Any business owner will tell you that
the current economy is forcing some
hard choices. Still, difficult times can create opportunities, such as acquiring
businesses or property on favorable terms.
But, this is a delicate endeavor. You’ve got
to consider all the risks involved, particularly the environmental ones.
“Don’t underestimating potential environmental risks while trying to reduce costs or
turn a profit,” says Chris Jones, an attorney
with Calfee, Halter & Griswold LLP. “You’ll
likely end up losing more than you save.”
Smart Business spoke with Jones about
environmental risks, how to spot them and
how to pull off successful acquisitions.
What environmental exposures can owners
face when considering an acquisition?
Simply considering an acquisition will not
create any environmental liabilities, nor will
completing the necessary due diligence on
environmental matters prior to an acquisition. But, once the deal is done, there are several potential environmental liabilities that
may be inherited by the purchaser. Whether
it is an existing underground storage tank
that has leaked or old drums of hazardous
wastes that have been stored in a building or
the seller’s failure to obtain all of the permits
that are required to run the operations, once
you become the owner, you own the liabilities. Some problems are easily remedied
(though perhaps at a significant cost), but
others can result in complicated, expensive,
time-consuming environmental cleanups.
For example, the lack of permits can be
remedied, but you face the threat of shutdown while the permits are obtained.
Hazardous wastes can be disposed of properly, but they may have created a hazardous
waste ‘unit’ that must be properly ‘closed’
under state regulations and monitored for
several years thereafter at great expense to
the purchaser. A leaking underground storage tank could cost hundreds of thousands of
dollars to clean up as you chase the plume of
contamination resulting from the leak.
If a company faces environmental exposures, what should it do?
The essential first step prior to an acquisition is to complete a Phase I environmental assessment of the facilities you plan to
acquire. Even for small operations, this is
money well spent. Under the U.S. EPA’s ‘All
Appropriate Inquiries Rule,’ in order to claim
protection from liability under CERCLA (the
Comprehensive Environmental Response,
Compensation and Liability Act, or the
‘Superfund’ statute) as an ‘innocent landowner,’ a ‘bona fide prospective purchaser’ or a
‘continuous property owner,’ the purchaser
may only avoid liability by completing a
Phase I assessment within six months prior
to the acquisition and address all of the ‘recognized environmental conditions’ identified
during the assessment. The cost of such an
assessment will vary according to the size
and complexity of the property/facility
being purchased, but if it identifies an environmental problem that could costs hundreds of thousands of dollars to address, it
will be money well spent. In addition to
CERCLA liability protection, it is a tool that
can be used to evaluate the potential environmental risks associated with the acquisition with an eye toward structuring a deal
to account for those potential risks.
For example, if you know that the property you intend to purchase was once a gas
station, the Phase I assessment can tell you
whether there is any record of a release
from the underground storage tanks that are/were on the site and what was done in
response to the release. With that information, a purchaser can evaluate the potential
risks and account for those risks as a part
of the transaction. In any transaction,
depending on the nature of the potential
risks and the amount of information available, the deal can be structured to account
for these exposures in a manner that
makes the most economic sense. The
structure could be in the form of a reduced
purchase price or setting aside a part of the
purchase price to account for potential
remedial costs.
If a company doesn’t properly address environmental exposures, what consequences
could it face?
The most onerous environmental statute
is CERCLA, which says an owner or operator of a facility with a release of a hazardous substance is strictly, jointly and severally liable for the cost of cleaning up the
contamination. What that means is, if you
are the owner of a contaminated property
and you have not done your due diligence
under the ‘All Appropriate Inquiries Rule’
prior to your acquisition, you can be held
liable for the complete cost of the cleanup.
There may be opportunities for you to
recover your costs from other parties (like
the seller), but the government is going to
look first to the current owner of a contaminated property to get the cleanup completed. In short, if you don’t address these
issues prior to the acquisition, it will be a
cost that you will bear.
What does a company need to do during a
business or property acquisition with environmental concerns?
The company must complete its environmental due diligence and account for any
environmental problem identified. The
company may not need to complete a
cleanup if the purchase agreement requires
the seller to deal with it. But, each recognized environmental condition identified
during due diligence must be accounted
for in order to provide the best protection
for the purchaser.
CHRIS JONES is an attorney with Calfee, Halter & Griswold LLP. Reach him at [email protected] or (614) 621-7004.
