Tag: Phase I ESA

2019 Environmental Resolutions

Happy New Year!

What will be your company’s resolutions for 2019?

Here are some resolutions for 2019 that can help you avoid environmental surprises:

  • Resolve to commission a Phase I Environmental Site Assessment when buying or leasing real property – Yes, even for leases.  Yes, even for raw land.  For a few thousand dollars, you can get peace of mind and ensure that there are no hidden environmental surprises, such as indoor air issues from an old dry cleaner that got regulatory closure before indoor air was an issue.  In addition to supporting a defense if contamination is later discovered, it makes good business sense.  Also be aware of my Top 10 Due Diligence Mistakes.
  • Resolve to do more than a Phase I Environmental Site Assessment when buying a company –  Make sure the acquired company has the necessary environmental permits and that the company is in compliance with those permits.
  • Resolve to be aware of trending environmental issues – You don’t have to be an expert.  Just be aware of trending environmental issues, such as PFAS and greenhouse gas reporting.  Read only the headlines if you are busy and just want to know the lingo.  Then, ask your favorite environmental attorney for more information.
  • Resolve to use consultants for data gathering and interpretation and use lawyers for legal questions – Especially for the second resolution above, a consultant can gather data but should not make legal conclusions about whether a facility is in compliance or needs a permit.  That opinion should come from an environmental attorney.  Consultants and lawyers should work as a team.
  • Resolve to look at internal practices – Like stepping on the scale, it is hard to realize that your company should improve its practices.  But it is better to catch issues yourself than have a regulatory agency catch it in an inspection.  Take advantage of programs such as the Texas Audit Privilege Act or EPA’s e-disclosure program to self-disclose and correct problems with potential immunity.

Need assistance? Contact me at cbishop@cbishoplaw.com

Wishing you a prosperous New Year

Top Environmental Due Diligence Mistakes

It’s time for my annual rant about the lack of respect given to environmental due diligence during the M&A process. It is still the overlooked stepchild of a deal, and buyers, lenders, and investors can get seriously burned by neglecting this critical component.

Identify Surprises Before Your Deal Closes

Dealmakers should be familiar with the term “Phase I,” which is the preliminary environmental report that could protect a buyer from pre-closing contamination and that must follow the guidelines set out in ASTM E1527-13.

But due diligence can be more than just commissioning a Phase I. Here are the top mistakes I already have seen in 2018:

  • Using the Lowest Bidder on a Phase I Report – You definitely get what you pay for. In addition to typos and poor grammar, I have seen obvious things overlooked (e.g. nearby leaking underground tanks) and non-problems made into problems. Many “cookie cutter” Phase I shops grind out the Phase I reports with the hope of getting the Phase II sampling work that they recommend (and, not surprisingly, charge significantly more for). To prevent this, ask around for consultant referrals. In addition, have the consultant generate a DRAFT report for your attorney to review before issuing the final report to prevent surprises.
  • Ignoring Potential Issues That Are Outside the Scope of the Phase I – Remember, a Phase I only looks at contamination and not compliance with environmental laws. Does the seller have all necessary permits AND is it complying with those permits? Representations and warranties in the sales contract are only as good as the seller’s continued financial viability.
  • Only Reading the Executive Summary of the Phase I – Have your environmental attorney read the entire report, including the appendices, to make sure nothing was missed. She should be able to complete this task in one or two hours.
  • Using an Old Phase I report – A Phase I that is more than 180 days old is considered out-of-date and needs to be updated.  (ASTM E1527-13 Section 4.6).
  • Using the Seller’s Phase I – This is a problem for at least two reasons: First, the buyer has no privity of contract (i.e. no contractual relationship) with the consultant who did the seller’s report, so the buyer could not sue if the Phase I turns out to be wrong. This issue can be resolved by getting a reliance letter from the consultant. Second, the consultant may be biased toward the seller, so frankly, I would not trust their report.

Keep these points in mind when planning your next deal to prevent unwanted surprises.