As an economic development professional, finding and developing opportunities represents an enormous investment in time and financial resources. In these challenging economic times, it is vital that projects being worked have every opportunity to come to fruition. One of the many critical elements is ensuring your client has addressed environmental requirements. Addressing environmental early in the game is imperative to prevent costly delays.
Whether your client is purchasing, leasing, insuring or holding a mortgage, a Phase I Environmental Site Assessment (ESA) is a prudent decision and, in many cases, a requirement of lending institutions. In addition, to claim protection from liability, a prospective property owner must comply with the statutory requirements for obtaining the contiguous property owner or bona fide prospective purchaser liability defenses. Among these is the requirement to, prior to the date of acquisition of the property, undertake “all appropriate inquiries” into prior ownership and uses of a property. This refers to EPA’s All Appropriate Inquiries rule (EPA 560-F-05-240) also commonly known as “AAI.”
As of November 1, 2006, parties must comply with the requirements of the All Appropriate Inquiries Final Rule, OR follow the standards set forth in the ASTM E1527-05 Phase I Environmental Site Assessment Process, to satisfy the statutory requirements for conducting all appropriate inquiries. The AAI requirements are applicable to any public or private party who may potentially claim protection from CERCLA liability as an innocent landowner, a bona fide prospective purchaser, or a contiguous property owner.
The site, inclusive of exterior and interior, must be assessed for possible environmental impact. Of course, in many cases, a Phase I ESA will result in an acceptable site and no further action recommended. In other instances, a Phase I may have no recommended further actions, yet the buyer is still faced with the “cleaning” of a vacated building. This can lead to the buyer incurring unexpected costs or other environmental requirements, which can cause a deal to be delayed. Lastly, when environmental issues exist, further site investigation and possible clean up can be time consuming (with unpredictable time tables) and costly which will slow down a deal. This is why the sooner you involve an environmental professional, the better.
In the matter of a consolidation, give a friendly reminder to your client that this can cause permit levels to change, training requirements may increase — EPA, OSHA, DOT, DHS requirements should be re-evaluated based on the planned combined operation EARLY so that potential liabilities are diminished and the deal progresses as it should.
In the event your client is acquiring a functioning operation, in addition to the Phase I ESA, it is of utmost importance to continue the due diligence inside the building and evaluate the operation’s compliance status. Being out of compliance with the required regulations can negatively impact the value of a deal for the buyer or the seller. The key to success is minimizing surprises for all parties. Although, ultimately, most operations can be brought into compliance, if EPA, OSHA, DOT, DHS, etc. have not been adequately addressed, there are related costs and potential liabilities that must be considered.
In case studies through the years, the subject of environmental permitting – what is my client required to have to be compliant? – can many times create more questions than answers. This is another step that should be addressed during site identification or, at the very least, during site investigation (ESA). This is a safer bet than getting bad news (or surprises) after your client has settled on a site. Include a well-qualified consultant on the project team. Utilize the consultant for preliminary evaluation of regulatory applicability that will provide an understanding of expected costs, timelines and resources.
Once the initial evaluation is complete, a task list should be put in place under the “environmental” category on the project schedule. This ensures all applicable parties are on the same page and, most importantly, things progress in a timely manner. Permitting timelines vary from region to region and, in some cases, an operation may be required to apply for permits up to nine months prior to construction.
Not all Site Investigation or Compliance Due Diligence work is created equal! Ensure you are NOT just considering price when checking these steps off your list – qualifications matter. The provider must conduct due diligence that includes a thorough walk-through of the entire site – interior and exterior of all areas of the building(s), and property line to property line. A Phase I can result in the need for further site investigation, which of course can be costly and delay a project. Take the AAI guidance on criteria for an environmental professional to heart. Request specific information about the provider’s experience and methodology. Working with the right provider from the beginning can make a substantial difference in the outcome of the project.
About the Author: Cindy Madrick, is the Vice President of Business Development for Cornerstone Environmental, Health and Safety, Inc. Ms. Madrick manages multi-facility accounts by counseling clients in the areas of site selection/investigation and acquisition due diligence, EH&S compliance management, quality certifications and implementation of sustainable business practices in: automotive, plastics, primary metal, logistics, printing and packaging. www.corner-enviro.com