Solving environmental issues in real estate deals requires experience and expertise. This presentation presents some ways of solving environmental problems and closing the deal.

1. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA
Identifying and SolvingIdentifying and Solving
Environmental Issues inEnvironmental Issues in
Real Estate TransactionsReal Estate Transactions
Scott D. DeatherageScott D. Deatherage
Gardere Wynne SewellGardere Wynne Sewell
214-999-4979214-999-4979
sdeatherage@gardere.comsdeatherage@gardere.com

2. Environmental Risks in PurchaseEnvironmental Risks in Purchase
and Sale Transactionsand Sale Transactions
 The buyer of real estate may becomeThe buyer of real estate may become
statutorily liable for remediating anystatutorily liable for remediating any
contamination on the propertycontamination on the property
 Every tenant that leases contaminatedEvery tenant that leases contaminated
property may be statutorily liable forproperty may be statutorily liable for
remediating any contamination on theremediating any contamination on the
propertyproperty

3. Scope of Statutory LiabilityScope of Statutory Liability
 Liability is generally strict--applies regardless of fault orLiability is generally strict--applies regardless of fault or
whether party caused the contaminationwhether party caused the contamination
 Liability is generally joint and several--each party can beLiability is generally joint and several--each party can be
liable for 100% of investigation and remediation costsliable for 100% of investigation and remediation costs
even if only caused 1%even if only caused 1%
 Federal statute considers divisibility to establish severalFederal statute considers divisibility to establish several
liabilityliability
 Texas statute considers the ability to develop a separateTexas statute considers the ability to develop a separate
remediation plan to establish several liabilityremediation plan to establish several liability

4. Lender and Fiduciary ProtectionsLender and Fiduciary Protections
 SomeSome federal and state statutes provide for protectionsfederal and state statutes provide for protections
for lenders who foreclose on contaminated propertyfor lenders who foreclose on contaminated property
 Lenders are still concerned with the value of their collateral,Lenders are still concerned with the value of their collateral,
even if they are not liable for remediation.even if they are not liable for remediation.
 Some federal and Texas statutes provide protections toSome federal and Texas statutes provide protections to
trustees and other fiduciariestrustees and other fiduciaries
 Some do not, or the protections are not very helpfulSome do not, or the protections are not very helpful

5. Other Environmental LiabilitiesOther Environmental Liabilities
 Potential Tort LawsuitsPotential Tort Lawsuits
 NegligenceNegligence
 TrespassTrespass
 NuisanceNuisance
 Suits Are Typically Brought by Off-SiteSuits Are Typically Brought by Off-Site
LandownersLandowners
 No lender protection under environmentalNo lender protection under environmental
statutesstatutes

6. Why Investigate EnvironmentalWhy Investigate Environmental
Conditions Before Purchase?Conditions Before Purchase?
 Innocent Purchaser DefenseInnocent Purchaser Defense
 After appropriate investigation, did not know and should not haveAfter appropriate investigation, did not know and should not have
known of contamination.known of contamination.
 Need to identify potential liability or costs to factor intoNeed to identify potential liability or costs to factor into
final terms of the transaction.final terms of the transaction.
 InvestigationInvestigation
 Cleanup costsCleanup costs
 Attorney’s Fees and other administrative costsAttorney’s Fees and other administrative costs
 Potential exposure to third party lawsuitsPotential exposure to third party lawsuits

7. How Do You Identify EnvironmentalHow Do You Identify Environmental
Liabilities?Liabilities?
 Environmental Assessments and AuditsEnvironmental Assessments and Audits
 Phase I Environmental Site AssessmentPhase I Environmental Site Assessment
 Largely a review of government environmental databases,Largely a review of government environmental databases,
interviews, and site inspectionsinterviews, and site inspections
 Phase II Environmental Site AssessmentPhase II Environmental Site Assessment
 Invasive sample and testingInvasive sample and testing
 e.g., soil, groundwater, and asbestos testing, etc.e.g., soil, groundwater, and asbestos testing, etc.
 If the property is a manufacturing, refining,If the property is a manufacturing, refining,
chemical, or other industrial operation, then anchemical, or other industrial operation, then an
environmental compliance audit may be appropriateenvironmental compliance audit may be appropriate
as wellas well

8. How Can You Manage EnvironmentalHow Can You Manage Environmental
Liabilities Once Identified?Liabilities Once Identified?
 Renegotiate priceRenegotiate price
 Representations andRepresentations and
warrantieswarranties
 Covenants to investigateCovenants to investigate
and remediateand remediate
 Escrow for investigationEscrow for investigation
and remediation costsand remediation costs
 IndemnitiesIndemnities
 Environmental insuranceEnvironmental insurance
 Regulatory solutionsRegulatory solutions
 Set up escrow to coverSet up escrow to cover
cleanup costs aftercleanup costs after
closingclosing
 Environmental insuranceEnvironmental insurance

9. Statutory and Regulatory Provisions ThatStatutory and Regulatory Provisions That
Can Help Close DealsCan Help Close Deals
 Texas Risk Reduction RulesTexas Risk Reduction Rules
 Risk-based closures vs. the old background cleanupRisk-based closures vs. the old background cleanup
 Soil is much easier to close now to more reasonableSoil is much easier to close now to more reasonable
cleanup levelscleanup levels
 Groundwater is the greatest challenge, becauseGroundwater is the greatest challenge, because
drinking water standards are the default cleanupdrinking water standards are the default cleanup
levels that have to negotiate out oflevels that have to negotiate out of

10. Texas Voluntary Cleanup ProgramTexas Voluntary Cleanup Program
 Allows parties who close under the VCP toAllows parties who close under the VCP to
obtain release for future owners and lenders forobtain release for future owners and lenders for
contamination left in placecontamination left in place
 Persons may apply before closing and receivePersons may apply before closing and receive
same release after closure certificate issuedsame release after closure certificate issued
 Remediation must be completed if required toRemediation must be completed if required to
meet risk-based cleanupmeet risk-based cleanup

11. Texas InnocentTexas Innocent
Owner/Operator ProgramOwner/Operator Program
 Provides liability relief for Innocent Owner and OperatorsProvides liability relief for Innocent Owner and Operators
whose property is contaminated by an off-site sourcewhose property is contaminated by an off-site source
 To apply, cannot have contributed to off-site source.To apply, cannot have contributed to off-site source.
 Defense applies generally, but can apply for confirmingDefense applies generally, but can apply for confirming
certificate from the TNRCC.certificate from the TNRCC.
 Must allow reasonable access to persons designated by theMust allow reasonable access to persons designated by the
TNRCC to perform investigation and remediation.TNRCC to perform investigation and remediation.
 If purchased subdivision of source property from person whoIf purchased subdivision of source property from person who
caused contamination, must meet due diligence requirements.caused contamination, must meet due diligence requirements.

12. Municipal Setting DesignationsMunicipal Setting Designations
 Legislation Passed in 2003Legislation Passed in 2003
 Requires local approval to restrict groundwater, and thereforeRequires local approval to restrict groundwater, and therefore
avoid very low drinking water standards as cleanup goalsavoid very low drinking water standards as cleanup goals
 At one site, we literally saved our client about $2 million inAt one site, we literally saved our client about $2 million in
potential groundwater cleanup costspotential groundwater cleanup costs
 City of Fort Worth and City of Dallas and many North TexasCity of Fort Worth and City of Dallas and many North Texas
cities have established MSD programs; Houston recentlycities have established MSD programs; Houston recently
adopted an MSD programadopted an MSD program
 In Dallas, an owner has to apply to the City and go through aIn Dallas, an owner has to apply to the City and go through a
public meeting and then a public hearing before the City Councilpublic meeting and then a public hearing before the City Council
 We have worked on numerous applications in Dallas and otherWe have worked on numerous applications in Dallas and other
citiescities

13. Vapor Intrusion: What Is It?Vapor Intrusion: What Is It?

14. Vapor IntrusionVapor Intrusion
 Focus of EPA and several states; EPA puttingFocus of EPA and several states; EPA putting
pressure on Texaspressure on Texas
 Recent change to ASTM Phase I Standard addsRecent change to ASTM Phase I Standard adds
vapor intrusion, so now part of every Phase Ivapor intrusion, so now part of every Phase I
and potentially raised in transaction where mayand potentially raised in transaction where may
not be an issue, but have to work throughnot be an issue, but have to work through

15. Mitigating Vapor ConcernsMitigating Vapor Concerns
 Be prepared to address if underground tanks or dry cleaners are
on or were on the site or on nearby property; guide due diligence
approach of environmental consultant
 Use known soil and groundwater concentrations to try to
eliminate concern if those concentrations are very low
 If demolition and new construction, what is known as a vapor
barrier can be added to address vapor concerns
 Consider provisions that could be added to purchase and sale
agreements or loan documents to address issue post closing
 Additional soil or groundwater sampling may assist in eliminating
concern
 Sampling of sub slab air or indoor air may be necessary, be plan
carefully