SBA Environmental Review Requirements - Phase I ESA Requirement

In 2008, the U.S. Small Business Administration (SBA) revised its procedures under the Lender & Development Companies Loan Programs (SOP 50-10(5)). Some of the key changes are procedures related to environmental assessments detailed under the Environmental Policies & Procedures 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.

Here are two links for more information:

Summary of SBA Environmental Review Requirements

Subsequent Revision to SBA Environmental Review Requirements

Caltha LLP assists prospective Buyers and their Lenders in meeting SBA environmental review requirements. To requiest a quote on-line, go to Caltha Environmental Assessment Quote Web Page.

For further information contact Caltha LLP at
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User Requirements Under All Appropriate Inquiry

On November 1, 2005, USEPA finalized the requirements for due diligence which meet the “all appropriate inquiry” requirement. To be eligible for LLPs, land owners must have completed these requirements prior to purchasing/acquiring the property:

Complete all User requirements, including:

• Prepare a Phase I Environmental Site Assessment
• Conduct review of judicial and title records for applicable Activity & Use Restrictions (AULs)
• Demonstrate compliance with any AULs
• Complete User Questionnaire

Caltha LLP assists clients nationwide in conducting All Appropriate Inquiry during the acquisition of commercial and industrial properties. To request a quote, go to Caltha Site Assessment Quote.

For further information contact Caltha LLP at
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Environmental Due Diligence – What Is Value and Cost of Information?

In most mergers or acquisitions, there is a transfer of information from the Seller to the Buyer. The Buyer begins with little or no information and over time collects data and information that will be used to base their decisions. Ideally, this information would be complete and would address all the needs of the Buyer so they can make optimal decisions.

In practice, this ideal is rarely met. Buyers will always be making decisions based on incomplete and sometimes inaccurate information. Therefore Buyers will often invest in gathering more or better information to improve their chances of making good decisions. Because Buyers are investing time and money upfront in order to reduce the changes of making bad (i.e., costly) decisions later, a Cost-Benefit relationship can be calculated on the value of collecting information.

Nowhere is the value of information more critical than in Environmental Due Diligence. Some information can be gathered at fairly low cost, such as a Phase I environmental site assessment. However, if environmental issues are identified, costs to collect further information can be high, and therefore the value of gathering the information must be put into context with overall decision-making processes.

Two questions help frame the value of information:

Depending on what I learn, would I make a different decision?

What are the costs associated with potential outcomes if I proceed without further information?

By considering the benefit of having the information in relation to the costs associating with collecting it, Buyers can make an informed decision on whether or not gathering more information is cost-effective.

Caltha LLP supports clients nationwide in evaluating and quantifying environmental liabilities and conducting environmental due diligence.

For further information contact Caltha LLP at
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Environmental Assessment Scope - What If Boundaries Are Not Defined?

For some assessments, the boundaries used to define the scope of the assessment are not explicitly defined. For example, an environmental assessment report might state “only conditions considered to represent a significant risk are discussed”, or “only conditions representing a significant financial liability are addressed”. In both cases, the meaning of “significant” is key to defining the boundaries of the assessment. Other assessments may appear to be more analytical, “only conditions representing greater than a $100,000 financial liability are addressed”. In this case, and those above, it is implied that a wider range of issues were considered and only a subset were documented. Without documentation of the wider ranges of issues, a reviewer is left not knowing what the boundaries of the assessment really were.

What if the boundaries are not addressed in a report? The most problematic situation for a reviewer will be an assessment report that does not document its boundaries. In this case, the conclusions of assessment can not be considered valid, although the report itself may include valid information. Unfortunately, it takes time to review and understand this level of detail; a reviewer relying on an executive summary will typically not gain this level of understanding of the scope of the assessment.

Caltha LLP assisting clients in planning and conducting their environmental assessment. Caltha also provides technical review services for existing assessment documents.

For further information contact Caltha LLP at
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Environmental Assessments - Setting Assessment Boundaries

Whether explicitly communicated or not, all assessments are constructed within a set of boundaries. This is true whether the assessment is Phase I site assessment, a due diligence assessment, a compliance audit or an environmental impact assessment. Whether you are conducting, using or reviewing an environmental assessment, you need to understand those boundaries and to assure that the boundaries being used are appropriate to address the issues that the assessment is intended to address.

What are boundaries? Simply stated, boundaries for the assessment will set the limits on what types of data or information are reviewed, what types of potential impacts are being considered, and what results are being documented.
Why are boundaries important? For each assessment, boundaries are important to understand because they define how in-depth the assessment is and what information the assessment considered.

For anyone wishing to use the results of the assessment, it will be critical to understand the boundaries used to assure that the key questions important to the reviewer are covered within the scope of the assessment.

Boundaries are also important from the standpoint of someone preparing an assessment. Because assessments will need to be conducted within a specified schedule and budget, setting boundaries is a critical step in defining what the assessment will consider. It is important to recognize that defining the boundaries is conducted BEFORE the assessment is actually performed, and does not take into account the information that will subsequently be gathered and reviewed. Therefore, it is important that the assessment boundaries be periodically revisited to assure they align with any newly uncovered information.

For the reviewer, assessment boundaries are sometimes well documented. For environmental impact assessments, this may be contained in a separate “scoping document”. Other assessments may detail the assessment boundaries within the assessment report, or may refer to a standardized assessment approach such as ASTM E 1527-05.

Caltha LLP assists clients in planning and conducting many types of environmental assessments, including environmental due diligence and environmental reviews.

For further information contact Caltha LLP at
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Activity and Use Restrictions (AULs) Under ASTM E 1527-05

Although consideration of Activity & Use Restrictions (AULs) has been included in previous ASTM methods, the ASTM E 1527-05 standard increased the importance of these restrictions. AULs are explicit restrictions on the uses and/or activities that are allowed on a property. The existence of an AUL should be considered an indication that the property is contaminated and not suitable for unrestricted use. For example, an “Industrial Use Only” restriction may indicate that contamination was partially cleaned up to meet industrial standards. Restrictions could also limit physical changes to the buildings, parking lots, etc.

ASTM E 1527-05 places the responsibility for identifying applicable AULs in title or judicial records on the prospective Buyer. To be eligible for LLPs, a property owner must also demonstrate that they have complied with all AULs.

Caltha LLP helps prospective Buyers research and evaluate AULs at commercial and industrial properties. To request a quote, go to Environmental Due Diligence Quote Page.

For further information contact Caltha LLP at
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Landowner Liability Protections Under the Small Business Liability Relief and Brownfields Revitalization Act

Three forms of landowner liability protections (LLPs) are defined by the Small Business Liability Relief and Brownfields Revitalization Act of 2002. It is important to note that these LLPs do not infer that a property does not need to be investigated and/or remediated – they simply place the financial liability on others, usually the previous landowner or an adjacent landowner. The current landowner will need to cooperate with all activities required on the property, which could include limitations on the use of their property.

Innocent landowner:
Applies to prospective purchasers, governmental agencies acquiring properties through eminent domain or condemnation, or persons acquiring property by inheritance or bequest.

Bona fide prospective purchaser:
Applies to any prospective purchaser; differs from an “innocent landowner” because although both require “all appropriate inquiry” prior to purchase, bona fide prospective purchaser protection can apply even if evidence of contamination is discovered on the property. An innocent landowner protection only applies if there is no evidence found that contamination may exist prior to purchase.

Contiguous property owner:
Applies to property owner who’s property is contaminated due to releases from an adjacent property, owned by a separate party.

Caltha LLP assists prospective purchasers of commercial and industrial real estate to preserve their Landowner Liability Protections.

For further information contact Caltha LLP at
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Landowner Liability Protections and All Appropriate Inquiry

Under many conditions, land owners can be held responsible for the investigation and clean up costs associated with contamination on their property. This liability exists even if the current property owner did not cause or contribute to the problem or was unaware that the problem existed when the property was purchased. This liability could even extend to cleaning up contamination that came onto their property from adjacent lands.

In 2002, the Small Business Liability Relief and Brownfields Revitalization Act developed certain conditions under which businesses could be protected from these liabilities, termed Landowner Liability Protections, or LLPs. One of the key requirements for businesses wishing to eligible for LLPs is that “all appropriate inquiry” was conducted prior to purchasing the property to determine if known or suspected contamination exists.

More information on LLPs and “All Appropriate Inquiry”

Caltha LLP conducts All Appropriate Inquiry on behalf of prospective Buyers. For a quote, go to Caltha LLP Environmental Assessment On-line Quote Page.

For further information contact Caltha LLP at
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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
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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
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