An Environmental Lawyer looks at Brownfield Deals: Pointers for Sellers and Buyers

Transcription

1 An Environmental Lawyer looks at Brownfield Deals: Frank L. Hearne, Esq. Mechanik Nuccio Hearne & Wester, P.A. Pointers for Sellers and Buyers Florida Brownfields Association 18th Annual Conference Tampa Marriott Waterside October 4 7, 2015

2 Rules for Development Partners

3 An Example: Pink Palace Hotel circa 1926

4 Rules for Sellers/Local Governments: 1. Get your project to a point where the issues have been sufficiently developed with agency approval to provide a recognizable and reasonable path forward to final resolution. 2. Disclose, Disclose Disclose. (I will say it again) DISCLOSE 3. Demonstrate actively that the issues are well understood and under control. 4. Build on benefits of Brownfields. 5. Be prepared for flexibility in the deal structure.

5 Aside: How Do Florida Brownfields Get Cleaned Up? Local Government Brownfields Designation Enacted and sent to FDEP. Responsible Person Enters Cleanup Agreement or BSRA. Certain Developer Benefits Are then Available Site Rehabilitation proceeds under Chapter F.A.C. Site assessment Monitoring or Remediation Plan Post Action Monitoring Resolution under Risk Management Options Levels I, II or III Notices/Challenges

6 The Seller s Cleanup Path Forward How far along is enough? SRCO NFA with or without conditions Monitoring Site Assessment Phase Agency Buy in More is better Schedule and Cost Predictability Compatibility with proposed use

7 Seller Disclosure: Disclose the issues in the most straight forward way. Have respected consultants and environmental lawyers prepare one of more summary documents. Cut through the maze of prior technical documents for your market. Prepare and Provide a recent Phase I. The initial statement of the situation must be carefully crafted to clearly and accurately explain what happened, what has been done, and where the site rehabilitation stands. For a potential development partner, the initial impression of the extent and seriousness of the problem will determine whether that person will continue to have an interest. Once involved, a potential partner becomes more and more likely to proceed. Over statements or misleading minimization of the issues risk a loss of trust which will drive potential partners away.

8 Emphasize Benefits of Brownfield Sites: Infill Sites Often Good Business Locations Infrastructure already in place Neighborhood support Local Government support because of increased Tax Support and JOBS Developers and Local Governments are eligible for Financial Incentives Brownfields or other programs Liability protections for buyers, successors and assigns against further cleanup and property damage claims.

9 Seller Deal Flexibility Form of Deal: Sale? Long term Lease? Joint venture? Sweeteners including assignment of VCTC Addressing Short and Long Term Liability: Actions and contingencies prior to closing Post closing agreements Insurance

10 Pitfalls for Sellers High Price optimism Post closure protections Conditional closure requires new owner agreement. Assure such agreement before closing. Tricky to negotiate. Planed uses forbidden by DRC: Residential means a lot more than houses. Impossible closing contingencies NFA Institutional Controls consisting of the planned building.

11 Realities for Development Residential rental Do area rental rates support project costs? Retail Does the area economic situation support retail? Schedule All projects proceed more slowly than expected. Unpredictable path All projects have surprises. Resourcefulness and Perseverance pay..

12 Rules for Development Partners: 1. Work with qualified consultants and counsel familiar with Florida practices and procedures. 2. Do the Due Diligence. Do the Due Diligence. Do the Due Diligence. (I will say it again) Do the Due Diligence Assess the deal like any other. 3. Be prepared for site design flexibility. 4. Be prepared for deal flexibility. 5. Assess the risks and evaluate all available tools to address. 6. Do not fall in love with the deal.

13 What makes a deal work for a developer? Reasonable financial rewards Considering ordinary risks and Acceptable environmental risks Including predictability of schedule and costs In Brownfields deals this includes both actual and perceived additional liability and increased development and operational costs

14 Reminder: Legal Risks of Contamination Statutory Cleanup Costs Financing / Marketing Fears Pre closing or Pre construction delays Delays during construction Business interruption during later operation On site Lawsuits: workers and others Off site Lawsuits: Neighbors Issues in later sales or re financing These all represent financial risks to the Developer as well as issues of schedule

15 How Can the Developer Partner Address Liability Concerns? Brownfields: immunity/fixed review Agency "closure" decision making Deal contract terms Corporate structure Environmental insurance Other Programs: Comfort Letters, Tanks and Dry Cleaners

16 Addressing Liability in Deal Contracts Who wants an Indemnity? What limit? Post Closing Agreements/Survival of remedies Site Resolution / Reopeners Price adjustments Escrows

17 Addressing Liability by Corporate Structure Limited Liability Entities Shareholder Liability Special Note on Personal Assets: Trusts and Estates IN "ability to pay"

18 Addressing Liability with Insurance Pollution Legal Liability Third Party Personal Injury Third Party Property Damage Cleanup Protection for Unknown Conditions On and Off Site Liabilities Known and Unknown Contamination

19 Addressing Liability with Insurance "Cost Cap" or "Cost Overrun" Insurance Insures Part of Consultant's Cost Overruns Subject to Substantial Deductible In Practice Limited to Larger Cleanup Projects > $1 Million

20 Addressing Liability with Insurance Lender Liability Coverage Pays Lesser of Cleanup Costs or Loan Balance Includes PLL for Lender Federal and Florida Lender Liability Defenses Do not Cover Many Situations Avoids Issues of Messy Foreclosures

21 Pitfalls for Developers Low Price optimism Realistic Contract Contingencies Post Closure Protections Reopeners Construction and Post Closure Risks E.g. Construction Risks not Covered by Contractor Insurance. Careful! Planed Uses Forbidden by DRC: Residential means a lot more than houses Tenant Demands/Lease Disclosure Language Site Design Changes E.g. Lined Storm Water Pond Unexpected Environmental Issues

22 Our Example: Hampton Inn & Suites Bradenton Historic District opened November 2013

23 Pink Palace Hotel Today Hampton Inn & Suites

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26 An Environmental Lawyers looks at Brownfield Deals: Frank L. Hearne, Esq. Mechanik Nuccio Hearne & Wester, P.A. Pointers for Sellers and Buyers Florida Brownfields Association 18th Annual Conference Tampa Marriott Waterside October 4 7, 2015