By Patrick Connelly, originally published in Buffalo Law Journal, Buffalo Business First on Apr 14, 2019, 11:15am EDT, Updated Apr 19, 2019, 2:07pm EDT.
Project overlap: Due diligence is a must before getting started
SPECIAL REPORT: CONSTRUCTION/DEVELOPMENT
The second half of the 20th century ushered in an era of greater environmental consciousness.
With that came laws and regulations. Environmental law slowly became a practice area. Attorneys working in construction law noticed an overlap between the two disciplines when performing due diligence on property they hoped would house new buildings.
“We started to encounter more issues in the 1980s and more environmental issues dealing with prior pollution. People didn’t know quite how to deal with that,” said Charles Martorana, partner at Barclay Damon LLP.
“My practice evolved from doing a lot of research into environmental issues,” he said.
In due diligence, it’s best to utilize a measured and consistent approach, said Ian Shavitz, partner at Lippes Mathias Wexler Friedman LLP.
He helps clients identify risks associated with certain properties.
“You want to know as much as you can up front so you can deal with any potential issues,” he said.
Steven Ricca agreed. He is a member at Bond Schoeneck and King PLLC.
“The earlier you think about due diligence, the better,” Ricca said.
Things he has learned over the years at the cross-section of the two practice areas helps on every project going forward.
“The reason the two intersect is because when you are building something, you are required to do an environmental review,” Ricca said.
The goal of the review process for a buyer of land is to collect as much information as possible, he said. That helps to pinpoint if contamination is present, identify risks and determine the effect they could have on the cost and timing of the development plan.
“There could be portions of the property that you simply can’t build on,” Ricca said.
Marc Romanowski, partner at Hopkins Sorgi and Romanowski PLLC, said environmental reviews are akin to a treasure hunt.
“You don’t know what you’re going to run into until you get into the ground,” he said.
Depending what is found, he said it gives developers and attorneys opportunities to be creative.
“It’s part of evaluating the challenges or opposition of a development project,” Romanowski said.
Challenges are no longer a deterrent, said Kimberly Nason, senior associate at Phillips Lytle LLP.
“If you’re finding contamination at a site or concerned of a potential liability, it’s not the end of the world,” she said. “In fact, it can be beneficial. It’s not as much of a threat as it had been in the past.
“Now you have the Brownfield Cleanup Program, you have liability protections and you financial incentives and tax credits that are available to you for remediating a site and redeveloping it,” Nason said. “It’s not the world that it used to be … especially in Western New York.”
|Kimberly Nason is a senior associate at Phillips Lytle LLP.|
When the review is complete, Martorana said developers and attorneys figure out what can be minimized, removed and remediated.
“Whenever you are purchasing real estate … there’s always the concern of what happened in the past,” he said. “The question becomes: How does the purchaser understand what happened in the past?”
Due diligence can be boiled down to asking the right questions at the outset to protect against liability, Shavitz said.
Once the risks are determined, clients can decide if a project is feasible and able to be financed and completed on budget.
He and attorneys at Lippes Mathias assist an increasing number of clients with evaluations that ensure a project can move forward without additional time and money.
“I always think of the issues in three buckets,” he said of the permit process, site conditions and land-use entitlements. “Think about those things early to make sure your project is viable.”
“Depending on the structure of your deal and the financial aspects of it, you need to figure out what may be on the site in order to quantify what you may need to do to remediate that, if anything, or to quantify any potential liabilities down the road in order to impact your deal documents or purchase price,” she said. “Some of that you cannot do early on in the process but to the extent you can, you should.”
Among the things to watch out for on a property are wetlands and endangered species, Nason said.
The crossover practice between construction law and environmental law has come a long way, according to Romanowski.
“People viewed environmental impact at the early stages as a significant negative issue that needed to be avoided at all cost,” he said. “It was always viewed as a burden but now it’s starting to be viewed as an opportunity.”
The state Brownfield Cleanup Program has made starting fresh on many area properties more financially realistic, Romanowski said.
“It literally has changed the landscape in Western New York. … Now (issues are) seen as a significant economic opportunity,” he said.