Environmental Due Diligence for Real Estate Buyers, Sellers and - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Environmental Due Diligence for Real Estate Buyers, Sellers and Lenders Identifying and Mitigating Risks and Liabilities in Real Estate Transactions WEDNESDAY, JANUARY 8, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Rachel Rosen, Department Manager, Burns & McDonnell , Wallingford, Conn. Derek Ezovski, President, Outsourced Risk Management Solutions , West Hartford, Conn. Cindy Karlson, Partner, Bohonnon Law Firm , New Haven, Conn. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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Agenda  Introduction - Environmental Due Diligence  Site Assessment  Lenders/CMBS Perspectives  Drafting Environmental Provisions for Contracts  Questions 5

Framework for Environmental Due Diligence Compliance with Environmental Laws  Common Law Issues  Statutory Obligations Evaluate Potential for Liability under Regulatory Regimes  CERCLA, RCRA, Clean Air Act, Clean Water Act, state analogs  CERCLA Issues Site nexus will be established with transaction  Assess Liabilities and possible defenses  Defenses – very limited  Innocent landowner defense  Bona fide prospective purchaser defense  Contiguous landowner defense  6

Transactional Considerations Stock Acquisition Company transitioning unchanged Corporate liabilities of company unchanged by transition Asset Acquisition Liabilities arise only as related to the assets transitioning Contamination present, contamination originating from, and current compliance status of the asset(s) 7

Due Diligence Strategy Considerations  All Appropriate Inquiry  Primary function – Support CERCLA defenses  Evolved into de facto commercial standard – ASTM – 1527-05  Specific elements required  Still responsible for any new conditions on the Site  Specific State Considerations  Connecticut Transfer Act  New Jersey Industrial Site Recovery Act  Common Law Compliance  Contractually required disclosures  SEC disclosure review 8

Environmental Due Diligence Considerations for Buyers Rachel M. Rosen, LEP 9

Buyer’s Due Diligence  Selecting Consultants & Counsel  Developing a Due Diligence Strategy – What’s Needed?  ASTM Standard  AAI and Recent ASTM Changes  The Findings: Potential Risks Presented by the Assets  Related Topics & Considerations 10

Selecting Consultants & Counsel  Evaluate consultant and/or attorney’s experience and credibility with government agencies  Evaluate the business acumen and negotiation skills of the key individuals (you want a strong person in your corner supporting you in post-due diligence negotiations)  Scrutinize the scope of work (the devil is in the details)  Carefully review the consultant’s terms and conditions to the contract  You get what you pay for in most cases 11

Tips For Due Diligence Strategy  What is necessary vs. recommended  All Appropriate Inquiry & ASTM E1527-05 & -13  What is included?  What is not included?  Potable water, mold, asbestos, wetlands, lead-based paint and indoor air quality Appreciate the factors that guide various lenders and your own liability tolerance 12

Developing A Due Diligence Strategy: Buyer’s Perspective  Transactional Factors  Size of the deal vs. nature and extent of Buyer’s due diligence efforts  Buyer’s risk tolerance  Financing conditions  Commercial lender, private equity issues  Schedule constraints  Buyer does not have to compromise on due diligence even under tight timeframes (i.e., e-due diligence rooms can be accessed 24/7)  Budget limitations  Corporate Governance  Fiduciary duties 13

Liability Protection For Buyers  2002 SARA and the Small Business Liability Relief & Revitalization Act (Brownfield Amendment)  Innocent landowner defense  Bona fide purchaser defense  Contiguous landowner defense  What work is required to qualify for liability protections  All Appropriate Inquiry  42 U.S.C. § 9601(35)(B)  40 C.F.R. 312 (2005) 14

All Appropriate Inquiry  Regulatory Considerations - All Appropriate Inquiries  Eligible persons for liability protection under CERCLA  Innocent landowners, contiguous property owners  Bona fide prospective purchasers  State or local government that acquire ownership/control involuntarily through bankruptcy, tax delinquency or abandonment  Conditions to satisfy AAI:  Must perform due diligence in accordance with 40 CFR Part 312  AAI timelines prior to acquiring ownership of property:  Within 1 year prior to acquisition, perform or update AAI  Within 180 days prior to acquisition, perform interviews of current and past owners; review government records; on-site visual inspection and search for environmental cleanup liens 15

All Appropriate Inquiry (Cont.)  AAI alone does not guarantee CERCLA protection, the following conditions must also be met:  Comply with Continuing Obligations after acquiring the property  Provide all legally required notices with regard to discovery of releases of hazardous substances  Comply with land use restrictions, fully cooperate with persons conducting response actions and information requests; use due care with respect to hazardous substances  Buyer must not be affiliated with any liable party through family, contractual, corporate or financial relationship (other than the property conveyance instrument) 16

The Findings: Recognized Environmental Conditions (“RECs”) The presence or likely presence of any hazardous substance or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment. The term includes hazardous substances or petroleum products even under conditions in compliance with laws . The term is not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies. 17

The Findings: Historical Recognized Environmental Conditions (“HRECs”) A past release of any hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority or meeting unrestricted residential use established by a regulatory authority, without subjecting the property to any required controls (e.g. property use restrictions, AULs, institutional controls, or engineering controls). Before calling the past release an HREC , the environmental professional must determine whether the past release is a REC at the time the Phase I ESA is conducted 18