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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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The best of cleNovember 30, 2011Identifying and Responding to Environmental Issues in Transactions
TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONSpresented by doug cloud m2c2law.com
1. NO NEED FOR A PHASE I, IT’S JUST… • office, retail, vacant, farmland, lease
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
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
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
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)
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
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
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
5. “CLEAN” PHASE I = NO PHASE II • Scope and limitations • Contracting and reliance • Get what you pay for ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL
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
7. AGENCY NFA MEANS NEVER • Reopener ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL
8. OK TO RELY ON PRIOR PHASE I • Snapshot in time • Shelf life • Updates ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL
9. CONTAMINATED PROPERTY IS UNMARKETABLE • Never so many effective tools for managing environmental risks in transactions than those available in today’s marketplace
Voluntary Cleanup & Brownfields Programs • Agency oversight • Grants • Liability protections • Growing acceptance of RBCA
Regulatory Protections • CERCLA defenses • Agency • NFA determinations • Comfort letters • Prospective purchaser agreements • Secured creditor exemptions
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
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