Environmental Due Diligence in Site Development and Brownfields Transactions

Environmental due diligence is a key first step in most transactions leading to site development or brownfield redevelopment projects. Prospective purchasers need to understand from the outset whether contamination is present and how it may be addressed, and if the presence of sensitive environmental resources will constrain site development. On the other side of the transaction, sellers will want to develop strategies to minimize any long-term environmental responsibilities in connection with properties they are divesting. Where lenders are involved, they will also want to understand how site conditions may affect their collateral or their borrower's ability to repay its loan.

MGKF attorneys, with the assistance of our in-house technical staff, routinely develop and execute environmental due diligence strategies and negotiate and draft provisions of transactional documents addressing environmental due diligence rights and obligations and allocating environmental liabilities among the parties to transactions where brownfield redevelopment or site development is the ultimate goal. When it comes to brownfield or other site development transactions, in addition to the standard environmental due diligence activities critical to any real estate or corporate transaction, our experience extends to the following tasks that are frequently essential to the purchase, sale, and financing of these properties:

Brownfields Due Diligence Tasks

• Assisting the client in identifying and retaining an environmental consultant to perform due diligence investigations of the property to identify areas that may be affected by releases of hazardous substances and delineate the extent of any identified contamination.

• Reviewing investigation plans and reports for consistency with applicable regulatory standards for conducting environmental due diligence, including the federal "all appropriate inquiry" rule and comparable state requirements to qualify the client for applicable legal defenses.
• Where contamination requiring remediation is identified, assisting in evaluating the feasibility of remediating the property to standards appropriate to the future use of the site that secure protection from future clean-up liability to the government and third parties.
• Where hazardous substances, such as asbestos or lead paint, are identified in buildings on the property, or vapor intrusion from underground contamination may affect building occupants, advising the client as to the effect of those conditions on future building use, rehabilitation, or demolition.
• Counseling the client regarding cost-effective remedial strategies available under various state and federal brownfields programs and how such strategies may be integrated within the plans and specifications for development of the property.
• Negotiating appropriate agreements with government agencies (e.g., Buyer-Seller and prospective purchaser agreements) to provide prospective liability relief for purchasers and sellers.
• Where the U.S. Environmental Protection Agency ("EPA") has a potential basis to assert jurisdiction over a contaminated site remediation, obtaining a "comfort letter" or other assurance that EPA will either not assert its jurisdiction or will defer to the relevant state environmental agency in overseeing and approving the remediation.
• Advising the client on supplementing standard contractual protections with pollution legal liability and/or remediation cost-cap insurance to protect against unknown environmental conditions, "reopeners" after approval of the remediation work, and remediation cost overruns.
• Identifying and applying for state and federal grants, low-interest loans, or other financial incentives that may be available to underwrite environmental investigation and remediation activities to be conducted by the client.

Other Site Development Due Diligence Tasks

• Identifying sensitive environmental resources such as wetlands, threatened or endangered species, and floodplains that may impact the developability of a property.
• Evaluating the availability of water and sewer capacity for the project.
• Advising clients regarding other environmental compliance issues that may arise such as permitting of air emissions and wastewater or stormwater discharges, and property transfer requirements, where applicable.
• Providing advice concerning financing arrangements, including counseling lenders and purchasers as to lender environmental due diligence activities and requirements, and drafting and negotiating the environmental terms of loan and mortgage documents.

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Examples of representative environmental due diligence matters involving MGKF attorneys, technical staff, and paralegals include the following:

• The firm counseled a major international petrochemical producer in connection with the sale of a plastic resins and polystyrene manufacturing facility in Western Pennsylvania. The client's site was built by the United States government in 1942, and had substantial historic environmental impacts. MGKF oversaw the acquiring corporation's due diligence and negotiated the environmental provisions of the transaction. MGKF also drafted a comprehensive environmental remediation agreement with the Pennsylvania Department of Environmental Protection that was critical to the transaction.
• We assisted a large independent oil refiner in the acquisition of a 950-acre refinery in New Jersey producing in excess of 330,000 barrels per day of gasoline, oils, and other products. MGKF handled all environmental due diligence issues which primarily involved assessing the seller's historic environmental compliance. MGKF also addressed ongoing site remediation issues, the transfer of operating licenses and permits, negotiated consent order responsibility, facilitated compliance with New Jersey's Industrial Site Recovery Act ("ISRA"), and drafted and negotiated all environmental terms of the Purchase Agreement and related documents.
• MGKF advised a global multinational technology and services company (among the largest in the world) in the divestiture of both their consumer electronics and medical supply businesses. MGKF oversaw all environmental due diligence related to the divestiture, negotiated environmental provisions in various agreements facilitating the divestiture and ensured that property indemnity of the client was in place to minimize ongoing liability.
• The firm represented a private real estate equity firm in its $1.65 billion acquisition of a major nationwide retail chain consisting of 250 stores and distribution facility locations throughout the country. MGKF managed all pre-acquisition environmental due diligence activities for more than 23 million square feet of real estate in multiple states. Many of the retail locations were impacted from either the presence of historic underground storage tanks or were impacted by releases from dry cleaning operations.
• MGKF is involved in an ongoing representation of a national retail chain in hundreds of sale-leaseback transactions throughout the country, many of which involve former gas stations. MGKF manages all environmental due diligence in these transactions, drafts and negotiates environmental and indemnification terms in the sale-leaseback agreements, and ensures compliance with all applicable state property transfer and notification statutes.