Environmental Considerations in Business Expansions

With anticipated steady economic improvement, manufacturers are considering expanding their operations. Manufacturers should incorporate environmental considerations into their expansion plans. Failure to do so could leave manufacturers holding the bag for the cost of resolving environmental issues. Such costs can be huge.

Due Diligence
Property owners are responsible for contamination on their properties. When considering purchasing a new property or a facility to expand your operations, ask a reputable environmental consultant to do an ASTM Phase I Environmental Site Assessment (ESA). The purpose of a Phase I ESA is to identify actual or potential contamination associated with the property, which is or could become a liability for the property owner. A Phase I ESA could also identify other potential environmental issues (e.g., mold and asbestos) that could result in liability or unanticipated costs. Most financial institutions require such an assessment as a condition of financing a property transaction. If the property is contaminated, prospective purchasers want protection from liability for cleaning up the contamination and for the effects of that contamination on third parties. That protection falls in four general categories:

1) assigning the environmental liability to the seller;

2) negotiating an escrow for the cost of the cleanup;

3) securing an environmental insurance policy to assist with cleanup of known and potential contamination, and

4) negotiating a reduction in the sale price commensurate with the estimated cost of the cleanup.

An environmental and real estate attorney can help you navigate these issues.

The contamination also could affect developing the property. Excavating contaminated soil and dewatering contaminated groundwater during foundations construction require special management procedures, permits, etc. Managing contaminated soil and groundwater entails substantial cost. In addition, local regulations might prohibit you from placing subsurface utilities (e.g., water, wastewater) in areas where the soil is contaminated.

Regulatory Compliance
When planning to buy the assets of another company, environmental regulatory compliance is also a significant consideration. Prospective purchasers should understand whether they are buying that company’s regulatory violations – unpermitted operations, violations of discharge limits, unsafe working conditions, etc. A regulatory compliance audit can help protect you from unanticipated problems and costs.

Will expanding a business or introducing a new operation result in increasing the amount of waste? Such an increase could have a regulatory cost (heightened regulatory oversight) and a financial cost, especially if the waste is hazardous. Incorporating “green” aspects into the expansion plan (e.g., recycling the waste, switching from toxic to biodegradable solvents) could reduce regulatory and economic costs over the long-term.

Appropriately assessing and resolving environmental issues takes time. Remember – the regulatory process is not designed to fit your business plan. Start thinking early about the environmental and regulatory implications of your business expansion. Incorporate an environmental strategy in the business expansion plan. Develop a bird’s-eye view of what is needed and fill in the details along the way. Allow for plenty of time.

Written by Danny Spector, PG
Senior Project Manager in Langan’s Miami Office
Chairman of the South Florida Manufacturers Association Environmental Committee

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