also gives the buyer’s negotiating team documented, defensible numbers to work with in price discussions, hold-back provisions, or seller concessions. A gap with a defined remediation cost is a negotiating point. A gap discovered after close is just a cost. See the categories of post-close compliance cost that buyers should plan for →
Do compliance obligations depend on the size of the business?
The regulations that apply to a facility are driven by its operations (the chemicals it uses, the pollutants it generates, the safety hazards present), not the value of the business. A small metal finishing shop with chrome plating may face more complex environmental requirements than a much larger warehouse operation. The compliance assessment identifies what applies to the specific facility being acquired, regardless of transaction size.
Get Started
The assessment is the first step toward knowing what you’re acquiring, not just the property, but the compliance obligations that come with operating it in California.
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Evaluating a California facility for acquisition? Call (925) 551-7300 or request a consultation. Tell us about the acquisition, the facility type, and your timeline. We’ll scope a compliance assessment that gives you the operational picture you need before closing.