Practical Environmental Due Diligence Tips for Transfer Act Site Sellers

Written By: Paul Jacobi | Published June 20, 2018

Practical Environmental Due Diligence Tips for Transfer Act Site Sellers

Over 30 years ago, when my oldest son Eric was about 7 years old, he wrote a story entitled, “What I Want to Be.” It started with a singular line. “When I grow up I want to be an environmental layer.” Yup. He wanted to be a “layer” just like his dad. Maybe that is why his drawing, which accompanied the story, pictured a man with a briefcase in one hand and a baseball glove on the other. I had this picture in my mind earlier today when I was focusing on the most important and fundamental functions an environmental lawyer performs, particularly in a transactional setting.

Not surprisingly, often the most important job is to assemble the right team. Assuming that the client is the team manager, I would consider myself the catcher, controlling the game on the field. My key player would be the technical consultant, a Licensed Environmental Professional (“LEP”). I want that player to really understand the job. I need the LEP to know how critical this role is to the success of the team.

When representing a seller, it is essential that the technical consultant understands that the Phase 1 Environmental Site Assessment must provide a sufficient factual basis for the lawyer to determine Transfer Act applicability. There is a substantial liability on a seller who conveys a Transfer Act site without making an appropriate Transfer Act filing. The consultant performing Phase 1 must also perform a sufficient review of historical documentation and conduct a site visit so that a subsurface investigation if one is necessary, can be focused on the likely release areas and constituents of concern.

On behalf of the seller, the consultant’s Phase 2 scope of subsurface work may not necessarily include investigating the site to the extent (and cost) required to achieve site verification. The seller may simply want sufficient information developed to give prospective purchasers a reasonable idea of the environmental condition of the property. An experienced seller may appreciate the fact that a serious buyer will generally desire to conduct an independent Phase 2 investigation following a review of the seller’s reports. Further, under the Transfer Act, the buyer will have 2 years following receipt of a DEEP notice that its Transfer Act filing is complete to finish the investigation. A cost-conscious seller, therefore, may conclude that a more limited investigation is appropriate so long as it reasonably informs the buyer of the site’s condition.

Finally, the team needs to determine if a remedial cost estimate is appropriate and whether that cost estimate should be incorporated into the investigation report. In this regard, consideration should be given to whether the LEP’s cost estimate should be widely disseminated or whether it should be limited to a subset of serious buyers who have sufficiently demonstrated their desire to pursue the transaction and who have signed a confidentiality agreement.

In summary, the selection of the correct LEP is critical to the fate of many transactions. How do you choose the “right” consultant? First, technical competence, experience, and credibility with the governmental agencies are givens. Second, the consultant must understand that the team’s objective is primary. Depending on the client’s goals, a comprehensive investigation is not necessarily the best approach from a money or timing perspective.

Similarly, an unrealistic remedial cost estimate, in the long run, is not in the best interests of any party. Third, the team members must be able to communicate well together. Objectives change. Development plans change. Draft reports must be quickly modified. The consultant’s pace cannot lag behind. In a nutshell, my advice to developers is to put a good team together and keep it together as long as it works. It sounds much easier than it actually is.