6/25/14 Legal Perspective on Environmental Due Diligence & Liability Protection: An Overview Photos courtesy Brewer Economic Development Jonathan A. Pottle, Esq. Environmental Due Diligence: Why Should You Care About Environmental Contamination & Due Diligence? Ø Community & Environmental Health Ø Liability (statutory and common law) o What is your liability & available protecfons from liability? Ø Benefit of a deal and integrity of assets Ø Planning Ø Business opportunifes 1
Environmental Due Diligence: Are you Dealing With Contaminated Property? Ø Is your property contaminated? Ø Are you involved in a transacfon, associated, or otherwise connected to contaminated property? Ø Are you interested in redeveloping property that has or may have contaminafon? Ø What is your comfort/interest level in dealing with contaminated property? Environmental Due Diligence: How Do You Know if You are Dealing with Contaminated Property? Ø Environmental Assessments (generally): Study whether land, water, or structures are contaminated (on- site; migrafon) Ø Examples of Assessment Methods: Research (e.g., paper), intrusive & non- intrusive invesfgafons and analysis Ø Varying degrees of assessments Ø Why Conducted? q Property transfers/financing q Redevelopment q Ongoing compliance q Risk (e.g., abandoned sites) q Community/Environmental Planning 2
Liability Regime for Contaminated Property: Major Federal Laws Ø Comprehensive Environmental Response, CompensaFon, & Liability Act [CERCLA] Ø Addresses Sites Contaminated with Hazardous Substances q 1980 Original Law q Superfund Amendments and Reauthoriza9on Act of 1986 Expanded scope of hazardous waste cleanup and amount in Superfund q 1996 Amendments Secured Lenders & Fiduciaries Liability Exemp9on q Small Business Liability Relief and Brownfields Revitaliza9on Act of 2002 Provided relief for certain parfes and small businesses from liability (e.g., bona fide purchasers) PromoFon of clean- up and reuse Enhancement of state response programs Liability Regime for Contaminated Property: Major Federal Laws Ø CERCLA introduced statutory liability for contaminated sites q PotenFally Responsible ParFes [PRPs] Owner & Operators (current and past) Arrangers (treatment, disposal, or transport) Transporters Owners of hazardous substance treatment, storage, and disposal facilifes q Strict, Joint, & Several Liability (and RetroacFve, except for natural resource damages pre- CERCLA) q Examples of liability: removal costs, remedial costs, natural resource damages, health assessment/effects study costs 3
Liability Regime for Contaminated Property: Major Federal Laws Ø Resource ConservaFon & Recovery Act [RCRA] q Designed to prevent contaminafon q Requires correcfve acfon if contaminafon occurs q Liability for certain treatment, storage, and disposal facilifes of hazardous wastes ( cradle to grave ) q Generally applies to RCRA- permihed facilifes (though generators and non- permihed facilifes may also have liability in certain circumstances) Liability Regime for Contaminated Property: Major State Laws Ø Maine s Uncontrolled Hazardous Substance Sites Act (38 M.R.S. 1361 et. seq.) (Maine s CERCLA ) Ø Places where hazardous substances are or were handled or otherwise came to be located Ø PRPs (joint and several liability) q Owner or operator q Prior owner or operator q Arranger for transport or handling q Person who accepts hazardous substance for transport Ø Oil Storage FaciliJes & Groundwater ProtecJon Act (38 M.R.S. 568 et. seq.) Ø Hazardous MaPer Control Act (Maine s RCRA) 4
Potential Environmental Liability Can Discourage Transactions & Redevelopment Ø Environmental laws are very broad and the potenfal liability they impose tends to chill interest in contaminated property (and perpetuate potenfal risks to the environment & community) Ø However, there are certain exempfons and liability protecfons, funding sources, and other incenfves available Liability Exemptions & Protections Ø Acts of God Ø Acts of war Ø Acts of certain 3 rd parfes Ø Innocent landowner Ø ConFguous property owner Ø Bona fide purchaser Ø Lenders & Fiduciaries Ø Maine s Voluntary Response AcFon Program ( VRAP ) Ø MunicipaliFes (tax lien foreclosure) 5
Innocent Landowner; Bona Fide Purchaser; & Contiguous Property Owner Defense Ø The All Appropriate Inquiry ( AAI ) into the prior ownership and uses of the property CERCLA s Due Diligence Ø All Appropriate Inquiry (AAI) = possible liability protecfon (Federal law) Ø Phase I Environmental Site Assessment (ESA) by Environmental Professional = AAI Ø Due diligence study beyond Phase I; Phase II Site Assessments; Phase III RemediaFon (if required) Ø Maine s VRAP Program (uflizes Phase I, II, III Assessment Approach): UlFmate liability protecfon at the state level is achieved through the VRAP program Typical Players in a Transaction & Common Scenarios Ø Typical Players: Sellers, Purchasers, Lenders, & Governmental Facilitators; all players, to varying degrees, perform their own due diligence Ø Common Scenarios q Clean Property: No contaminafon when due diligence is performed; purchaser establishes standing as innocent landowner q Contaminated Property: Purchaser walks away Purchaser delays closing unfl seller cleans up property and secures cerfficafon of complefon Purchaser agrees to buy and obtains liability protecfon if certain condifons are met (or agrees to take on liability) ContaminaFon is from neighboring land and new purchaser agrees to certain acfons with respect to on- going cleanup 6
Incentives to Deal with Contaminated Property Ø Brownfields Program q Provides funds to states, communifes, tribes, & nonprofits to prevent, inventory, assess, clean- up, and reuse Brownfield sites q 3 Types of Funding Programs: Assessment Grants Revolving Loan Fund Programs Clean- up Grants Ø Maine s Groundwater Cleanup Program Ø Maine s Voluntary Response AcJon Program ( VRAP ) Ø Contracts Other Potential Incentives to Deal with Contaminated Property Ø Tax Increment Financing (TIF) Ø State CDBG (for planning, public infrastructure and commercial financing) Ø Pine Tree Zone Program (tax savings) Ø Federal and State historic tax credits Ø Local leadership Ø Long range planning (e.g., downtown plan) Ø Public Infrastructure (i.e. upgrade area roads, water/sewer Ø UFliFes, electric power, walking & bike paths Ø AcquisiFon, demolifon and environmental clean- up (by someone else ) 7
Benefit of Property Redevelopment Ø Turning unused or underused contaminated property into producfve, well- uflized property Ø Improvement in the appearance of a community and in the use of the property by a community Ø Liability protecfons for owners (and operators) of property Ø Improving economic condifons for property owners and communifes Environmental Due Diligence: Practice Pointers Ø Decide if you are really interested in contaminated property or property with suspect contaminafon Are the risks manageable and what are the potenfal rewards? - How much are you willing to spend on due diligence? Ø Research exisfng site informafon and conduct other types of due diligence reviews (e.g., land use restricfons; economic) Ø Do Not rely on owner/seller or any other person s representafons find out for yourself Ø Retain Appropriate Environmental Professional(s) don t rely solely on yourself if you are not qualified (or other unqualified persons) Ø UFlize available liability protecfons and incenfves (e.g., VRAP) to negofate and gain comfort & confidence in a transacfon Ø Ensure ongoing environmental compliance (and/or get liability protecfon/ indemnificafons) 8
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