Managing and Mitigating Environmental Risks in Real Estate Transactions

1. Managing and Mitigating
Environmental Risks
Urban Land Institute
Real Estate Development Process: Part 1
Sheraton Dallas Hotel
January 20, 2012
by:
Sally A. Longroy

2. Overview
Environmental Liability Exposure
Environmental Site Assessments
Governmental Liability P t ti
G t l Li bilit Protection
Contractual Liability Protection
Environmental Insurance

3. Environmental Liability Exposure
 Environmental Impacts
 CERCLA & State Equivalents
 Status liability – Owners/Operators
 Joint and several
 Strict
 Retroactive
 Perpetual

4. Environmental Liability Exposure
 Other Federal and State Statutes
 Clean Water Act
√ Wetlands
√ Storm water management
g
 Endangered Species Act

5. Environmental Liability Exposure
 Increased Development Costs
 Waste management
 Waste water
 Asbestos
 Wetlands
 Lead paint
 Land-use Restrictions
 Claims from Third Parties
 Unknown Environmental Conditions

6. Environmental Site Assessment
 All Appropriate Inquiry (Phase I)
 Identifies Recognized Environmental
de es ecog ed o e a
Conditions (RECs)
 Components
 Records review
 Site reconnaissance
I t i
Interviews
 Report
 Qualified environmental professional

7. Environmental Site Assessment
 AAI Does Not  Radon
Cover:  Mold
 Petroleum  Municipal solid
waste
 Asbestos in
buildings
b ildi  Wetlands
 Lead-based paint  Endangered
species
 Lead in drinkingg
water  A h l i l and
Archeological d
cultural
 Indoor air
pollution/vapor g y
 Regulatory
intrusion compliance

8. Environmental Site Assessment
 If Contamination Issues → Phase II
Invasive Sampling of
p g
 Soil
 Ground water
 Surface water
 Sediment
 Release Reporting Obligations

9. Governmental Liability Protection
 CERCLA Defenses
 Innocent Landowner
 Contiguous Property Owner
 Bona fide Prospective Purchaser
p
 Requires “All Appropriate Inquiry”
 ASTM E1527-05 – consistent with final
rule on AAI
 Codified at 40 CFR Part 312

10. Governmental Liability Protection
Texas Voluntary Cleanup Program
 Remediate to meet Texas standards
 Certificate of Completion – releases future
owners and lenders from liability to Texas
 Must apply before taking title
 Must apply before performing remediation

11. Governmental Liability Protection
Texas Innocent Owner/Operator
Program
 Immune from liability if
 Property contaminated by release or
migration from off-site source or
sources, and
 Did not cause or contribute to the
source or sources of the contamination

12. Governmental Liability Protection
Texas Innocent Owner/Operator
Program
 IOP Certificate of Completion confirms
eligibility
 IOP Certificates are not transferable

13. Governmental Liability Protection
Texas Municipal Setting Designation
p g g
 City ordinance restricts potable use of
g
groundwater
 Eliminates exposure pathway so may
 Lower cleanup standards
 Reduce investigation/remediation
requirements
 Reduce remediation costs
 TCEQ certifies the ordinance

14. Contractual Liability Allocation
 Disclosure Obligations
 Remediation Agreements
 “As Is”
 Li bilit R l
Liability Release P i i
Provisions
 Indemnity Provisions
 Successor Property Owner Problem

15. Environmental Insurance
 Clean Up Cost Cap
 may not be available
 Site Pollution Liability Insurance
 Green Building Restoration
 Storage Tank Liability Insurance

16. Trends
Trends
Thank You!
Th k Y !
Questions & Answers
Q
Presented by:
Sally A. Longroy