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TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONS presented by doug cloud m2c2law

The best of cle November 30, 2011 Identifying and Responding to Environmental Issues in Transactions. TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONS presented by doug cloud m2c2law.com. 1. NO NEED FOR A PHASE I, IT’S JUST…. office, retail, vacant, farmland, lease. CASE STUDY.

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TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONS presented by doug cloud m2c2law

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  1. The best of cleNovember 30, 2011Identifying and Responding to Environmental Issues in Transactions

  2. TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONSpresented by doug cloud m2c2law.com

  3. 1. NO NEED FOR A PHASE I, IT’S JUST… • office, retail, vacant, farmland, lease

  4. CASE STUDY • 2.0 acres in rural Georgia • Vacant one-story, sheet metal building • Neighbors just residential, church • Security for small commercial loan • Default and foreclosure

  5. Call from the Georgia EPD

  6. Property on Hazardous Site Inventory

  7. Nearby Wells

  8. Due Diligence Today What We Do • Phase I ESA ASTM E1527-05 Standard • Transaction screen • Asbestos, radon, lead • Phase II if necessary • Review of prior reports, documents, records • Compliance audit as appropriate ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  9. 2. INNOCENCE IS BEST DEFENSE • Major concern for environmental liabilities in transactions arose with federal Superfund/CERCLA • Spawned thicket of laws • Broad liability scheme • Current and past owners and operators, generators, arrangers (transporters) • Strict, retroactive, joint & several liability • Liability not limited to property value/investment • Innocence can be no defense ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  10. 3. “CLEAN” PHASE I = NO CONTAMINATION • Scope of Phase I - site inspection, interviews, readily available records review • Apparent Recognized Environmental Conditions (presence or likely presence of hazardous substances or petroleum contamination) • Consultant qualifications (experience, reputation, insurance)

  11. DUE DILIGENCE :Why We Do It • To learn more about the environmental risk profile (current or potential exposure and liabilities) • To qualify for certain liability defenses under CERCLA • To inform allocation of risks among parties ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  12. 4. “CLEAN” PHASE I = NO LIABILITY • What CERCLA Defenses? • Innocent Landowner • Adjacent Landowner • Bona Fide Prospective Purchaser • Must perform “all appropriate inquiries” per AAI Final Rule at 40 CFR Part 312 • ASTM E1527-05 Standard Phase I complies • Shelf life ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  13. Buyer Beware • Under CERCLA, relatively few commercial parties have successfully avoided liability by virtue of these defenses • 3000 E. Imperial, LLC v. Robertshaw Controls Co. • Ashley II of Charleston, LLC v. PCS Nitrogen ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  14. 5. “CLEAN” PHASE I = NO PHASE II • Scope and limitations • Contracting and reliance • Get what you pay for ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  15. 6. IF PHASE II ID’s CONTAMINATION, AGENCY NOTIFICATION IS REQUIRED • Regulatory gaps v. agency practice • Georgia’s special case (HSRA) • Monitor consultants, parties to the deal ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  16. 7. AGENCY NFA MEANS NEVER • Reopener ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  17. 8. OK TO RELY ON PRIOR PHASE I • Snapshot in time • Shelf life • Updates ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

  18. 9. CONTAMINATED PROPERTY IS UNMARKETABLE • Never so many effective tools for managing environmental risks in transactions than those available in today’s marketplace

  19. Voluntary Cleanup & Brownfields Programs • Agency oversight • Grants • Liability protections • Growing acceptance of RBCA

  20. Regulatory Protections • CERCLA defenses • Agency • NFA determinations • Comfort letters • Prospective purchaser agreements • Secured creditor exemptions

  21. Environmental Insurance • Pollution Legal Liability (PLL)/Premises Pollution Liability (PPL) • Can offset some typical risks, including known and unknown onsite and offsite conditions • In many ways, addresses "pollution exclusion" clauses in modern CGL policies

  22. 10. Let’s Use the Environmental Short Form • Common knowledge that environmentally related hazards can be a source of substantial risk and liability. Over the years, environmental liabilities have grown and laws and lawsuits have proliferated. • Sustainable allocation of environmental risks in transactions requires full disclosure and meeting of the minds

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