16A — September 14 - 27, 2012 — Mid Atlantic Real Estate Journal
C OMMERCIAL R EAL E STATE L AW Mi i Re l Est te J r l
www.marejournal.com
By George Crimmins, III, EWMA LLC Can a consulting firm with LSRPs on staff perform due diligence confidentially?
M
any clients raise ques- tions regarding the state of the environ-
vironmental consulting firm can conduct a confidential due diligence project, especially in the context of a PreliminaryAs- sessment (“PA”) / Site Investi- gation (“SI”) or Phase I / Phase II, even though the consulting firm has one or more LSRPs on staff. Sellers of real property often want the buyer to conduct due diligence confidentially. One example in which this concern would arise is when the seller has no knowledge of on-site con- tamination and does not have the financial means to address potential environmental issues
that may be uncovered during the buyer’s due diligence. The seller runs the risk of buyer canceling the deal and leaving seller with investigation and remediation obligations, but without the proceeds from the sale of the property to fund them. To avoid this situation, the parties typically agree to a “confidential” due diligence, where the Buyer agrees not to disclose the results of its investigation either to Seller or to NJDEP. This way, the Buyer has the benefit of its full due diligence investigation, yet the Seller will not learn of
any discharges and thus, will not be subject to immediate environmental liability if the Buyer chooses to cancel the transaction. There is some controversy, however, as to the extent an LSRP and his or her firm can perform due diligence confi- dentially. The SRRA requires the LSRP to report to the seller and to NJDEP any immedi- ate environmental concerns (“IECs”) discovered. SRRAalso requires the LSRP to report any discharges discovered on sites for which the LSRP “is re- sponsible,” although the statute
and accompanying regulations do not specify whether this applies to a potential buyer’s LSRP. In addition, the LSRP Board recently concluded (in opinion SRPLB #003-2011) that an LSRP performing due diligence for a potential buyer was not “responsible” for the site and did not have a duty to report. Nevertheless, many LSRPs and their firms still re- fuse to perform confidential due diligence because of both the statute’s and regulations’ lack of specificity and the potential need to report IECs. In any event, it is clear that this issue can be avoided entire- ly by hiring a firm that assigns non-LSRP consultants to the project. New Jersey law does not require that parties hire an LSRP to perform a PA/SI to establish a buyer’s “innocent purchaser” defense. Also, subject to some very limited exceptions, there are no obliga- tions on non-LSRP consultants to report IECs or discharges. As a result, if a client retains a firm such as EWMA to perform a due diligence project confiden- tially, they can still use experi- enced and qualified non-LSRP environmental professionals to perform and supervise the work. In fact, some firms have created separate prac- tice groups to segregate from LSRPs well-trained and quali- fied personnel who can perform non-LSRP due diligence. It is EWMA’s practice to establish an “ethical wall” around our LSRPs to prevent exposure to information regarding confi- dential diligence projects and to avoid the possibility that knowledge of IECs or other conditions that may be imputed to our LSRPs. Confidential due diligence can still be performed under the new SRRA / LSRP program paradigm, even though there is some confusion regarding the extent of an LSRP’s reporting obligations. To ensure confi- dentiality, we recommend that parties hire a firm which will take steps to ensure that the LSRP does not participate in, supervise, advise on or other- wise encounter any project files or data, to avoid triggering any potential duty to report. George Crimmins, III is associate general counsel of EWMALLC, an environmen- tal consulting and remedia- tion firm, headquartered in Parsippany, NJ. ■
mental due d i l i g e n c e pr o c e s s i n New Jersey, in the wake of the Site Remediation Reform Act’s ( “ S R R A ” ) passage and the institu-
George Crimmins, III
tion of the Licensed Site Reme- diation Professional (“LSRP”) program. These questions often concern whether an en-
Timely Response. Time-proven Solutions.
www.ewma.com
AnEnvironmentalConsulting&RemediationFirm
x Guaranteed Fixed-Price Remediation x Post Remediation Care x Environmental Due Diligence x Regulatory Compliance x Litigation Experts and Environmental Forensics x Indoor Air Quality
Parsippany,NJ Lawrenceville,NJ NewYork,NY (800)969Ͳ3159
GuaranteedFixedͲPriceCleanups
Reduce,Recycle,Reuse
Made with FlippingBook - Online catalogs