environmental issues in real estate transactions

Polsinelli PC. In California, Polsinelli LLP

Environmental Issues In Real Estate Transactions

By: Adam Troutwine

real challenges. real answers. sm

INTRO

� Adam Troutwine, Associate - Environmental PG � Over 8 years experience in Environmental Law:

– Environmental permitting, primarily for rock quarries, asphalt plants, landfills and construction projects;

– Heavy emphasis on real estate matters.


PRESENTATION – Will Cover Basics of Environmental Law Applicable to RE Transactions:

� Key Statutes.� Important Liability Defenses or “Safe Harbors.”� Role of Due Diligence, and how much diligence

is required (Phase I/II, documents, regulatory compliance, etc.).

� Contractual Provisions. � Resources to Address Environmental Issues and

Keep the Deal Alive.


ENVIRONMENTAL ISSUES

� Can seem like the “Bermuda Triangle” – Issues Arise and the Deal Disappears Forever

� Today: Equip you with tools to know these issues when you see them, and respond accordingly, or....


ENVIRONMENTAL ISSUES

…Call your environmental colleagues to help savethe day!!


KEY STATUTES that Govern Environmental Issues

� CERCLA – The Comprehensive Environmental Response, Compensation, and Liability Act, “Superfund” 42 U.S.C., §§ 9601 et seq:– Broad Federal authority to respond directly to releases or

threatened releases of hazardous substances that may endanger public health or the environment.

– Enacted because of toxic waste dumps such as Love Canal and Times Beach in the 1970s.


CERCLA (continued)

– CERCLA liability is:

� Retroactive – Prior to 1980

� Joint and Several - Any one PRP may be held liable for the entire cleanup of the site

� Strict - If a PRP sent some amount of the hazardous waste found at the site, that party is liable


CERCLA (continued)

– CERCLA liability is triggered if:

� Hazardous wastes are present at a facility

� There is a release (or a possibility of a release) of hazardous substances

� Response costs have been or will be incurred; and

� The defendant is a liable party.


CERCLA (continued)

– A PRP is potentially liable for:� Government cleanup costs;� Damages to natural resources (e.g., to a fishery);� The costs of certain health assessments; and� Injunctive relief (i.e., performing a cleanup) where

a site may present an imminent and substantial endangerment.


CERCLA (continued)

– There are four classes of Superfund liable parties:� Current owners and operators of a facility;� Past owners and operators of a facility at the

time hazardous wastes were disposed;� Generators and parties that arranged for the

disposal or transport of the hazardous substances; and

� Transporters of hazardous waste that selected the site where the hazardous substances were brought.


CERCLA (continued)

– Defenses to CERCLA liability are limited to cases in which the release was caused by:� An act of God;

� Acts of war; or

� Acts/omissions of a third party with whom a PRP has no contractual relationship ("third-party defense") – To Be Discussed Later;

– BFPP– Lender– Contiguous Property Owner


CERCLA (continued)

� “Hazardous Substances” under CERCLA – does not include Petroleum or Petroleum Products.

� Defenses will not apply to cleanups of petroleum


KEY STATUTES that Govern Environmental Issues: RCRA

� RCRA - The Resource Conservation and Recovery Act (42 USC § 6901 et seq.) – regulates the disposal of solid and hazardous waste:– Regulates the management of solid waste (e.g., garbage), hazardous waste, and

underground storage tanks holding petroleum products or certain chemicals.


RCRA (continued)

– RCRA regulations establish a "cradle-to-grave" system governing hazardous waste from the point of generation to disposal.

– RCRA hazardous wastes include the specific materials listed in the regulations and materials which exhibit a hazardous waste characteristic (ignitability, corrosivity, reactivity, or toxicity).

– Regulated entities that generate hazardous waste are subject to waste accumulation, manifesting, and recordkeeping standards. Facilities that treat, store, or dispose of hazardous waste must obtain a permit.


RCRA (continued)

– RCRA also contains provisions for conducting corrective actions that govern the cleanup of releases of hazardous waste.

– Although RCRA is a federal statute, many states implement the RCRAprogram. Currently, EPA has delegated its authority to implement various provisions of RCRA to 46 of the 50 states, including MO & KS

– Most RCRA requirements are not industry-specific but apply to any company that generates, transports, treats, stores, or disposes of hazardous waste.


RCRA (continued)

– Solid waste means any garbage or refuse; sludge from a wastewater treatment plant, water supply treatment plant, or air pollution control facility; and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities. Solid wastes include both hazardous and nonhazardous waste.

– A waste may be considered hazardous if it is ignitable (i.e., burns readily), corrosive, or reactive (e.g., explosive). Waste may also be considered hazardous if it contains certain amounts of toxic chemicals.

– In addition to these characteristic wastes, EPA has also developed a list of over 500 specific hazardous wastes. Hazardous waste takes many physical forms and may be solid, semisolid, or even liquid.


CLEAN WATER ACT

� CLEAN WATER ACT – 33 U.S.C. §1251 et seq. (1972):– The Clean Water Act (CWA) establishes the basic structure for

regulating discharges of pollutants into the waters of the United States and regulating quality standards for surface waters.

– The CWA made it unlawful to discharge any pollutant from a point source into navigable waters, unless a permit was obtained. EPA's National Pollutant Discharge Elimination System (NPDES) permit program controls discharges.


CLEAN WATER ACT (continued)

– Individual homes typically do not need an NPDES permit; however, industrial, municipal, and other facilities must obtain permits if their discharges go directly to surface waters.

– In most cases, the NPDES permit program is administered by authorized states, including MO and KS.

– EPA defines the term waters of the United States, to include: Navigable waters, Tributaries of navigable waters, Interstate waters, and Intrastate lakes, rivers, and streams which are: used by interstate travelers for recreation and other purposes; sources of fish or shellfish sold in interstate commerce; or utilized for industrial purposes by industries engaged in interstate commerce.


Clean Water Act (continued)

� The two basic types of NPDES permits: individual and general permits.– An individual permit is a permit specifically tailored to an individual

facility. – A general permit covers multiple facilities within a specific category with

common elements, such as: Storm water point sources; Facilities that involve the same or substantially similar types of operations; Facilities that discharge the same types of wastes or engage in the same types of sludge use or disposal practices.� Example – Construction General Permit



– NPDES General Permit - stormwater discharges from construction sites� Operators of construction sites that are one acre or larger may be required

to obtain authorization to discharge stormwater under an NPDESconstruction stormwater permit.

� Most states are authorized to implement the Stormwater NPDES permitting program, including MO & KS.

� MO & KS both have a construction General Permit, which sets out discharge limits, BMPs and monitoring requirements.



– Other Permits Under the Clean Water Act:� SECTION 404 Permits – Issued by US Army Corps of Engineers - Section

404 of the Clean Water Act (CWA) establishes a program to regulate the discharge of dredged or fill material into waters of the United States, including wetlands.

� Activities in waters of the United States regulated under this program include fill for development, water resource projects (such as dams and levees), infrastructure development (such as highways and airports) and mining projects.

� Individual or general “Nationwide Permits” can be issued.– Individual Permits if activity will have potentially significant impacts on waters of

the US.

– Nationwide Permits if minimal adverse effects. For example, minor road activities, utility line backfill, and bedding are activities that can be considered for a general permit.

– Related: Floodplain fill, stream crossing, etc.


Endangered Species Act

– Endangered Species Act:� Under the ESA, species may be listed as either endangered or threatened.� “Endangered” means a species is in danger of extinction throughout all or a

significant portion of its range. “Threatened” means a species is likely to become endangered within the foreseeable future.

� As of January 2013, the FWS has listed 2,054 species worldwide as endangered or threatened, of which 1,436 occur in the United States.


Endangered Species Act (continued)

– The ESA prohibits the “take” of listed animals, except under Federal permit.� Take is defined as “to harass, harm, pursue, hunt, shoot, wound, kill, trap,

capture, or collect or attempt to engage in any such conduct.” Through regulations, the term “harm” is defined as “an act which actually kills or injures wildlife. Such an act may include significant habitat modification or degradation where it actually kills or injures wildlife by significantly impairing essential behavioral patterns, including breeding, feeding, or sheltering.”


Endangered Species Act (continued)

� Federal agencies must promote the conservation purposes of the ESA and to consult with the FWS and NMFS to ensure that effects of actions they authorize, fund, or carry out are not likely to jeopardize the continued existence of listed species.

– Thus, if federal nexus (funding or permit), federal agency must consider impact to T&E species.

� Consultation process established whereby landowners/developers survey site for T&E species or habitat, and submit findings to state/federal agency.

� If species presence confirmed in pre-project survey, develop mitigation plan or obtain take permit and develop habitat conservation plan.

– Mitigation can include credits in a conservation bank, moving project (resiting) or development of substitute habitat.


Kansas Water Appropriation Act

� KS Water Appropriation Act:– K.S.A. 82a-701 through 82a-737 and 82a-740 through 82a-743a

and K.S.A. 42-303 and 42-313� All water owned by State.� State grants permits to appropriate water (except domestic uses). � 1st in time, 1st in Right - the earliest water right or permit holders have first

rights to use the water.� Permitted water rights can be an asset to property, increasing value.� Unless expressly severed in a deed, water rights typically transfer with the

land.� No such water appropriation scheme in MO.


Kansas Water Appropriation Act (continued)

– Know the status of water rights and whether they transfer with the property.

– If acquiring water rights, be careful the permitted use matches the intended use of the property.


KEY DEFENSES/EXCEPTIONS to ENVIRONMENTAL LAWS

� CERCLA – defenses are especially important in real estate transactions because liability immediately attaches once you become an “owner” – doesn’t matter if you caused the contamination or operated the site when contamination occurred.– Act of God;– Act of War;– Acts/omissions of a third party with whom a PRP has no

contractual relationship ("third-party defense");


KEY DEFENSES/EXCEPTIONS to ENVIRONMENTAL LAWS

– The Third Party defense (42 U.S.C. 9607(b)(3) is probably the most important CERCLA defense. To assert the defense, a defendant must satisfy the following four elements or prongs:� The release was solely caused by a third party;

� The defendant had no direct or indirect “contractual relationship” with the third party;

� The defendant exercised due care with respect to the hazardous substances; and,

� The defendant took precautions against the foreseeable acts or omissions of third parties.


KEY DEFENSES/EXCEPTIONS to ENVIRONMENTAL LAWS (continued)

– The “contractual relationship” language was problematic in real estate transactions. Thus, Congress created a sub-set of liability protections known as the “innocent landowner defenses”:� Applies to innocent landowners and those who acquire property by inheritance or

bequest. A “contractual relationship” is deemed to not exist when a purchaser does not know and has no reason to know of the hazardous substance contamination at the time of purchase. To be eligible for the innocent landowner defense, a landowner must show that:

– The landowner acquired property after all hazardous substances were disposed of at the facility;

– On or before the acquisition date, the landowner conducted all appropriate inquiries into the previous ownership and uses of the facility consistent with good commercial or customary standards and practices;

– The landowner did not know, and had no reason to know, of the hazardous substance contamination at the time of purchase;

– The landowner exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances;

– The landowner complied with all continuing obligations after acquiring the property; and– The landowner took adequate precautions, meaning it took affirmative acts, against foreseeable

acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions.

– The criteria for satisfying the innocent landowner defense are set forth in 42 U.S.C. §§9607(b)(3) and 9601(35).



� Bona Fide Prospective Purchaser (BFPP) Defense –Amendments in 2002 established the bona fide prospective purchaser defense to CERCLA liability. A bona fide prospective purchaser is a person who acquires ownership of a facility after January 11, 2002, and who establishes the following by a preponderance of the evidence:

– The hazardous substances disposal occurred before the purchaser acquired the property;

– The purchaser made all appropriate inquiries , as described below, into the previous ownership and uses of the facility;

– The purchaser complies with all continuing obligations after acquiring the property, as described below; and

– The purchaser has no affiliation with any potentially responsible party, as described below.

– NOTE: A party may purchase property with knowledge of the contamination after performing all appropriate inquiries and still qualify for the bona fide prospective purchaser defense, provided that it meets the other criteria set forth above (See 42 U.S.C. § 9601(40).



� Contiguous Property Owners - The Brownfields Amendments (2002) exclude from the definition of “owner” or “operator” a person who owns property that is contiguous or otherwise similarly situated to a facility that is the only source of contamination.

� A party seeking to assert the contiguous property owner defense must show that:

– The person did not cause, contribute to, or consent to the release or threatened release of hazardous substances;

– The person made all appropriate inquiries into the previous ownership and uses of the facility;

– The person did not know and had no reason to know that the property was or could be contaminated by a release or threatened release of hazardous substances from other real property not owned or operated by the person;

– The person complied with all continuing obligations after acquiring the property; and

– The person had no affiliation with any potentially responsible party, as described below.

� The criteria for satisfying the contiguous property owner defense are set forth in 42 U.S.C. § 9607(q)(1)(A).



� A common theme: the all appropriate inquiry� “Persons seeking to establish one of the liability protections [referenced above] must

conduct investigations, including an inquiry by an environmental professional, to identify conditions indicative of releases or threatened releases of hazardous substances.” 40 C.F.R. Part 312.1.

� Part 312.11 states that the American Society for Testing and Materials (“ASTM”) E1527-13 standard, entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” may be used to comply with the rule and satisfy the “ALL APPROPRIATE INQUIRY” requirement.



– What’s this mean? GET A PHASE I (that complies with the ASTM standard) –� Cost of a Phase I ($1000 to $2000 on average) are minimal compared to the cost of

investigation and cleanup to state/EPA standards if contamination is discovered.

� Phase I’s have a shelf life of 1 year –

– Phase I’s must be conducted or updated within one year of acquiring ownership of a property.

– Certain aspects of all appropriate inquiries, such as interviews with past and present owners, operators, and occupants, the review of government records, visual site inspections, and searches for environmental cleanup liens, must be conducted or updated within 180 days prior to acquiring ownership of the property.



– A Phase I report may use information and results from an earlier inquiry, subject to the following restrictions:

� The information was collected in compliance with CERCLA under previous AAI standards; � The information was collected or updated within one year prior to the date of acquisition; � The same components that need to be updated in general must also be updated

� interview former and current owners, operators, and occupants; � search for records of environmental cleanup liens; � review federal, state, local, and tribal government records; � visually inspect the facility and adjacent properties; and � a declaration by the environmental professional in charge); and� The information is supplemented to include relevant changes in the property, as well as

any specialized knowledge of the person acquiring the property and the responsible Environmental Professional.



� An Environmental Professional must conduct or oversee Phase I. – EPA defines an “environmental professional” as someone who

possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases on, at, in, or to a property, sufficient to meet the objectives and performance factors of the rule, and has:� A state- or tribal-issued certification or license to perform environmental

inquiries and three years of relevant full-time work experience; or� A Baccalaureate degree or higher in science or engineering and five years of

relevant full-time work experience; or� Ten years of relevant full-time work experience.



� What to Look For in Choosing an “Environmental Professional”:

– Reputable Company;– References;– Lender Comfort – Approved/Preferred List;– Sometimes, you get what you pay for:

� Cheapest isn’t always best;

� Example – Truckstop in Olathe.

– Confirm EP is using the appropriate ASTM standard. There is an 05, 08 and 2013 version. Indications are that the 05 version may be removed from the rule. Best practice to proceed with most recent 13 version.



� Ordering the Phase I– Attorney should sign service contract to protect a/c

and work-product privilege– Note liability limitations



� Aspects of the Phase I. – The EP must conduct the following activities during a Phase I:

� Interviews with past and present owners, operators, and occupants of the facility for the purpose of gathering information regarding the potential for contamination at the facility;

� Reviews of historical sources, such as chain of title documents, aerial photographs, building department records, and land use records, to determine previous uses and occupancies of the real property since the property was first developed;

� Reviews of Federal, State, and local government records, waste disposal records, underground storage tank records, and hazardous waste handling, generation, treatment, disposal, and spill records, concerning contamination at or near the facility;

� Visual inspections of the facility and of adjoining properties;

� Assessments of commonly known or reasonably ascertainable information about the property; and

� Assessments of the degree of obviousness of the presence or likely presence of contamination at the property, and the ability to detect the contamination by appropriate inspection.



� 2013 – Updated Phase I Standards1. New definition of RECs2. New emphasis on vapor intrusion risks3. Agency file reviews



� To qualify as a BFPP, the buyer must also conduct additional activities/consider additional information:

– Searches for recorded environmental cleanup liens against the facility that are filed under Federal, State, or local law;

– Assessments of specialized knowledge or experience on the part of the prospective landowner; and

– The relationship of the purchase price to the value of the property, if the property was not contaminated.



– A BFPP may use a Phase I prepared by or for another party to demonstrate AAI, but only under certain circumstances. � The report must meet AAI standard.

� Person seeking to establish the BFPP defense must review the existing report, conduct any inquiries the AAI standard requires, and update the results as necessary (conduct interview with previous owner/Seller, site visit, etc.)

� This scenario arises when Seller orders a Phase I and offers the report to the Buyer.

� Buyer must be careful to review the report for compliance with the standard and have the report updated properly.



– What Happens if the PHASE I Identifies Contamination?� Sale can go through, but a new owner must take further steps to qualify for the BFPP

defense.

– Must continue to “fully investigate the property” – conduct a Phase II:� Phase II consists of a “limited site investigation” – limited soil/groundwater testing and

analysis;� Usually costs between $6-10,000, and takes 2-4 weeks to complete.

– Must give appropriate notice to state/EPA:� MO & KS have statutory requirement notice be provided when contamination is

discovered above legal limits.

– Must exercise appropriate care with respect to the hazardous substances discovered by taking “reasonable steps” to stop any continuing release, prevent future releases, and prevent or limit exposure to existing releases.

– Must fully cooperate with anyone conducting remedial actions and must not interfere with any institutional controls (e.g., deed restrictions).

– Must not be potentially liable, or affiliated with any person potentially liable, for remedial costs at the property. See 42 U.S.C.A. § 9601(40).



� Secured Creditor (“Lender”) Defense:

– The secured creditor exemption is a two prong test: � First, a person must qualify as a “lender”; and

� Second, a person must not “participate in management”.

– “Lender” holds a security interest primarily to secure the repayment of money or other obligation of another person. Examples - mortgage, deed of trust, etc. 42 U.S.C. § 9601(20)(G)(iv).



– A lender is deemed to participate in management if it: � Undertakes decision-making control or responsibility for the facility’s

hazardous substance handling or disposal practices; or � Exercises control at the level of a manager over:

– Day-to-day decision making with respect to environmental matters; or

– The “operational functions (as distinguished from financial or administrative functions)” of the facility other than the functions of environmental compliance.

� Actions that will not qualify as “participation in management,” including:– Holding, abandoning or releasing a security interest;

– Including environmental covenants or warranties in a credit or security agreement;

– Monitoring or enforcing, or altering, restructuring or renegotiating, the terms and conditions of the extension credit or security agreement;

– Conducting one or more inspections of the facility;

– Requiring a response action “or other lawful means of addressing the release or threatened release of a hazardous substance”;

– Providing financial or other advice or counseling seeking to mitigate, prevent or cure default or diminution in value; and

– Exercising other legal remedies for the breach of a credit or security agreement. 42 U.S.C. § 9601(20)(F).



� The 1996 Amendments also added a safe harbor for lenders even after foreclosure on a contaminated property. – The lender must not have “participate[d] in management” of the facility prior to

foreclosure. – After foreclosure, the lender must be able to establish that it has made

commercially reasonable efforts to divest itself of the property at the earliest practicable, commercially reasonable time, on commercially reasonable terms, taking into account market conditions and legal and regulatory requirements. 42 U.S.C. § 9601(20)(E)(ii).� Lender is entitled to act as the owner of the property during the period prior to

divestiture, including by taking actions to sell, re-lease, or liquidate the facility, maintain business activities, wind up the operations of the business, undertake lawful means to address the release or threatened release of a hazardous substance, or take other measures to preserve, protect or prepare the facility prior to sale or disposition.

– Lender should document all efforts to market and sell the property in case of a later challenge to its protected status under the safe harbor.


THE IMPORTANCE OF DUE DILIGENCE

� It is clear a Phase I is crucial for securing the “innocent landowner” defenses discussed above:– Merely completing the Phase I/II is not enough.– To qualify for BFPP and other CERCLA defenses, Phase I must strictly comply

with applicable ASTM standard:� Courts have disqualified buyers from BFPP status because Phase I’s lacked the proper declaration,

EP’s were not qualified or neglected to list their qualifications, or because certain required sections in a report were missing;

� Must review Phase I side-by-side with ASTM standard and make the consultant fix issues/deficiencies.

– Also, cannot simply read the conclusions section:� May be unsubstantiated positions ;� May consistency errors or unclear findings � May be other issues identified in body of report


THE IMPORTANCE OF DUE DILIGENCE

� Scope of Phase I Does Not Include:– Asbestos

– Mold

– Lead Based Paint

– PCBs

– Lead in Drinking Water

– Mercury

– Abandoned Waste

– Radioactive Waste

– Radon


THE IMPORTANCE OF DUE DILIGENCE (continued)

� Phase I should serve as just one component of a larger due diligence approach:– Determine whether the property presents a liability risk.

� In addition to CERCLA, liability can arise under several other environmental laws (discussed above – RCRA, CWA, T&E Species, etc.), tort theories, environmental liens, use restrictions or permitting requirements

� Must have full understanding of all risk to properly evaluate transaction



– Tort Theories � Claims by individuals against a property owner for lowering property values or impacting

health because of contamination.

� There are three basic types of torts that an owner of an environmentally impacted property may see: Property damage; Toxic tort/personal injury; and Trespass/nuisance.

� Common example – leaking storage tank causes neighbors soil/groundwater to be contaminated, and neighbor brings a state law tort claim (trespass or nuisance) to recover loss of property value.

– Due diligence can help identify the potential for such claims.



� Land use restrictions –– May apply to contaminated sites where cleanup has occurred,

prohibiting the property from being used for certain purposes – As part of environmental cleanups, use restrictions are sometimes

imposed at sites where contamination is left in place at levels exceeding state standards.

– Most common in MO and KS – prohibition on residential development and use of groundwater on site (no groundwater drinking wells).

– Can also include requirements to maintain paved areas, berms with hazardous materials, groundwater monitoring/reporting, security fencing or other access restrictions, etc.

– EXAMPLE: Former Superfund site in KCK



� Environmental Liens –– Environmental liens may have been placed on property where the

government funds an environmental investigation or cleanup, which may be problematic to securing financing.

– The government may even place a “Superlien” on the property, under which the lien to repay the government for remediation will be given seniority over other liens (is mortgages).

� Permitting Issues – If acquiring an existing business with property, a review of the target business’ compliance with permitting requirements is key.

– Confirm the target has all required permits.– Has target complied with Permit terms? Violations? If so, will indicate the presence of

environmental issues.– Are permits transferable? Will want to know if Buyer will continue the business and ensure that

all permits are properly transferred at closing.



� State Transfer Acts –– Some states have mandatory “transfer acts,” which require generally

that parties seeking to buy or sell certain industrial facilities first conduct and report on environmental investigations and potential remediation.

– This can require additional time and/or consultation with government agencies and, in some cases, even require them to issue an approval before a transaction can be completed. See e.g., Connecticut Transfer Act, Conn. Gen. Stat. §§ 22a-134 et seq.; New Jersey Industrial Site Recovery Act, N.J. Stat. Ann. § 13:1K and N.J. Admin. Code § 7:26B.

– Neither MO or KS have Transfer Acts, but something to be aware of if working in CT or NJ especially.



� EXAMPLE – Teapot Dome.– History



� Teapot Dome – Due Diligence



� Not every case will require the same level of due diligence - each transaction must be given the appropriate level of scrutiny to fully vet environmental issues.

� Common Issues to Watch For in Due Diligence:� USTs/ASTs;� Former Dry Cleaning Operations;� Mold/Asbestos/Lead-based Paint (Buildings from early 1990’s);� Threatened and Endangered Species (new development).


PURCHASE AGREEMENT/CONTRACT CONSIDERATIONS

� Purchase agreement should allow time for due diligence - inspect the property, review permits and related documents and, if appropriate, test for hazardous substances.

� Seller should be required to provide all potentially relevant documentation concerning environmental conditions at and around the property.

� Buyer should have opportunity to access the site and perform necessary testing.


PURCHASE AGREEMENT/CONTRACT CONSIDERATIONS (continued)

� Seller will likely want to ensure confidentiality of investigation results and require that all of Buyer’s reports (Phase I/II) be shared.– Separate confidentiality agreement may be appropriate for due diligence.

� Seller will want to minimize and control disruptions to current business operations as a result of diligence activities – restrict the time of on-site activities and coordinate with Buyer ahead of time.

� Pay attention to environmental definitions – “Environmental Laws”, “Hazardous Substances” – will influence the terms and scope of the agreement.– Depending on the transaction and preference of the parties, definitions can be

broad or very specific.



– Compare:� “Environmental Law” means any Law issued or promulgated by a Federal or State agency, in effect

on the Execution Date relating to the control of any pollutant or protection of the air, water, land, or the Release or disposal of Hazardous Substances.

With

“Environmental Laws” means any federal, state or local statute, law, regulation, code, ordinance, or rule of common law currently in effect relating to the protection of human health and safety or the environment or natural resources, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (I5 U.S.C. § 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 et seq.),The Medical Waste Tracking Act (42 U.S.C. § 6992 et seq.), the Oil Pollution Act (33 U.S.C. § 2701 et seq.), the Emergency Planning and Community Right to Know Act (42 U.S.C. § 11001 et seq.), the Industrial Site Recovery Act (N.J.S.A. 13:1k-6 et seq.) (“ISRA”); the New Jersey Water Pollution Control Act, N.J.S.A. 58:10A-1 et seq.; the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (“Spill Act”); the New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-22 et seq.; the Brownfield and Contaminated Site Recovery Act, N.J.S.A. 58:10B-1 et seq.; and the New Jersey Solid Waste Management Act, N.J. S.A. 13:1 E- 1 et seq., each as amended or supplemented, any analogous present federal, state or local statutes, laws, codes and ordinances, and the rules and regulations promulgated pursuant thereto; provided, however, Environmental Laws does not include laws regarding worker or patient health and safety.



– Compare:� “Hazardous Substances” is defined at 42 U.S.C. § 9601(14).

With

“Hazardous Materials” shall mean (i) any hazardous or toxic waste, substance, or material defined as such in (or for the purposes of) any Environmental Laws; (ii) asbestos containing material; (iii) medical and biomedical waste; (iv) polychlorinated biphenyls; (v) petroleum products and its by products, including gasoline, fuel oil, crude oil, and other various constituents of such products; and (vi) any other chemicals, materials or substances, which is defined as ”hazardous waste,” “hazardous substance,” “hazardous material,” “restricted hazardous waste,” “industrial waste,” “solid waste,” “contaminant,” “pollutant,” “toxic waste” or “toxic substance”, exposure to which is prohibited, limited or regulated by any Environmental Laws.



� Representations and Warranties – important for Buyer to get Reps and Warranties about the environmental condition and past uses of the property, as well as the Seller’s compliance with environmental laws and permits. Seller obviously wants to limit Reps & Warranties. – Common Reps/Warranties of Seller:

� There has been no discharge of Hazardous Materials at, in, on or to the Property presently or in the past.

� Seller has at all times complied in all material respects with Environmental Laws.� Seller has not received any written notice of any claim, citation, order, complaint, notice of violation or

investigation related to an actual or alleged violation of any permit or Environmental Law.� There are no current or threatened claims, actions, suits, investigations or proceedings before any

Governmental Authority related to a discharge of Hazardous Materials from the Property or Seller’s violation of any Environmental Law or permit.

� There are no current or former underground storage tanks on the Property, and any such underground storage tanks have been removed or abandoned in place in accordance with Environmental Laws.

� To Sellers’ Knowledge, no facts or circumstances exist which could reasonably be expected to result in any material liability with respect to the violation of any applicable Environmental Laws with respect to the Property in connection with (i) any release, transportation or disposal of any Hazardous Materials, or (ii) any action taken or omitted that was not in material compliance with or was in violation of any applicable Environmental Law.


RESOLVING ENVIRONMENTAL ISSUES

� Adjustments to Purchase Price.� Allocation of Remediation Responsibility.� Environmental Insurance:

– Private Marketplace;– MO & KS UST Fund;– Drycleaners Remediation Fund – Check Status.

� Voluntary Cleanup Program.� Brownfield Redevelopment.


CONTACT INFORMATION

� Contact:Adam Troutwine816-572-4759

[email protected]

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About Polsinelli

Polsinelli provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this material does not establish an attorney-client relationship.

Polsinelli is very proud of the results we obtain for our clients, but you should know that past results do not guarantee futureresults; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements. © 2015 Polsinelli PC. In California, Polsinelli LLP.

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Polsinelli, a national law firm ranked among the Am Law 100 with over 740 attorneys located in 19 offices, deliberately seeks constant improvement in all that we do. At its inception more than forty years ago, the firm established a culture of openness and entrepreneurship that still pervades today. As the fastest growing U.S. law firm for the past six years as ranked by The American Lawyer*, the firm’s growth has been fueled by the recruitment of like-minded attorneys from top law firms across the country.

Polsinelli attorneys successfully build enduring client relationships by providing practical legal counsel infused with business insight, and with a passion for assisting General Counsel and CEOs in achieving their objectives. The firm focuses on healthcare, financial services, real estate, life sciences and technology, and energy and business litigation, and has depth of experience in100 service areas and 70 industries.

*The American Lawyer 2013 and 2014 reports

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