USA – CALIFORNIA Law and Practice Contributed by: Kim Bick, Alan Bick, Corrie Plant and Tyler Alexander, Bick Law LLP
past contamination. A Phase I ESA may satisfy CER- CLA’s “all appropriate inquiries” standard and allow a purchaser to assert the innocent landowner defence. If a Phase I identifies any Recognized Environmental Conditions (RECs), it may be prudent for a buyer to conduct further investigation, including subsurface sampling, which would be memorialised in a Phase II ESA. A Phase II is not required to qualify as an inno- cent landowner; however, it may help a buyer assess future risk of environmental cleanup costs. A Phase I, and if appropriate, a Phase II is also helpful when leas- ing property for operations, especially if such opera- tions may involve the use of hazardous substances. New tenants should consider baseline sampling to assist in defence of future allegations of contamina- tion. 17.2 Disclosure of Environmental Information California law requires sellers and lessors of real prop- erty to disclose potential environmental contamina- tion. California Health and Safety Code Section 78700 requires that owners who know or have a “reason- able cause to believe” of the release of a hazardous substance provide the buyer or lessee with a written disclosure. Failing to provide notice may result in a civil penalty of USD5,000, as well as potential civil liability to the purchaser or tenant. Federal regulations may also apply, including the federal EPA’s lead-based paint disclosure rule. 17.3 Key Issues in Environmental Due Diligence Transactions involving real property require diligence concerning the prior use and ownership of the prop- erty to identify any potential releases of hazardous
substances that may require remediation. Legal issues include: • liability for remediation and potential damages for claims related to the contamination; • real estate disclosure requirements; • lender liability concerns; • environmental insurance options; • institutional control; and • future closure of remedial action or permitted facili- ties at the property. If the property in the transaction holds ongoing or future operations that may result in releases of haz- ardous substances, additional legal issues include: • baseline of contamination; • burden of proof of additional or exacerbation of contamination triggering liability for new or former operators and owners; and • compliance with operation requirements and regu- lations. For mergers and acquisitions or investments in industrial or consumer products, companies require diligence concerning compliance of prior operations with environmental, health and safety regulations and requirements, resulting in material risk, depending on the severity, including: • proposition 65 warnings (both environmental and on products placed into the market in California by the target company); • permits and licences (air, water, stormwater, haz- ardous waste); and • waste management.
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