Tuesday, December 20, 2016

Five Things Every Realtor Needs To Know When Representing Contaminated - Potentially-Contaminated Properties

Representing a property with known or potential environmental issues creates special challenges for the commercial real estate professional. This could include properties with old tanks and old spills or leaks - even those that may long ago been have been cleaned up and closed by State agencies.

Although more challenging, such properties can be sold in a reasonable time frame, while minimizing the liabilities of both the Seller and the Buyer. Five key points the real estate professional must keep in mind are :

1 - The Seller "Owns" The Liabilities.

Until the transfer of ownership, the Seller (the current property Owner) owns the environmental liabilities on the property. A prospective Buyer is motivated to identify these liabilities to determine if they could impact the value of the property or restrict their use of the property. In the absence of definitive information, Buyers will tend to over estimate the impact of these potential or actual liabilities, on the value of the property.

2 - Sellers Cannot Control Future Use Or Activities On the Property & Cannot Control A Buyer's Future Risks.

When spills or leaking tanks are discovered on a property, the agency (typically the State) will oversee cleanup, either through enforcement actions or through a voluntary cleanup program. Once the agency determines that any remaining contamination at a site is no longer a significant risk , the agency will "close" the site or issue a "no further action", and allow any remaining contamination to be left in-place. The important point to remember is that this closure is an "as-is, where-is" approval. As long as property use remains the same, and any remaining contamination is left undisturbed, then this closure could be transferred to any future property owners. If a future owner chooses to change the property use, redevelop the property, etc., then the agency may need to be notified and further cleanup may be needed. A seller has no control over future actions on the property which could potentially reopen closed contamination issues.

3 - Plan Ahead For Buyer and Their Lender To Obtain Liability Protections.

If Buyers or their Lender require liability relief letters, such as a no further action or no association letter, you will need to factor in the time required for these issues to be addressed. It is important to remember that agencies will issue these letter only if contamination is actually documented on the property, not simply based on the possibility that contamination could be present. Therefore, in some cases a site investigation needs to be conducted. As an example, a typical scenario might be:2 weeks - Phase 1 Environmental Site Assessment
3-5 weeks - Phase 2 Investigation
1 week - Prepare and submit request to agency
4 weeks - Agency review and issuance of letter Therefore it is not unusual for it to take 10-12 weeks to go through the process.

4 - Buyers and Sellers Must Work Together

For a successful transaction, the Buyer and the Seller must work together. This may mean the Seller granting access to the property for a Phase 1 environmental site assessment and a Phase 2 investigation, if required. The Seller will also need to be involved if contamination is discovered so that proper agency notify occurs. This notification opens up a pathway for the Buyer and their Lender to get liability protection letters from the agency. Likewise, the Buyer will need to communicate all results to the Owner (if the Buyer directed a Phase 2 investigation) to ensure the Seller has the information they need to notify agencies. The Buyer will also want to let the Seller know if they intend to request liability protections from the agency - it is possible that the Seller can also request similar types of liability protections for themselves.

5 - Unfortunately New Issues Can Be Discovered.

One of the most challenging situations is when new contamination issues are uncovered, especially coming from neighboring properties. Leaking tanks and other sources of contamination are newly discovered each year, which can create additional issues which may need to be resolved between the Seller, Buyer, Lenders and the State agency. In addition, over time cleanup standards can change and new information on risks from contamination can "reopen" some closed issues. One example is the current interest in "soil vapor encroachment"; many leaking tank sites that were closed prior to 2010 were not evaluated to determine if contaminants are migrating though soils and into nearby buildings. Although these sites may be closed, they can be reopened to address soil vapors. Therefore, evaluations of soil vapor intrusion have become increasingly common, especially since 2013.

By understanding the process, the real estate professional can play an important role in transforming these formerly contaminated properties into usable and marketable properties, increasing their value and the value of nearby properties.

For more information go to:
Phase 1 Environmental Site Assessment Buyer's Guide
Regulatory Briefing - Landowner Liability Protections and All Appropriate Inquiry

Sunday, December 11, 2016

Five Things Due Diligence Auditors Should Know About New RCRA Rules

The Hazardous Waste Generator Improvements Rule (Federal Register Volume 81, Issue 228 , November 28, 2016) includes some new elements to the RCRA – some of which are more stringent compared to the existing rules and some less stringent. The rule becomes effective on May 30, 2017. The rule will affect all facilities that generate hazardous waste, regardless of size. Therefore, EH&S auditors should be aware of these rule changes and the clarifications the rule provides, especially in the Preamble, on EPA's interpretations of existing RCRA requirements for hazardous waste generators.

All auditors that review hazardous waste compliance as part of due diligence should review the final rule, including the Preamble. Some key points are:

1 - Clarifications on EPA's Expectations On Identifying & Handling Hazardous Waste.

The final rule provides clarifications auditors can refer to on how generators are expected to identify, characterize and manage wastes. Although this does not change existing requirements, the Preamble to the Rule discusses the accuracy of waste determinations, where in the process wastes should be characterized/sampled, and other technical clarifications auditors need to be aware of. Interestingly, EPA estimates that 20-30% of generators are currently not in compliance with existing rules on identifying and characterizing waste streams.
Because these clarifications to existing rules do not change rules, they are already "effective".

2 - Independent Requirements verses Conditions of Exemption.

For auditors, some of the more interesting portions of the Rule's Preamble provide a detailed discussion of "Independent Requirements" and "Conditions of Exemption". Although this provides useful clarifications to the existing RCRA rules, it does not change existing requirements. It also provides needed clarifications on how the different types of requirements are applied by EPA to RCRA enforcement action.
In summary, independent requirements are rules that apply to all hazardous waste generators, regardless of generator status. For example, the requirement to identify hazardous wastes. Conditions of Exemption are requirements generators can chose to meet in order to avoid more stringent requirements. For example, LQGs store wastes on-site for less than 90 days to avoid being regulated as a TSDF. They could elect to store wastes longer than 90 days, but would then be held to the requirements that apply to TSDFs.

3 - Sections of RCRA Rule Have Been Reorganized.

One of the purposes of the Hazardous Waste Generator Improvements Rule is to make the requirements for hazardous waste generators more accessible and logical, especially for new generators. To accomplish this, EPA has reorganized the sections of the RCRA generator rules, and many existing sections have been renumbered.
The practical implications of this change for auditors is that regulatory citations referencing the Federal rules in audit reports may change. Although not required, authorized States may opt to reorganize sections of State rules.
One of the challenges facing auditors will be auditing against State rules that incorporate portions of the Federal RCRA rules by reference, especially if references to 40 CFR are no longer accurate.

4 - Effective Date Will Have Limited Immediate Impact

The effective date of the final rule is May 30, 2017. However, the number of generators who will be subject to the Rule on that date is limited. The Rule will be effective on May 30th only for generators in States or Territories that do not have authorized RCRA programs, including:
  • Iowa
  • Alaska
  • Tribal Lands
For States with authorized RCRA programs, the Hazardous Waste Generator Improvements Rule (or portions thereof) will only become effective once State programs are updated. Auditors should be aware of one caveat - some States have incorporated Federal RCRA rules into their State rules by reference. Therefore, in those States the potential exists that revisions to the Federal Rule can be immediately effective.

5 - States Will Only Be Required To Enact Limited Changes To State Programs ; Differences Between State Programs May Increase.

The final Hazardous Waste Generator Improvements Rule includes elements that are more stringent compared to the existing rules and some elements that are less stringent (allow more flexibility). Authorized States will only be required to incorporate portions which are more stringent, and have the discretion to include, or not, those portions which are less stringent than existing State rules.
Therefore, environmental compliance auditors need to be cognizant that the differences between State program requirements for hazardous waste generators may increase as State programs are updated.

Click here for more detailed summary on the key changes to the RCRA requirements for hazardous waste generators.

Caltha LLP assists Sellers, prospective Buyers and their Lenders in meeting Due Diligence, Environmental Site Assessment and Environmental Review requirements. To request a quote on-line, go to Caltha Environmental Assessment Quote Web Page.
For further information contact Caltha LLP at info@calthacompany.com or Caltha LLP Website