In 1980, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act — otherwise known as CERCLA or Superfund.
Under CERCLA, liability for hazardous materials and pollutants is imposed regardless of fault and can be imposed retroactively. The liability is also joint and several, meaning that liability for contaminants can be imposed regardless of relative contribution, including merely by purchasing a property.
Historical use of properties where hazardous materials spilled, or hazardous waste was disposed (even if legal at the time) may become the responsibility of the unwary buyer. Liability may even extend to contamination that originated offsite. The costs of a single cleanup can be significant, averaging between $200,000 and $2,000,000 and sometimes far exceeding that figure.
Here is another due diligence trap — acquiring a business. Businesses must be in compliance with a wide range of state and federal environmental health and safety regulations including the Clean Air Act (CAA), Clean Water Act (CWA) and Resource Conservation and Recovery Act (RCRA). Many different types of businesses that are not typically associated with environmental regulations (e.g. food manufacturers), could potentially be out of compliance and subject to enforcement. Lawsuits, fines and government induced shutdowns have negatively impacted companies all because someone did not do their environmental due diligence.
How to reduce risk when purchasing a commercial property
In 2002, Congress passed the “Small Business Liability Relief and Brownfields Revitalization Act” (Brownfields Amendments). The Amendments added specific criteria for conducting All Appropriate Inquiry (AAI) into the history of a property. The AAI rule provides an escape from liability called the “innocent landowner defense,” but this defense can only be used to escape liability if “appropriate due diligence” was conducted prior to the acquisition of the property. The EPA-approved ASTM Phase I Environmental Site Assessment can be utilized to fulfill the AAI requirement.
How to reduce risk when acquiring a business
Environmental due diligence for business acquisition should include the Phase I Environmental Site Assessment plus a comprehensive environmental audit of current and past manufacturing processes. The environmental audit should include:
- Identification of hazardous materials
- Hazardous waste generation, handling, storage, transportation and disposal
- Environmental permitting
- Environmental control technologies
- Compliance reporting
- Review of compliance history
- Industry specific environmental health and safety requirements
Risk mitigation
The stakes are high when dealing with EPA regulations. Proceeding with a property and/or business acquisition without proper environmental due diligence could potentially expose the buyer to liability for the cost of achieving environmental compliance and rectifying past mistakes. Understanding EPA with all its regulations, back references and guidance documents is a full-time job. Seek expert guidance.
For more information, visit ambipar.com/usa or email Allan Blanchard at allan.blanchard@ambipar.com.
