Monday, December 15, 2008

Property Condition Assessment or Phase I ESA?

In 2008, ASTM published “Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process” (ASTM E 2018-08) to define the process for conducting a Property Condition Assessment (PCA).

How does a PCA differ from a Phase I Environmental Site Assessment (ESA)?

Actually, a PCA and an ESA are complimentary, have only minimal overlap. An ESA is performed to identify “recognized Environmental Conditions (REC), which are related to releases or threatened releases of Petroleum Products and Hazardous Substances. An ESA report also has some specific regulatory aspects, related to Landowner Liability Protections (LLP). [Read more about LLPs]. ESA must be performed by “Environmental Professionals” meeting specific qualifications [Read more about qualification requirements].

If you are purchasing real estate and are concerned about environmental liabilities, a Phase I ESA is needed.

A PCA is also a type of due diligence, pre-purchase, pre-lease, or post-lease inspection. However, the PCA evaluates the physical condition of buildings, systems and equipment at the property. A PCA identifies “red flags”. There are no specific qualifications required for persons performing PCAs. Because if this, there is no guarantee that the assessor’s qualifications will meet the client’s needs, simply because the assessor uses the ASTM standard.

Caltha LLP performs Phase I ESA and PCA assessments for commercial and industrial properties nationwide.

For further information contact Caltha LLP at
Caltha LLP Website

Thursday, December 11, 2008

Regulatory Compliance Checklist - Role of Compliance in Environmental Due Diligence

Environmental compliance issues can have a significant financial impact and should be incorporated into the scope of environmental due diligence. A formal compliance audit may be considered, and may have some additional benefits in reducing future liabilities. [read more about recent changes to EPA Audit Policy as it applies to new owners] However, given time and access constraints, a formal audit may not always be feasible during due diligence. This issues are not addressed in a standard Phase I Environmental Site Assessment. Four key areas related to environmental compliance are of high importance:

Non-compliance Issues that Could Result in Capital Improvements. Correcting some non-compliance issues can cost significant amounts of money. For example, tanks without the required secondary containment are expensive to retrofit. Upgrades to pollution control equipment, such as wastewater treatment or air emission control can also be expensive. It is important to understand industrial site operations, so those compliance items which typically involve capital improvements can be highlighted.

Asbestos. The management of asbestos-containing materials is regulated under OSHA, and often is not considered under “environmental compliance”. Management of asbestos in-place requires an Asbestos Management Plan, specialized training and employee notification. Ultimately, if areas with asbestos are disturbed, added costs for handling and disposal of the asbestos material will be realized. Understanding whether asbestos occurs and how it being managed is important to factoring in these future costs.

Missing Permits or Approvals. Changes made at a facility overtime can require new permits, revision to existing permits or pre-approvals for agencies. Understanding what permits and approvals are required is sometimes a complicated task; the result is that upon reviewing the operations, missing permits or approvals can be discovered. “After-the-fact” permitting is often a difficult and expensive process. Capital improvements may be required to comply with the permits, once obtained. The affected processes might need to be shut down until proper permits are obtained. All of these consequences can have a significant financial impact, which should be addressed during the due diligence process.

Upcoming Regulations. The fourth area is upcoming regulations. Although a facility may be in compliance with current requirements, these requirements can change. Impending regulations should be considered to assess any additional costs that will be incurred for the operation. Imminent regulations could, for example, could involve changes to air rules which may require upgrades to pollution control equipment. International regulations on products may also apply; for example, the Waste Electrical & Electronic Equipment (WEEE) and Restriction of Hazardous Substances (RoHS) rules in Europe, which could impact US-based manufacturers.

Caltha LLP provides environmental due diligence services nationwide, specializing in Food, Manufacturing and Electric Utility sectors.

For further information contact Caltha LLP at
Caltha LLP Website

Monday, December 8, 2008

Planning Environmental Due Diligence - Two Key Questions

You have just received an email letting you know that your company is very close to acquiring a competitor. You have been assigned the responsibility to plan and oversee the environmental, heath & safety segment of the due diligence.

As any good manager would, your first inclination is to plan – what is your budget? What schedule do you need to meet? Two key questions will help structure your effort to assure you focus your time and resources optimally.

What is being acquired?

Although this seems straight forward – you might have even been given a list of addresses – in practice, this requires some careful consideration. The nature of the acquisition can create some nuances that will be very important to planning your task. Some different types of acquisitions are described below:

Land Only. As implied, only the land is being purchased, possibly for further development
Land and Buildings Only. In this case, the land and associated buildings are being purchased. The intent may be to continue the existing uses of the buildings and property, or after acquiring the real estate, your company may have a different use (e.g., different business type, different process, etc.).
Leased Facilities. Instead of purchasing real estate, your company may assume the leases at different properties.
Assets Only. In this case, your company may purchase the real estate and other assets, such as equipment, only. Typically, current employees are not transferred with the acquisition.
Business Acquisition. Here, the entire business is acquired – including both assets and liabilities. In this instance, EH&S liabilities can include previously-owned facilities and waste disposal liabilities which extend beyond the current list of properties.

It is not unusual for acquisitions that involve multiple sites to include several types of acquisition types. You may be acquiring some properties and taking over leases on other properties.

How is the acquisition being funded?

Although funding mechanisms can come in a multitude of formats,the key issue for your planning effort is whether it is a “cash” or “stock” transaction. Typically, the later may result in your company taking on of the more liabilities of the acquired company, including EH&S liabilities. If funded through a stock transaction, does it make sense to conduct due diligence? Absolutely! You need to understand the liabilities associated with the acquisition. You may also be able to mitigate some liabilities, such as missing environmental permits, prior to the transaction. [read more about revised EPA Audit Policy related to new owners]

For further information on planning environmental due diligence, environmental compliance assessments and audits, contact Caltha LLP.

For further information contact Caltha LLP at
Caltha LLP Website

Tuesday, December 2, 2008

New EPA Audit Policy Helps New Owners - Extends Liabilities for Sellers

Since 2000, US EPA has offered reduced enforcement for self-disclosure of environmental compliance violations. EPA’s policy document, “Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations” is commonly known as the “Audit Policy”. On August 1, 2008, the EPA published an interim approach to applying the Audit Policy to new owners that allows new owners to make a fresh start with the EPA. With the interim approach, the EPA recognizes that a new owner should not be penalized for the economic benefit component relating to violations that arose before a facility was under its control, as long as the new owner is willing to correct issues promptly and institute preventive measures.

Some key elements of the interim approach include:

  • Defining a “new owner” to ensure that the violations disclosed originated with the prior owner, and that the new owner was not responsible for the non-compliance disclosed;
  • Extending the time for reporting for up to nine months after closing the transaction;
  • Relief from the economic benefit component of the penalty for new owners; and
  • Applying five of the nine qualifying conditions differently to the new owner.

One of the important aspects of this policy is that non-compliance at the Seller’s facility can be reported to regulatory agencies before or soon after property transfer. In making the disclosure, the new owner can make the previous owner responsible for penalties, etc., especially associated with economic benefit component, related to the non-compliance. This stetches out the liabilities that could be assumed by the previous owner, and makes it more important to assure that facilities are in "material compliance" with applicable regulations.

For further information contact Caltha LLP at
Caltha LLP Website