Presentation - Shipman & Goodwin LLP

CATIC Breakfast Seminar Series
May 25, 2005
Presented by
John E. Wertam, Esq.
Shipman & Goodwin LLP
One Constitution Plaza
Tel. (860) 251-5813
Email: [email protected]
John E. Wertam, Esq.
Shipman & Goodwin LLP
May 25, 2005
A. Introduction: Why bother? What's the big deal about
environmental issues?
1. You buy it, you own it.
2. Significant cost associated with environmental
3. Significant penalties associated with non-compliance.
4. Disgruntled clients lead to malpractice claims.
5. However, environmental issues become "The Hot Potato":
No one wants the problem.
B. First things First: Is there an environmental problem?
1. Conduct an Environmental Site Assessment
• Environmental Site Assessment standard of care for
qualifying for innocent purchaser defense under
Federal "all appropriate inquiry"
• EPA developing guideline
• Current standard is ASTM Guideline, and, in
Connecticut, the Transfer Act Site Assessment
Guidance Document
2. Consider: Does Seller do audit in advance?
• Knowledge of condition will require disclosure to
• No sharing of costs
• Disclosure of certain environmental conditions to
Connecticut Department of Environmental Protection
("DEP") may be required
3. Due Diligence in context of transaction: developing a Site
Access Agreement for Buyer
• Cost allocation
• Timing
• Disposal of wastes generated
• Disclosure of conditions
• Indemnity
4. What environmental conditions cause the most concern:
• Underground Storage Tanks
• Spills/releases of hazardous waste or hazardous
• Soil contamination (Use is important: residential vs.
• Groundwater contamination (Location is important:
GA vs. GB areas)
• Asbestos (maybe)
• Lead and radon (mainly residential issues)
5. Conduct an Environmental Compliance Audit (especially
if business operations will continue after Closing)
• Wastewater discharges
• Air pollution sources
• UST's
• Hazardous waste
• Disclosure under EPCRA, OSHA, SARA
6. Is further site characterization necessary?
• Phase II Site Assessments
• Phase III Site Assessments
7. Is the site an "Establishment" under Connecticut Transfer
• Make sure Environmental Compliance Audit or
Phase I covers the issue
• Why is it important? See below.
C. I have some environmental concerns. Now what do I do?
Environmental elements to consider in the Purchase and
Sale Agreement:
1. Is the Transfer Act implicated? (Patience. More on that
2. Is there need to provide site access?
• For Buyer's due diligence
• For Seller's post closing obligations, if necessary
3. Environmental escrow agreement provisions
• The escrow agent
• Dispersal provisions
• Terminating the agreement
• Setting remediation goals and standards
4. UST Issues
• Notification upon transfer
• Revising Registration Forms
5. Obligations of the parties
• Allocation of environmental responsibility with or
without Transfer Act obligations
6. Indemnity and termination
7. Ownership of environmental reports
8. Notification obligations
9. Environmental Land Use Restriction reservations (for
Seller with post closing remedial obligations)
10. Setting remediation goals and standards (again)
• How do I know when the site is clean? (or, when am I
really finished?)
• LEP verification
• DEP audit/approval/inaction
D. Lenders Concerns: How do I finance contaminated
1. Very good question. Good luck.
2. The Connecticut Superlien
3. Lender liability protection under State and Federal Law
4. Transfer Act exemption (taking title, but not for retransfer)
5. That's all very well – but lenders are conservative. No
6. Lender has same concerns as Buyer, but are often more
conservative: the pessimist of the deal
• Make escrow available to Lender
• Loan agreement provisions: your first born and more
E. So we have an Establishment under the Transfer Act.
What now?
1. Definition of "Establishment"
a. After Nov. 19, 1980, more than 100 kg of hazardous
waste generated
b. In any one month
c. Except for "Remediation of polluted soil,
groundwater or sediment"
d. "Automatic" establishments (dating back to May 1,
• The process of dry cleaning
• Furniture stripping
• Vehicle body repair facility ("vehicle" now
defined, but excludes descriptions of some
e. Any facility that accepts hazardous waste generated at
a different location in any amount
2. Transfer Act Exemptions
a. Definition of "Transfer of Establishment"
i. All transfers of real property or business
operations, except for the following (see statute
for exact language):
a) Easements
b) Judicial and municipal foreclosures
c) Deed in lieu of foreclosure
d) Security interests (including mortgages)
e) Conveyance, assignment or termination of a
Lease for a period of less than 99 years
from the date of such conveyance, etc.,
including options or extensions of such
f) Trusts and Estate type transfers
g) Corporate Reorganizations not substantially
affecting the ownership of the
h) Issuance of stock or other securities
i) Transfer of stock, securities or other
ownership interests representing less than
forty percent of the ownership of the entity
that owns or operates the Establishment
Intra-family transfers and inter-vivos trust
Subdivisions where less than 50% of land area is
conveyed, and no spills, or DEP is notified by
filing an ECAF 60 days prior to such conveyance
Conveyance of a service station not otherwise an
Conveyance of an establishment which, prior to
July 1, 1997, had been developed solely for
residential use and such use has not changed
Any conveyance of an establishment created or
operating under Chapters 130 or 132, or to a
Rehabilitation Agency, or to a municipality under
§32-224, or to CDA
Conversion of general or limited partnership to a
limited liability company under §34-199
The transfer of general partnership property held
in the names of all of its general partners to a
general partnership which includes as general
partners immediately after the transfer all of the
same persons as were general partners
immediately prior to the transfer
q) The transfer of general partnership property held
in the names of all of its general partners to a
limited liability company which includes as
members immediately after the transfer all of the
same persons as were general partners
immediately prior to the transfer
r) Transfers associated with assembling parcels for
Adriaen's Landing or the Stadium at Rentschler
Field (see implementing legislation for such
s) Condemning Authorities
t) Universal Wastes? See House Bill 6803
3. Definition of "Hazardous Waste"
a. RCRA and DEP defined
i. Universal Wastes as Hazardous Wastes:
• Fluorescent bulbs
• Used Electronics
• Recycled Batteries
• Others
b. PCB's over 50 ppm
c. Except sewage sludge and lead paint abatement
4. Definition of "Hazardous Substance"
a) CERCLA hazardous substance and petroleum
products or by-products where a standard is
established under the RSR’s
5. Other Elements to Consider
a. Licensed Environmental Professionals
b. Environmental Condition Assessment Form
• Required for all forms except Form IIs
c. Certifications and verifications need to be in
accordance with prevailing standards and guidelines
6. Procedure Established
a. Filing of Form I and II
• Within 10 days after transfer to DEP
• Prior to transfer - with transferee
• Form II requires written determination of
Commissioner that site is remediated to
• Form I requires ECAF Filing
• Requires a written certification by LEP that no
release of hazardous wastes or hazardous
substances has occurred (or that hazardous
substance remediated to prevailing standards
and guidelines)
b. Filing of Form III and IV
• For sites where releases of hazardous wastes or
hazardous substances have occurred
• Not later than 10 days after transfer, to DEP
(transferor obligation)
• Prior to transfer with other party (transferor
• If no one else signs and files, Transferor now
obligated to do so
• Both forms must be accompanied by an ECAF
i. DEP, within 30 days, makes completeness
ii. DEP, within 45 days of completion,
determines if it will review, or if site may
proceed with an LEP
iii. If LEP reviews, schedule submitted for
investigation and cleaning up parcel
2 years to complete study
3 years to initiate cleanup
Notice of clean up required
iv. If DEP reviews, then schedule to be
submitted for review and approval
v. Notice required for clean ups
Newspaper and
Sign, or
Abutter notice
vi. For real property being transferred where:
Form I or II filed with DEP after October 1,
1995 or
Form III or IV filed and verified/certified in
writing that RSR met, and
Site has been an establishment since Form I or
II filed; then compliance with Transfer Act
7. Voluntary Remediations System Established
a. Certain sites may seek determination from
Commissioner or be evaluated by LEP. See 22a133x and 22a-133y of the General Statutes
b. Within 30 days of submitting an ECAF (for sites
under §22a-133x), DEP will determine if LEP or
DEP will review site
i. If LEP reviews, schedule required
ii. If DEP reviews, schedule required
iii. If LEP certifies site is clean, then Form II may
be filed upon subsequent transfers
c. Notice required under both programs prior to
initiating remediation
8. Licensed Environmental Professionals
a. Definition of Environmental Professional (qualified
by reason of knowledge and experience)
b. DEP establishes a State Board of Environmental
c. Standard of care established
d. Fees established, registry maintained
e. Standards created by Board
• Investigation experience
• BA or better, or P.E.
• Pass Test
f. Board Powers
9. Environmental Use Restrictions – Selected Elements
a. Availability (See Remediation Standard Regulation
and §22a-133o)
b. Notice requirements
c. Decision Document/Commissioner Determination
d. Subordination Agreements Required of all
encumbrances, provided Commissioner may waive
such requirement if he finds that the interest is so
minor as to be unaffected by the ELUR
e. Title certificate required to show subordination
agreements recorded
F. What if I'm only transferring business operations?
1. See all of the above, including Transfer Act
2. Transfer of DEP permits
3. SEC disclosures
4. Compliance considerations are amplified:
• Enforcement actions
• Permits
• Record keeping
G. Some Parting Thoughts
1. As Buyer, negotiate the deal with consideration as to how
will you re-transfer the property/business
• Questionable items will surely be raised again
• Consider timeframe to complete remedial obligations
2. Work to simplify the Deal
• The most complicated and difficult transaction is
where Seller retains obligation to remediate
environmental conditions post closing.
• Concerns:
– Site access
– Buyer loss of control of project and timing
– ELUR recording
– Escrow difficulties
– Seller's financial condition
– Resale difficulties
3. Leasing:
• Topic for another day
• But: keep site from becoming an "Establishment"
• Establish a "Environmental Condition" baseline
• Create an escrow that is returnable at end of lease if
no environmental condition created
4. A word about Environmental Insurance
• It's not for every deal
• Very expensive
• Coverage may not be what you think
• Large deductibles
5. Avoid "as is" clauses
6. Bankruptcy and Environmental Obligations
7. Isn't that enough?!