Doing the Deal Part 2: Property Assessments

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Courtesy of Richard MacLean & Associates, LLC

Providing support for major business transactions is arguably the most important strategic responsibility of an EH&S manager. The potential cost savings (if done correctly) or liabilities (if done poorly) can be enormous.
A company may bet its future success on a single business acquisition or merger. Even purchases or divestments of plant and equipment can have a profound effect on a company. This is the second of a three part series on business transactions. Last month, we explored the politics of “doing the deal” and some best management practices of leading companies. This month, we examine specific approaches to business risk assessments based on input from experienced consultants. Next month, we will analyze the value of environmental management systems assessments in mergers and acquisitions.

It’s hard to imagine today, but contaminated property issues were rarely a business concern just 20 years ago. All that changed in 1979 when the House Commerce Committee’s Subcommittee on Oversight and Investigation sent out a questionnaire on waste disposal to the chemical industry. The Eckhart Survey, named after the Subcommittee chairman, was the first systematic survey of hazardous waste disposal at a national level. The survey shook up the industry because (1) Congress was directly involved, and (2) it was the first time that management saw in aggregate how much waste had been disposed and, thus, the magnitude of their potential liability. The results helped motivate Congress to pass Superfund legislation (Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA) in 1980. Superfund had immediate and far-reaching consequences. For some corporate executives, this was their first exposure to significant environmental issues. I can vividly recall explaining the legal concepts of strict liability (i.e., without regard to fault) and joint and several responsibility (i.e., collectively and individually responsible, without regard to relative contribution) to business managers. “But it is so unfair!” they complained.


Standard Practice for Environmental Assessments: Phase I Environmental Site Assessment Process (ASTM E-1527) was developed in 1997 to provide a uniform framework for conductby Richard MacLean, Competitive Environment Inc. with Roger Funston, Kennedy Jenks Consultants, Bakersfield, CA ing site inspections.1 The original driving force behind inspections was the need for buyers to shield themselves from significant liability. Proper due diligence (i.e., using the ASTM protocol) would qualify a buyer under CERCLA’s innocent landowner defense. In addition to industry, banking institutions quickly moved to require environmental assessments before issuing commercial
loans. Financial institutions are so tuned-in to property contamination issues today that they no longer automatically foreclose on property, for fear of inadvertently taking on environmental liability as an owner. The concern for contamination has more recently expanded to include residential property, with many banks and state laws requiring asbestos, underground storage tank, lead paint, and radon inspections before closing. Even Joe and Jane Homeowner are now familiar with these environmental requirements. A revised ASTM standard is currently being balloted, which includes the following qualifier in the purpose section: “A complete evaluation of business environmental risk associated with a parcel of commercial real estate may necessitate investigation beyond that identified in this practice.”

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