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Similar a Due Diligence - Property Transactions
Similar a Due Diligence - Property Transactions (20)
Due Diligence - Property Transactions
- 1. Time for Good Buys: Acquisition Due Diligence December 2nd, 2010 Daniel Spandau Senior Consultant DJS Consulting Inc. David H. Quigley
Notas del editor
- TIME: 0:00-0:10 Obviously, one of the reasons our groups work together is CERCLA Comprehensive Environmental Response, Compensation, and Liability Act Paul to give his background, cut his teeth on Love Canal, etc. CERCLA is like Match.com for our two groups A little background will explain why
- TIME: 0:10-0:12 CERCLA hard to defend against For all intents and purposes, a strict liability statute Discuss exceptions (these will appear one at a time) Act of God (picture shows chemical drums “distributed” into residential areas by Hurricane Katrina) (discuss freedom from liability for these drums to current owners, prospective purchasers) Act of War (rarely used; perhaps discuss 9-11 or potential attack on chemical facility) Third Party Focus of discussion today Most utilized defense Now used to absolve current owner (or new purchaser) from sins of owners past
- TIME: 0:12-0:14 Defense gave way to reality that many sites contaminated Without limits on third party defense, could get sham, or at least undesirable, transactions Party pollutes site, then sells New owner claims Act of Third Party, skirts liability Government must track down old owner to cleanup site Significant limits as a result In general, prospective purchasers, lessees, etc. cannot use third party defense Where they can: If they are innocent purchasers Our sections work together to establish that our clients meet the definition of innocent
- TIME: 0:14-0:17 Who is innocent for purposes of CERCLA such that they can avoid liability? Cannot know of contamination prior to acquisition Cannot have reason to know of contamination While we will not discuss in great detail today, also must take steps post-acquisition to preserve the privilege (go through bullets) How do you know when you have reason to know? Due diligence Regulations tell us how hard we have to look, what to look for (in other words, prescribe when due diligence is done) Note: bottom bullet will slide off bottom of page to transition to how we determine what due diligence required prior to new rule
- TIME: 0:17-0:25 Point out how you find it “odd” that you have to establish not knowing something The due diligence you are used to (pre-new rule) EPA regulations referenced ASTM standard E-1527-00 2000 standard promulgated by group Explain a little about the group, essentially a professional organization like ISO, etc. Consultants call it E-1527; you and I are more likely to refer to it as a Phase I NEED TO GO THROUGH ELEMENTS WITH EMPHASIS ON AREAS THAT WILL CHANGE Focus is on Recognized Environmental Conditions – presence or likely presence of any hazardous substances that indicate an existing or past release (talk about how this is essentially a standard that requires PROOF OF CONTAMINATION, i.e. not a problem unless you see release) Prospective purchaser hires consultant (rarely involved beyond that) Any environmental consultant can perform; not rocket science (typically a low-level newcomer) Walks site (and ONLY looks on-site) for obvious evidence of staining, tanks, etc. Knocks on door to try to interview manager, may call current owner, last know number, etc. (not much more) Will review federal and state databases only (go through ERNS, Sanborne, what they show) Review will date back to 1940 or earliest known development, whichever is earlier Must close within 6 months of report to get full protections, consider information up-to-date Can leave items needing further investigation (USE EXAMPLES SIMILAR TO THESE, to be picked up again in second half of presentation) If need further review to identify, delineate presumed spill from neighboring property, that’s ok (again, need proof there IS a release affecting Site for it to be a problem…creates incentive not to look deeply, live in ignorant bliss) Similarly, if know UST was pulled next door, but no records show whether it was clean, that’s ok No phase II requirement
- TIME: 0:25-0:30 All of that changed on November 1, 2005 New regulation takes effect November 2006 Replaces “Phase I” parlance with “All Appropriate Inquiry” Much more stringent Includes requirements for the owner/prospective purchaser (cannot just select consultant and then sit on sidelines) Sets requirements for who can be a consultant, what they must do Transition/introduction of DQ
- TIME: 0:30-0:35 Purchaser no longer on sidelines Presumption that consultants are good at dirt and water issues Presumption that consultants not good at business side How much is property worth? Business side of particular industry New law makes purchaser responsible for doing some “corporate environmental due diligence,” to assist consultant Responsible for knowing if environmental cleanup lien Responsible for specialized knowledge about area, industry Ex: if you own a chemical facility and are buying a new one Ex: if you own a chemical facility and there is a chemical facility adjacent to a site you want to purchase Responsible for gauging reasonableness of purchase price If below market, need to ask why? Related to environmental concerns? Must provide above information to consultant Rule does not require (may, shall) ASTM standard requires Not surprising (written by engineers who want benefit of info) Effect of making it part of regulation, since if there is even one person out there doing this, then everyone else is not doing as much as they could if they don’t (otherwise, it’s just “most” appropriate inquiry, not “all”)
- TIME: 0:35-0:38 Purchaser not only one doing more Consultants do more, too Oh, and not called consultants anymore, now are “Environmental Professionals,” or EPs As we will discuss, making more judgment decisions, EPA decided needed to be more qualified Go through bullets “ Relevant Experience” = ability to perform environmental site assessments, understand surface and subsurface environmental conditions
- TIME: 0:38-0:42 Site visit Paul talked about walking the site, looking at everything on-site Obligation used to end there, no longer does; must walk up to edge of site and look out at adjacent properties Standard of what you’re looking for is different, too Used to look for RECs; evidence that there has been a release Almost an accounting term Recognized Environmental Condition I see the chemical sheen floating on the groundwater, so I know there was a release Now, looking to see if one can reasonably identify conditions indicative of a release and threatened releases don’t necessarily need to see or smell chemicals if conditions indicate there may have been a release, must follow up No more ignorant bliss; lack of proof of a release does not let purchaser off hook, must show no indications of release Drum in picture example Old system: drums are empty, but soil clear, no proof of release New system: empty drums indicate there may have been a release, but I don’t know. Data gap. No requirement for phase II under old system, now I have to fill the gap. Phase II, records review indicating burial of empty drums, etc. Paul’s example: spill on neighboring property
- TIME: 0:42-0:45 Probably most significant area of change comes in site interviews Old rule: “reasonable attempt to interview current owner/operator” New rule: MUST interview present owners; operators; occupants If many tenants, must interview major tenants, as well as anyone likely to use hazardous substances MUST interview owners of neighboring properties if your site visit showed those properties to be abandoned such that you could not gauge uses If cannot close your data gaps with above, must also interview past owners, operators, employees (many times, tenant will suggest “I’m just a restaurant, but I think there may have been a dry cleaner here.” Now you have to go find them).
- TIME: 0:45-0:48 Similar to old system, but add state and local, tribal Fire departments, etc. -- responsible for spill response, cleanup, sometimes tank registration One helpful item: just go back to first development If mall showed up in 1999, just search back until them Previously, had to go back to 1940
- TIME: 0:48-0:51 In some ways, more lenient (get one year, as opposed to six months) In practice though, still must update most important elements every six months Distinction without much of a difference
- TIME: 0:51-0:55 Paul: Greater certification requirements mean you will need to be more selective in choosing consultants. We can help. Also, while the rules are more onerous, there are exceptions we can help interpret. Vacant, previously undeveloped properties, for example, do not face same level of scrutiny. There are also exceptions for quantities or amounts of hazardous substances that, in EP’s opinion, “generally would not pose a threat to human health or the environment.” DQ: Recall that we discussed in the beginning that there are post-acquisition requirements a purchaser must comply with to maintain the innocent landowner protections. Those include taking “reasonable steps” to remedy any contamination identified during the due diligence. In those circumstances, a purchaser usually goes to a regulator prior to close to say “hey, we did our diligence using the new AAI rule and found the following.” State wants beneficial use of property, so has programs in place to help you. VRPs, Brownfields. Talk about GMAC Virginia site (comfort letter, etc.)