How Clean is Clean?

It’s obvious when a business owner pays attention to his or her property: the facility is inviting and well-maintained. On the other hand, do you wonder why some boarded-up gas stations and other businesses remain frozen in time for years?

There may be several reasons: polluted ground that the owners can’t (or won’t) fix; the property is tied up in an estate; or back taxes are greater than potential owners can afford.

The degree to which owners handle environmental issues is an important dividing line between successful business owners and unsuccessful ones. And that brings me to a question I’ve often been asked: When it comes to my business property, how ‘clean’ is ‘clean?’ Does a site need to have every bit of old motor oil, gasoline, PCE dry cleaning solvent or other contaminant removed?

The answer is: What do you intend to do with the business property? And do you have resources for a costly cleanup?

My experience is that most business owners can be classified as: 1) those who want to grow their business; 2) those who want to sell their business; 3) those who are just trying to survive and eke out a living; and 4) those who abandon or cannot sell their business (and frequently board them up).

For those of you wanting to grow, it’s essential to have a clean bill of health and a business free of soil and groundwater contamination. If you are invested in building your brand you do not want the threat of contamination jeopardize those plans and all of your hard work. Developing a proactive strategy to address environmental conditions is a fundamental part of growing any business.

If you are trying to sell your business, soil and groundwater contamination will devalue your business assets. Even if you are able to sell the business on contract, you cannot opt out of the chain of responsibility. The long arm of the law states that those responsible for environmental contamination include past and present business owners, operators and property owners.

One word that will come up early in negotiations with an environmental agency is “closure.” Don’t be fooled by it: if property is officially “closed” by the Indiana Department of Environmental Management, for example, it may not mean that a property can be marketed and utilized to its fullest value.

The most common type of closure is based on the risk of future harm to the environment or individuals. But this “closed” designation may allow for leaving high concentrations of contaminated soil in place beneath the building or parking lot. This might be a good option, but a long term plan must be put in place to protect any workers that might come into contact with the contamination in the future. This risk-based designation may depress the property’s re-sale value.

Another important thing to understand about cleanup strategies is that those paying the cleanup bills have everything to gain by pushing for risk-based closures. This is particularly true when a responsible party has insurance for defending and/or indemnifying them against environmental claims. Most states allow a policyholder to select the attorney and consultant of their choice. Far too often I’ve seen insurance carriers hire consultants and attorneys to “represent” the RP, who is their policyholder. It’s an obvious conflict; the insurance company wants to pay out as little as possible. Attorneys and consultants selected by insurance carriers get future work from insurance carriers, and will push the insurer’s agenda of doing as little as possible for as long as possible. If you own property, there is no downside to selecting a consultant that is true to you and your needs.

But you can see why an owner would be tempted to quickly opt for closure when a government agency is involved. Owners are so afraid of environmental contamination that they focus on getting the site closed. But if they settle for a “closed” designation instead of aiming for long-term value, the owner may be left with property restricted to specific land use. The property owner could be required to manage contamination left in place by having to ensure that the deed restriction is enforced. They could be required to maintain the operation and maintenance of a vapor mitigation system or ground water monitor for as long as twenty to thirty years after site closure. In other words, mere “closure” could leave the owner with a pricy, under-performing asset.

Given all that, closure could still be the best option if the property is used for industrial purposes and is zoned for that use. Conversely, if the property is zoned commercial, but is located next to residential houses, schools or daycares the price of monitoring the site for decades could reach tens of thousands, even hundreds of thousands of dollars. For this reason, when you or your team (attorney and consultant) are evaluating cleanup options, the cheapest closure today may not be the cheapest in the long run.

Generally, “cleaner” is better than mere “closure.”

Original Source on Inside Indiana Business