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The Legal Nuts and Bolts of
Buying and Redeveloping
Contaminated Real Estate
Thursday, January 5, 2012
8:00 to 9:00 a.m.
Polly Jessen
29th Annual National CLE Conference
Snowmass, Colorado
1
Presentation Objective
Outline the legal framework affecting
contaminated property redevelopment
Provide a menu of options and mechanisms
to meet the developer’s objectives:
Minimizing environmental liability risk
Cleaning up property for redevelopment
Maximizing returns
2
The Legal Framework:
Sources of Liability
CERCLA
Other federal statutes
RCRA
Clean Water Act
TSCA
State statutes
Ethical issues
RCRA
CERCLA analogues
Disclosure statutes
Other transfer, reporting, and cleanup requirements
State common law
3
The Legal Framework:
Federal Liability Protections
CERCLA and the BFPP defense
Establishing the defense
Phase I ESA
Comply with reporting requirements
No affiliation with the PRP
Not available to “operators” or lessees unless the
lessor maintains the defense or has sufficient
“indicia of ownership”
Not helpful in a stock purchase
5
The Legal Framework:
Funding and Tax Benefits
Federal Brownfields grants and related
funding
Federal and state tax benefits
State economic development or Brownfields
programs
Public financing, e.g.,
Tax increment financing
Special districts
6
Nuts and Bolts
Understand regulatory requirements, liability
protections and cost recovery, and other
financial incentives available
Understand environmental conditions on the
site
Allocate risk contractually and manage the
redevelopment accordingly
7
Environmental Due Diligence
Include broad seller disclosure requirements
and reps and warranties regarding
environmental conditions, enforcement
action, and full disclosure
Obtain a Phase I and Phase II environmental
site assessment
What will you learn?
Is a reliance letter sufficient?
Timing
8
Remediation Obligations
Integrate state law liability protections and
requirements as necessary into transaction
structure
Establish cleanup requirements by contract
Existing plan or order in place? Is it sufficient? Who will be
responsible for amendments/transfers?
What standards apply?
Who performs the remediation?
When is cleanup done? Before or after closing? On what
schedule?
Who verifies that the cleanup meets standards?
What assurances are necessary to make sure cleanup will
be completed?
9
Indemnities/Releases
Environmental insurance
Federal sites
Covenants
Indemnities
Buyer indemnities
Negligence
Failure to remediate
Seller indemnities
Claims accruing prior to purchase
Pre-existing conditions
Assignable to subsequent purchasers?
10
Remediation Funding
Environmental cost recovery claims
Claims for cleanup costs — who will own them?
Insurance claims — assign them?
Are there other contractual rights and indemnities
that run to seller? Can they be assigned?
Include obligations for the party transferring or
assigning claims to cooperate in the pursuit of
those claims
Funding sources and tax benefits
11
Performing Remediation:
Seller Remediates
Monitor remediation activities
Maintain defenses to liability post-closing
During redevelopment, implement a
“materials management plan” to identify and
avoid exacerbation of existing materials
Assure that contractors carry insurance
12
Performing Remediation:
Buyer Remediates
Make sure costs are “consistent with the National
Contingency Plan”
Maintain good records
Make sure contractors are carrying adequate
insurance
Monitor the statute of limitations for cost recovery
and indemnity claims
Work creatively with subsequent buyers/lessors:
To minimize cleanup costs, coordinate a purchaser’s
vertical development with cleanup
Elect to minimize cleanup with use restrictions and
covenants
13
Resale or Lease: The Cycle Continues—
or, the Shoe is on the Other Foot
Disclose conditions to buyers and lessors
“As is-where is” clauses
Use restrictions
Indemnities from buyer
22
Questions?
Polly B. Jessen
www.kaplankirsch.com