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

4

The Legal Framework:

State Programs

Voluntary cleanup programs

Other protections

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

14

Example: Former Airport—Seller

Remediates Before Phased Transfer to Buyer

15

Example: Former Airport—Seller

Remediates Before Phased Transfer to Buyer

16

Example: Former Army Base—

Ground Lessee Remediates

17

Example: Former Army Base—

Ground Lessee Remediates

18

Example: Commercial Site—Developer Manages

Insurance Recovery, Uses Recovery to Remediate

19

Example: Commercial Site—Developer Manages

Insurance Recovery, Uses Recovery to Remediate

20

Example: Former Bombing Range—

Developer Remediates on Behalf of Seller

21

Example: Former Bombing Range—

Developer Remediates on Behalf of Seller

22

Questions?

Polly B. Jessen

www.kaplankirsch.com

pjessen@kaplankirsch.com