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

Wisconsin Phase 2 Vapor Encroachment Study - Tier I Vapor Encroachment Screening Assessment

In 2013, US EPA determined that exposure due to vapor intrusion, also referered to as vapor encroachment, needed to be evaluated prior to closure of federal CERCLA sites. In response, many States now include vapor intrusion in site investigations for closure of LUST, LAST and voluntary cleanup sites run by the State. In practice, this has resulted in reassessment of numerous closed sites, and investigation of soil vapor on nearby sites.


Caltha LLP provides expert technical support to conduct vapor intrusion investigations in Wisconsinin conformance with WDNR guidelines and soil vapor intrusion screening values. Caltha conducts Tier I Vapor Encroachment Screening Assessment in accordance with ASTM Standard  E2600-10.


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

Tier I Vapor Encroachment Screening Assessment ASTM Standard E2600-10 For Iowa Properties

In 2013, US EPA determined that exposure due to vapor intrusion, also referered to as vapor encroachment, needed to be evaluated prior to closure of federal CERCLA sites. In response, many States now include vapor intrusion in site investigations for closure of LUST, LAST and voluntary cleanup sites run by the State. In practice, this has resulted in reassessment of numerous closed sites, and investigation of soil vapor on nearby sites.


Caltha LLP provides expert technical support to conduct vapor intrusion investigations in Iowa conformance with Iowa DNR guidelines and soil vapor intrusion screening values. Caltha conducts Tier I Vapor Encroachment Screening Assessment in accordance with ASTM Standard  E2600-10.

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

Vapor Intrusion Investigations In Minnesota Using MPCA Vapor Encroachment Guidelines

In 2013, US EPA determined that exposure due to vapor intrusion, also referered to as vapor encroachment, needed to be evaluated prior to closure of federal CERCLA sites. In response, many States now include vapor intrusion in site investigations for closure of LUST, LAST and voluntary cleanup sites run by the State. In practice, this has resulted in reassessment of numerous closed sites, and investigation of soil vapor on nearby sites.




Caltha LLP provides expert technical support to conduct vapor intrusion investigations in Minnesota in conformance with MPCA guidelines and soil vapor intrusion screening values. Caltha conducts Tier I Vapor Encroachment Screening Assessment in accordance with ASTM Standard  E2600-10.






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

Vapor Intrusion To Be Added To SUPERFUND Ranking

U.S. EPA is proposing to amend the ranking system used to assess potential “Superfund” sites to include potential vapor intrusion. The Hazard Ranking System (HRS), required by the Superfund statute, is the primary mechanism used by EPA to assess the relative threat associated with actual or potential releases of hazardous substances.

The HRS includes four scoring pathways - ground water, surface water, air and soil exposure. Additional pathways have been identified by EPA as posing significant threats to human health and the environment, and one such pathway is vapor intrusion. Vapor intrusion occurs when contaminants enter into indoor spaces, generally residences, from environmental sources such as contaminated ground water or contaminated soil.

Historically, EPA's Superfund program has responded to vapor intrusion contamination by two mechanisms: (1) through its emergency response program at sites not on the NPL, or (2) through sites placed on the NPL because of other pathway-related risks. In May 2010, the Government Accountability Office (GAO) issued a report that concluded that if vapor intrusion sites are not assessed and, if needed, listed on the NPL, some seriously contaminated hazardous waste sites with unacceptable human exposure may not otherwise be cleaned up. In response, EPA is proposing to add a new HRS pathway so that sites with vapor intrusion contamination can be evaluated for inclusion on the NPL.

EPA initiated rulemaking in January 2011, and currently expects final rules to be completed by January 2012.

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

Understanding Lender Environmental Liabilities and Environmental Review Requirements

Understanding Lender Environmental Liabilities and Environmental Review Requirements
Minnetonka, Minnesota
January 19, 2011, 9 am to 1 pm

This half day training seminar is being provided for individuals who have responsibilities for managing liabilities associated with commercial lending, and those needing to meet environmental due diligence requirements prescribed by the U.S. Small Business Administration (SBA).

Agenda

Legal and Regulatory Aspects of Lender Environmental Liability
Lenders need to be aware of potential environmental liability associated with the past use of property. Federal and state environmental laws impose financial obligations, including investigation and response costs, on parties who own or operate sites where there has been a leaking underground tank or a release of hazardous substances. Lenders need to be aware of liability arising from impacts to soil and groundwater and the emerging issues associated with vapor intrusion. This session will focus on due diligence review, the All Appropriate Inquiry standard and liability assurances that are available to Lenders and Borrowers to address these liability concerns.

Lender Liability Protection and Due Diligence Tools
A number of tools are available to lenders to help evaluate and manage potential risks. These range from simple Environmental Questionnaires to more extensive environmental reviews. This session will provide an overview of the typical assessment tools, including transaction screening, Phase 1 and 2 environmental site assessments. The session will also cover a specific type of assessment process required by SBA, a “Records Search With Risk Assessment”. Finally, the session will discuss the use of Reliance Letters by Lenders and SBA.

Overview of SBA Environmental Policies and Procedures
Since 2008, SBA has been much more prescriptive in the required level of environmental review to participate in SBA lending programs. This session will provide an overview of environmental review requirements in SBA Standard Operating Procedure SOP 50-10(5), which applies to 504 Loan programs, and SOP 50-51(3), which defines the Post-default Environmental Investigations required by SBA.

Case Studies
During the final session, case studies will be presented to emphasize the key concepts of Lender Environmental Liabilities.

For further information go to:
Understanding Lender Environmental Liabilities and Environmental Review Requirements



Caltha LLP, a leading provider of environmental due diligence services to the banking industry
Minneapolis, MN, Pine River, MN, Eau Claire, WI, Tucson, AZ
www.calthacompany.com

Small Business Review Panel Of CERCLA Financial Responsibility Requirements For Hard Rock Mining

The U.S. Environmental Protection Agency (EPA) is seeking self nominations from small businesses to participate in a Small Business Advocacy Review (SBAR) panel on a proposed rule that would establish financial responsibility requirements for classes of facilities within the hard rock mining industry. The requirements will be developed under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund).

The Regulatory Flexibility Act requires EPA to establish a federal panel for rules that may have a significant economic impact on a substantial number of small entities. The SBAR panel will also include representatives from the Small Business Administration, the Office of Management and Budget and EPA.

The panel will ask a selected group of Small Entity Representatives (SERs), to provide advice and recommendations on the proposed rule to the panel. The agency is seeking self-nominations directly from small entities that may be subject to the rule requirements. Self-nominations may be submitted through December 20, 2010.

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

CERCLA Financial Responsibly For Mining Industry

Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980 establishes certain authorities concerning financial responsibility requirements. U.S. EPA is currently developing a proposed rule to establish financial responsibly requirements for the hard rock mining sector. EPA has already identified classes of hard rock mining facilities for which financial responsibility requirements will be first developed. In 2009, EPA identified classes of facilities within the Hardrock Mining industry as its priority for the development of financial responsibility requirements under CERCLA Section 108(b). In that notice, “hardrock mining” was defined as the extraction, beneficiation, or processing of metals (e.g., copper, gold, iron, lead, magnesium, molybdenum, silver, uranium, and zinc) and non-metallic, non-fuel minerals (e.g., asbestos, phosphate rock, and sulfur).

The proposed rule will establish requirements for financial responsibility, as well as notification and implementation requirements. EPA currently estimates that the proposed rule will be published in April 2011.

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

EPA Takes Public Comment On All Appropriate Inquiry Standard

The U.S. Environmental Protection Agency’s (EPA’s) Office of Solid Waste and Emergency Response (OSWER) has scheduled a listening session on EPA’s All Appropriate Inquiries standards, as promulgated as a final rule on November 1, 2005. The All Appropriate Inquiries rule (70 FR 66070) sets federal standards and practices for conducting all appropriate inquiries, as required under Sections 101(35)(B)(ii) and (iii) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).


The listening session will be held on March 17, 2010, from 9:30 a.m. to 12:00 (noon). The listening session will take place in room 1153 of the EPA East Building at 1201 Constitution Ave. NW, Washington D.C.


The purpose of the session is for EPA to listen to the views of stakeholders and the general public on the current standards and practices for all appropriate inquiries. EPA wants to provide stakeholders and the general public an opportunity to comment on the current implementation of the standards.


The listening session is open to the general public. Anyone wishing to provide their views to EPA on the rule, or to listen to the views of other parties, are invited to attend the listening session. Any person may speak at the listening session; however, EPA encourages those planning to make oral comments to pre-register with the Agency.

Caltha LLP assists 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

When Must All Appropriate Inquiries Be Conducted?

When must All Appropriate Inquiries be conducted?


All Appropriate Inquiries must be conducted or updated within one year prior to acquiring ownership of a property. Certain aspects or provisions of All Appropriate Inquiries (i.e., interviews of current and past owners, the review of government records, the on-site visual inspection, and searches for environmental cleanup liens) must be conducted or updated within 180 days prior to acquiring ownership of a property .

Caltha LLP assists 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

What is All Appropriate Inquiry?

“All Appropriate Inquiries,” or AAI is the process of conducting due diligence or a Phase I Environmental Site Assessment to determine prior uses and ownership of a property and assess conditions at the property that may be indicative of releases or threatened releases of hazardous substances at, on, in, or to the property. The standards and practices established as comprising “All Appropriate Inquiries” are set forth in regulations promulgated at 40 CFR Part 312.

EPA recognizes two ASTM International Standards as compliant with the AAI requirements: ASTM E1527-05 “Standard Practice for Environmental Site Assessments: Phase I EnvironmentalSite Assessment Process” and E2247-08 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property.”

Caltha LLP assists 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

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
info@calthacompany.com
or
Caltha LLP Website

Environmental Liability Assessment Tools - QELA

As long as no environmental issues are identified for a given property, the issue of environmental liabilities becomes somewhat of a non-issue for most Buyers or Investors. However, from time-to-time, investments may be made on properties which have had problems in the past or may have current known or potential contamination issues. Aside from the landowner liability protections (LLP) which may be available to both Lenders and prospective Buyers, it may be important to understand how these issues could impact the value of the property. This is especially important information in comparing the purchase price to appraised property value. Most appraisals will not address the impacts of environmental issues on property value.

Often Buyers need to determine these values early in the evaluation process. It is also important to understand if these issues have been (or will be) incorporated into the negotiated purchase price for the property. Sometimes this requires a little “crystal ball” work –as the amount of information to work with at this phase of the assessment is fairly small.

Quantitative Environmental Liability Assessment (QELA) is one tool available to Investors and prospective Buyers to develop a better understanding of the potential financial implications of environmental issues at a property. This financial modeling process uses the available data to set some bounds on the costs that may be incurred over time. This technique is an iterative process –as new or better information becomes available, the cost projections are updated.

For further information contact Caltha LLP at
info@calthacompany.com
or
Caltha LLP Website

New Accounting Standards (FIN 47) Provide Useful Environmental Liability Information

Beginning in 2006, more detailed financial information is required to be disclosed by companies relating to their financial liabilities. Many of these liabilities can be related to environmental issues. This information will be significant to the practice of due diligence –however, the application of the new standards is not limited to disclosures associated with mergers & acquisitions.

In March 2005, the Financial Accounting Standards Board (FASB) issued a technical interpretation (FIN 47) to provide better clarity on the expectations for disclosures of future liabilities. These liabilities were associated with likely future costs related to properties, buildings, equipment and other assets Prior to the issuance of FIN 47, liabilities which were difficult to estimate or to predict timing for may not have been disclosed. Often, large environmental liabilities were left undisclosed because ultimate costs and schedule was uncertain. However, statistical methods to estimate probable cost range for liabilities have become an acceptable approach to overcome the uncertainties in reporting these liabilities.

Two general types of liabilities are recognized:

ARO (Asset Retirement Obligations). AROs are liabilities associated with the ultimate closure, dismantling, disposal and clean up associated with a company’s assets. These could include real estate, buildings or other structures or equipment.

ARO example: A company generates a hazardous waste in its process. These wastes are piped to an on-site process which stabilizes the waste, allowing it to be disposed of a non-hazardous waste at a much lower cost. As a condition of operation, once the equipment is no longer used, the company is required to conduct an extensive and expensive decontamination of the processing equipment and all processes that generated the waste. Because the timing of this liability could not be predicted, the company did not recognize these costs. Under the new accounting requirements, this may be an ARO, and may need to be included in financial disclosures.

CARO (Conditional Asset Retirement Obligations). These are a subset of AROs; however, in this case, the magnitude of the costs and/or the timing of the obligation are outside the direct control of the company.

CARO example: A company has been named as a Responsible Party (RP), along with several other companies for a landfill Superfund site. The agency responsible for the cleanup is conducting studies and implementing some preliminary cleanup actions, however, it may be several years before the final remedial plan is developed. This case may clearly represent a CARO. The company has been identified as an RP and will ultimately be required to reimburse the agency for their portion of cleanup cost. However, the overall cost, their proportional cost and the timing of the obligations are all uncertain.

One of the reasons that the FASB felt that AROs should be accounted for, even considering these types of uncertainties, is the availability of accepted mathematical and statistic approaches to generating reasonable estimates for the liabilities. These tools will combine the existing available information with the level of certainty to prepare an overall liability projection. These projections typically represent the likelihood of specified costs being exceeded (e.g., 10% likelihood that costs will exceed $15M).

For further information contact Caltha LLP at
info@calthacompany.com
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Caltha LLP Website

Conducting Phase I ESA as Seller - "Why Would a Seller Conduct an Environmental Site Assessment?"

In most property transactions, the Buyer and the Lender(s) have a keen interest in the condition of the property. This information, in part, is obviously used to determine the price offered for the property and/or business. During this period, the Seller is most vulnerable –information gathered by the Buyer can be used to negotiate a lower purchase price. But, more importantly, a Seller can be responsible for any clean up or other actions required, whether or not the Buyer actually closes on the property. This information also becomes part of the record which may need to be disclosed to future prospective Buyers, in the event that the current Buyer drops out.

Therefore, Sellers need to be actively involved in all assessments of their properties. This article highlights some of the key considerations all Sellers should bear in mind.

First –expect that prospective Buyers will conduct an environmental assessment of the property. Because Landowner Liability Protections (LLPs) are available to prospective purchasers only if they performed an Environmental Site Assessment prior to closing, many Buyers will routinely conduct an assessment, regardless of any perceived risks. Beyond this, most Lenders will require some level of environmental review prior to issuing any loans. Assuming that prospective Buyers will want some level of environmental assessment, the first question Sellers should ask themselves is whether or not to conduct an assessment themselves, and provide a copy of the report to perspective Buyers. This obviously adds a small “up front” cost to selling the property; however, there are some clear benefits with this approach…

• Allows the Seller to preview the same information the Buyer will have access to;
• Identifies any issues early, allowing time to address them, rather than learning of issues from the Buyer late in the transaction process;
• Avoids further environmental reviews, if the reports are accepted by the Buyer and/or Lender

For further information contact Caltha LLP at
info@calthacompany.com
or
Caltha LLP Website

Environmental Liabilities Associated With Leased Properties

The question of liabilities associated with leased properties comes up frequently. The question usually takes two forms – first, what are my liabilities associated with site contamination during and after the lease period?, and second, who is responsible for permits while I operate on a leased property?

Contamination Liabilities. The liabilities associated with environmental releases and site contamination are not significantly different if properties are leased. If a site is found to be contaminated, you may be considered a Responsible Party. This is true even if contamination is caused by future Owners or Occupants; especially if you can not document the property condition at the time you vacated the property.

Compliance Liabilities. The issue of environmental compliance tends to be less straight forward, and can be effected by specific terms agreed to in a lease. However, in the absence of other information, it is best to assume that all permits associated with your processes are your responsibility.The compliance obligations for equipment or processes that are maintained by the property Owner, or shared services with other occupants often become less clear – but should to be defined. One example might be an emergency generator used to supply power to several tenants in a building.

For further information contact Caltha LLP at
info@calthacompany.com
or
Caltha LLP Website

Are Transaction Screens Still Useful In Evaluating Environmental Risks?

In August of 2004, the U.S Environmental Protection Agency (USEPA) promulgated a final rule that eliminated the use of Transaction Screens for the purposes of avoiding Superfund (CERCLA) liability. This action has left many prospective Buyers and Lenders wondering if Transaction Screens have any value anymore. As background, in 1996 the USEPA published interim guidance for meeting the “all appropriate inquiry” test under Superfund. In summary, if a prospective buyer or lender could demonstrate they had conducted “all appropriate inquiry” before buying a property and determined that there was no evidence of contamination, they have the opportunity to be considered an “innocent landowner”. If the property is subsequently found to have contamination, the new owner may not be directly responsible for the costs of the clean-up.

In their interim guidance, USEPA identified two ways to demonstrate that “all appropriate inquiry” had been made. The first is a Phase 1 Environmental Site Assessment (ESA) done in conformance with the ASTM standard practice. The second was a Transaction Screen, done in conformance with a separate ASTM practice. The advantage of conducting a Transaction Screen was that it could be done at a significantly lower cost. Because of the lower cost, the industry saw an increased use of Transaction Screens. USEPA eliminating Transaction Screens as a means of protecting the Buyer’s or Lender’s financial liabilities meant many organizations were faced with the question of whether to stop using Screens all together.

So why conduct a Transaction Screen? In practice, Lenders may be protected from direct financial responsibility for environmental problems. However, prospective purchasers of the property (their customer) do not have this protection. Therefore, the financial burden of a contaminated property is indirectly borne by the bank, as a reduction in the value and marketability of the property. Although Transaction Screens do not meet the standard of “all appropriate inquiry”, Screens may provide important information to both parties to evaluate the business risk associated with a transaction.

In some cases, the risks for contamination on the property are low – for example, on undeveloped or agricultural properties. Prospective Buyers may be more interested in evaluating risks associated with past contamination at neighboring sites which could impact their property. In this case, the prospective Buyer may be looking for a pass-fail evaluation; if there appear to be issues, they will decline the opportunity to buy and look somewhere else. In this case, the Transaction Screen method may provide just the information needed.

In the end, avoiding bad risks is the goal of all parties. Transaction Screens, if properly constructed, can still be an cost-effective tool in evaluating these risks.

For further information contact Caltha LLP at
info@calthacompany.com
or
Caltha LLP Website

Prospective Buyers Liability - Is a Contaminated Property Ever “Clean”?

A prospective Buyer is reviewing an environmental disclosure form from the Seller to evaluate potential liabilities. The form indicates that the property has had contamination issues in the past; however, the Seller indicates that the property was remediated and “the State has said the property is clean”.

At this point, an astute Buyer will have some additional questions and will be seeking some assurances. Understanding why this is a concern requires some background on how site cleanups are conducted. Generally, a “risk-based” approach to remediate sites is used. This means that sites are typically cleaned up to reduce risks to an acceptable level –not to remove all contamination.

Because of this, approvals given by regulatory agencies for past cleanups should be considered “AS-IS, WHERE-IS” approvals. The risk-based approach used in cleaning up contamination is a rational, scientific approach that reduces risks to acceptable levels, but may allow some contaminants to remain on the property. Numerous factors may be considered in determining how much and where contaminates can be left. Properties used for industrial sites may be allowed to leave higher levels of contaminates compared to office or retail sites. Likewise, higher concentrations of contaminants may be left if they are located several feet below the ground, compared to the same chemical in surface soils.

So what does this have to do with the Buyer’s risks?
The “AS-IS, WHERE-IS” nature of agency approvals for past cleanups means that future changes at the property may reopen the contamination issue, and potentially require further cleanup. For example, if the new property owner plans to expand buildings, change drives and parking, or otherwise move soils around the site, deeper contamination can be encountered and moved, changing the opportunities for exposure to contaminants. Even changing the type of business conducted on the property could change the basis for the earlier risk-based cleanup. Anything done at the property that could result in additional remediation will increase the new Owner’s risk.

So what’s a Buyer to do?
Just because a property has had contamination issues in the past should not necessarily mean it represents an unacceptable risk for the prospective Buyer. However, the Buyer needs to:

• Understand the nature of the contamination left in place, if any.
• Consider any future changes the planned for the property, and how these relate to past contamination.
• Understand the use-limitations, pre-notification and other agency requirements that go along with previous cleanup approvals.

For further information contact Caltha LLP at
info@calthacompany.com
or
Caltha LLP Website

U.S. SBA’s Revised Environmental Policies & Procedures

On March 18, 2008, the U.S. Small Business Administration (SBA) released a revision to its procedures under the Lender & Development Companies Loan Programs (SOP 50-10(5)). These new procedures go into affect on May 1, 2008. Some of the key changes are procedures related to environmental assessments detailed under the Environmental Policies & Procedures requirements. This Regulatory Briefing summarizes some of the key elements of these new SBA requirements.

The goal of the policy is to identify properties that have a higher risk for environmental contamination, and to assure that if contamination is present, it is addressed in a manner that reduces the potential liability of SBA and the lender. The basic structure is SBA requires an Environmental Investigation of ALL COMMERCIAL property loans it is securing; The level of the Environmental Investigation will depend on the risks for contamination.

The determination of the appropriate level of Environmental Investigation will follow a formal process path, so that Lenders can quickly determine what documentation SBA will require for individual loans. At a minimum, the investigation will require an evaluation of current and past uses, and completion of an Environmental Questionnaire. The SBA Environmental Policy also provides specific guidance on steps required based on the results of the environmental investigation.

In August 2008, SBA made some revisions to their requirements, which mainly changed loan value thresholds.

Here are two links for more information:

Summary of SBA Environmental Review Requirements

Subsequent Revision to SBA Environmental Review Requirements