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An Environmental Lawyer looks at Brownfield Deals:
Pointers for Sellers and Buyers
Frank L. Hearne, Esq.Mechanik Nuccio Hearne & Wester, P.A.
Florida Brownfields Association ‐ 18th Annual ConferenceTampa Marriott Waterside ‐October 4‐7, 2015
Rules for Development Partners
An Example: Pink Palace Hotel circa 1926
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 andreasonable “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 undercontrol.
4. Build on benefits of Brownfields.
5. Be prepared for flexibility in the deal structure.
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 62‐780 F.A.C.Site assessmentMonitoring or Remediation PlanPost Action Monitoring Resolution under Risk Management Options Levels I, II or IIINotices/Challenges
The Seller’s Cleanup “Path Forward” •How far along is enough?
SRCO NFA with or without conditionsMonitoring Site Assessment Phase
•Agency “Buy in”More is better
• Schedule and Cost PredictabilityCompatibility with proposed use
Seller Disclosure:• Disclose the issues in the most straight forward way.
Have respected consultants and environmental lawyers prepare one of moresummary documents. Cut through the maze of prior technical documents for yourmarket.
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.
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.
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 closingPost closing agreementsInsurance
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.
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…..
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 thedeal 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”.
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
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
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
Addressing Liability in Deal Contracts
•Who wants an Indemnity? What limit?•Post Closing Agreements/Survival of remedies• Site Resolution / Reopeners•Price adjustments• Escrows
Addressing Liability by Corporate Structure
• Limited Liability Entities• Shareholder Liability• Special Note on Personal Assets: Trusts and Estates• IN "ability‐to‐pay"
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
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
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
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
Our Example: Hampton Inn & Suites Bradenton Historic
District
openedNovember 2013
“Pink Palace Hotel” Today Hampton Inn & Suites
An Environmental Lawyers looks at Brownfield Deals:
Pointers for Sellers and Buyers
Frank L. Hearne, Esq.Mechanik Nuccio Hearne & Wester, P.A.
Florida Brownfields Association ‐ 18th Annual ConferenceTampa Marriott Waterside ‐October 4‐7, 2015
