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But they already did a phase I….

2 May 2014

cautionWhen a seller or lender gives a prospective buyer a phase I environmental site assessment (ESA) and it concludes there are no recognized environmental concerns, that means you’re “good to go,” right? Well, not so fast.  There are some things to check on which include:

1.  When was the ESA performed and to what standard?  Standards have changed over the years and if the ESA is 6 months old or older, parts of it will need to be updated.  Sometimes ESAs done for lenders don’t include all the elements a buyer must include to satisfy the All Appropriate Inquiry standard.  It is also possible for much older ESAs, that circumstances may have changed and you’re better served just starting over.

2.  For whom was the ESA prepared and can you rely on it?  Most ESAs were prepared for a specific client and often include a limit on who can “use” them.  There’s no certainty on whether a use limit actually prevents you from relying on an ESA to assert the innocent landowner defense but it is likely that such a limit would prevent you from seeking recourse from the consultant that prepared it, if it turns out to be inadequate.

3. Even if you can rely on it, will the consultant stand behind it?  Often, consultants will “let” you rely on their old ESAs for a fee.  The question to ask is – is it worth it? I have seen consultants attempt to contractually limit their exposure to $50,000 or their available insurance or their fee whichever is less!  I have also seen consultants say that they will only be liable for direct losses and will not be liable for so-called consequential losses such as lost value or revenue.  This means that the consultant will only be liable for the actual harm (breaking things or hurting people) they cause and not for any errors or oversights they make in actually doing their work!

In short, there are many pitfalls to relying on a so-called “clean” prior phase I and the list above only scratches the surface.  We still live in a caveat emptor world and you, as buyer, need to take steps to beware.

EPA issues its new year’s resolution – ASTM 1527-13

31 Dec 2013

epa_logoAs you know, at Halloween, EPA gave us a “trick” by withdrawing its proposed rule adopting the new ASTM all appropriate inquiry standard.  As you may remember, EPA proposed to leave the old, 2005 standard in place and also allow the use of the new 2013 standard.  This caused some confusion and angst and resulted in EPA’s October 31st action.

Well, as we get ready to start 2014,on December 30th, EPA published an announcement that it was immediately adopting the 2013 standard as satisfying the Federal All Appropriate Inquiry “safe harbor” protecting a new owner, tenant or foreclosing lender from Superfund liability.    EPA kept its “two track” approach of recognizing both the 2005 and 2013 standards as acceptable but repeatedly asserted that it encouraged and anticipated that environmental professionals would “embrace the increased level of rigor” of the 2013 standard and that it intended to publish a proposed rule to remove references to the 2005 standard but wasn’t doing that just yet.  Most interestingly, EPA stated that if it determines in the future that the enhanced standards of the 2013 standard are not being widely adopted, EPA may examine the need to explicitly require the actions specified in the 2013 standard.  With threats like that, it seems likely that the 2013 standard will become de rigueur.

New ASTM due diligence standard – Deadline to comment on EPA approval – Due Diligence Part 4

12 Sep 2013

A bucolic scene or something more ominous and will your Phase I ESA tell the difference?

Monday, September 16, 2013 is the last day to comment to EPA on a proposed new standard for environmental due diligence – ASTM E1527-13.  EPA has said that it will not require anyone to use the 2013 ASTM standard and that consultants may continue to use the current standard, ASTM E1527-05.

The challenge of the moment is that ASTM has not released the 2013 standard to the public and so only the EPA and the ASTM committee working on it know precisely what’s in it.  EPA has prepared a summary of the changes, found here.  Of particular note are the following changes (which is not a comprehensive list):

1. An updated definition of “Recognized Environmental Condition (REC)” aligning it with CERCLA’s direction to identify “conditions indicative of releases and threatened releases of hazardous substances on, at, in, or to the subject property.”

2. An updated definition of “Historical Recognized Environmental Condition (HREC)” tying it to past releases that have been somehow addressed to allow unrestricted residential use. A new term “Controlled Recognized Environmental Condition” includes past releases where some contamination remains in place but no cleanup is presently required.  Further, ASTM clarified that a CREC should not be called a  “de minimis” condition. As to the terms, I care less about what the consultant calls things than in understanding why they were or were not included in the report.

3. ASTM included vapor migration as a migratory concern to be identified in a Phase I. This continues to grow in prominence as an issue to be wary of.

4. ASTM revised the scope of the “User Responsibilities” section to clarify the aspects of a site assessment investigation that may be the responsibility of the report’s user (often the proposed purchaser), and not necessarily the responsibility of the environmental professional. This reflects my point about reading the whole report and not just the conclusions.

5. ASTM provided a standardized framework to verify information obtained from key databases.  Agency file reviews are expected to increase Phase I prices but also confidence that users, or prospective buyers can place on site assessment results.  This is something that I’ve been asking consultants to do for years. Merely relying on a database service has always been something of a tricky proposition.

Ultimately, if the new standard is more effective, the lending community will compel its use and while EPA says that either method is acceptable to satisfy CERCLA’s all appropriate inquiry standard, economic efficiencies (think Betamax and VHS) will lead to one method surviving.

Payback is a b*tch

12 Jun 2013

As regular MichiganGreenLaw readers know, about 18 months ago, we added insulation to our home.  While three years of data (one before, one of and one after) is not a big enough database, I spent time evaluating at the last three years of our DTE and Consumers Power invoices.  What I learned is that our sense that our house was warmer in the winter and stayed cooler in the summer appears to be accurate.  We saw a reduction in our usage and, while rates vary over time, it does appear that we are saving money.  Now we find ourselves asking how long before this improvement pays for itself in savings?

This is the question that many businesses ask before making alternative energy investments – “How long before I recoup my investment?”  Often, in the post-2007 era, businesses will insist on less  than three years.  Savvy investors know that there are many different methods used to analyze capital projects including net present value (NPV), internal rate of return (IRR), cash flow, profitability index (PI), and payback period.

The payback period method does not take into account the time value of money, the likely increase in costs of energy ($4.30 a gallon of gas, anyone?) and this method doesn’t consider cash inflows after the initial investment is recovered (except the recognition that it’s “all gravy” conclusion).  The payback method’s biggest advantage is it is easy to apply and understand.  However, as more and more authors are writing, this method is misleading and often unfair – as this author notes, no one asks for the payback on home amenities. In short, when making these investments, one must treat them as investments and, taking into account incentives, cash flow, cost of money, projected increases in the cost of energy, (not to mention the ability to market the greener approach or the societal value of a smaller carbon footprint)  consider whether investing in greener equipment or processes is the best use for the company’s funds when compared to other investment opportunities. In many cases it may be the best investment, despite a longer than desired payback period.

And you thought Detroit was screwy?

21 Sep 2012

Would you add 40 tons of garbage to this?

From the City of Brotherly Love comes this story of a man who cleaned up 40 tons of garbage from the vacant lot next to him and then improving it at his own expense!  You’d think he’d get the key to the City. Instead, the City is threatening prosecution and demanding “restoration.”

The concept of a property owner taking over a neighboring vacant lot (a sort of adverse possession) has its own new name, “blotting” (vs squatting).  Detroit’s Mayor Dave Bing even began his own program of selling vacant lots to neighboring owners for $200 – no questions asked.

However, in Philadelphia, the coffee shop owner, entrepreneur and good Samaritan made the mistake of first asking the City if he could clean the lot – the City had said no – making him an arguable trespasser and proving the old adage that it is easier to ask forgiveness than permission.

A bit about Asbestos

26 Jul 2012

An asbestos evaluation is beyond the scope of most phase I environmental site assessments as they focus on soil and groundwater contamination.   However, you should not ignore asbestos as an issue during acquisitions.  Most environmental consultants will comment on apparently asbestos containing materials (which include such things as insulation, floor tiles, mastic, and roofing materials) including their age and condition.  This is important because under federal regulations, if materials are suspected to contain asbestos, the owner and operator of the building will need to take precautions and typically have an operations and maintenance plan to inspect and maintain the asbestos materials.  Asbestos has been linked to many cancers and that is why this is so serious.

When will materials be suspected to contain asbestos?  Typically, anything built before 1981 is assumed to contain asbestos.  HUD assumes any building built before 1978 contains asbestos and requires an asbestos survey of such buildings and will not fund without a baseline survey and will require a mix of asbestos abatement and an asbestos O&M Plan.

OSHA takes it a bit further, assuming that thermal system insulation and surfacing materials (unless proven otherwise) from a building built before 1981 contain asbestos. and imposing employee protective measures.

EPA takes it one big step further and when conducting demolitions or renovations to buildings other than residential buildings with 4 or fewer units, it requires an evaluation no matter when the building was built to determine what sorts of protective and disposal measures must be taken.

In typical phase I ESAs that deal with asbestos, they often say something like “sampling should be considered prior to a renovation” – while sampling is not necessarily required, a thorough evaluation is before demolition or renovation, or the property owner may face serious consequences.  Yesterday, the Detroit News reported that a project manager faced criminal penalties for improper asbestos removal.  It is possible that others may face civil penalties as well.

State incentive programs slowly begin to roll out but will they work?

9 Apr 2012

I’ve blogged before about Governor Snyder’s replacements for the Brownfield MBT, historic property tax and MEGA credit programs.   Last August, the Michigan Economic Development Corporation (MEDC) announced that, effective October 1, 2011, those old programs were recast as the: (1) Michigan Business Development Program; and (2) the Michigan Community Revitalization Program.  This was the Governor’s effort at focusing on “business gardening” – ostensibly

These programs are just now being rolled out – a delay of some 7 months.  Thus far, not a single project has been approved (but to be fair, I’m not sure anyone has applied). The rigor that the Michigan Strategic Fund is going to put applicants through is severe. For example the return on the developer’s investment will be evaluated.  Here is some of what they are looking for (as applicable) before funding grants or loans under the Community Revitalization Program:

1. Projects that revitalize regional urban areas get preference;

2. Only projects within a downtown or traditional commercial center and only projects that primarily promote the desired revitalization of urban areas;

3. The amount of local community and financial support for the project;

4. The applicant’s financial need for the incentive and whether the project is financially and economically sound;

5. The extent of contamination and reuse of vacant buildings and historical buildings and redevelopment of blighted property;

6. Whether the project increases area density and promotes mixed-use development and walkable communities;

7. Whether the project promotes sustainable development; and

8. Whether the project will compete with or affect existing Michigan businesses.

Despite the “no picking winners/losers” mantra – clearly this program has a specific focus and asks for much more than the old programs did.  Some developers might not want their finances looked into this deeply   This is different from the Business Development Program which last month approved 5 incentive packages for five business expansion projects.  That Program is clearly focused on jobs and provides:

•  No support for any retail projects;
•  No support for any retention projects;
•  Consideration given to out-of-state competition;
•  Net-positive return to Michigan;
•  Level of investment made by business;
•  Shovel-ready projects with funding support;
•  Business diversification;
•  Re-use of existing facilities;
•  Near-term job creation;
•  Wage levels for those new jobs;
•  Employer provided benefits;
•  Strong links to Michigan suppliers; and
•  Whether the project is in a distressed or targeted community.

There was a pot of $100 million for incentives, which can be grants of up to $1Million; or loans or other economic assistance of up to a total of $10 million per recipient.