Connecticut’s Transfer Act:Don’t Let It Derail Your Business Succession Plan

Gregory A. Sharp, Esq.860.240.6046 | gsharp@murthalaw.com October 5, 2010

Presented at

Connecticut Marine Trades Association

2010 Environmental Expo

Transfer Act Primer

• This presentation will present a very simplified overview of the Connecticut Transfer Act.

• The Act is extremely complex, and you must consult knowledgeable professionals before embarking on a transfer of your business (asset sale) or the real estate at which it is located.

• The Act often becomes an issue with a lender in refinancing the business.

• The following slides will hopefully generate some thinking about these issues so that you can address them well in advance.

Transfer Act History

• The Act was passed in 1985.

• Its goals were to: Provide notice to buyers of environmental site

conditions and assign liability for clean up before a transaction took place.

Provide notice to the Department of Environmental Protection (“DEP”) of sites that were contaminated.

• The Act is codified at Conn. Gen. Stat. §22a-134, et seq.

Transfer Act Basics

• The Act applies to the “transfer” of any “establishment” in Connecticut, unless the transfer is exempt.

• An “establishment” is defined as any property at which, or business from which more than 100 kg of “hazardous waste” was generated in any calendar month since November 19, 1980.

100 kg = 220 lbs., about half of a 55 gallon drum.

• There are other definitions as well, but for marinas, the foregoing definition is the most important.

Requirements

• The Act requires that the “Transferor” (Seller), prior to selling the real property or business (“establishment”), must determine whether there has been a release of hazardous waste or hazardous substances at the property.

• If the Transferor fails to comply with the Act, the Transferor is strictly liable to the Transferee (Buyer) for all costs of remediation, and is liable to DEP for civil penalties.

• To make this determination, at a minimum, an environmental site assessment must be conducted.

Site Assessment

• During the Site Assessment, an environmental professional will conduct a site walkover, and review records at the facility and at the Department of Environmental Protection and other public files.

• Among the files reviewed are “manifests.”

• Manifests are records which must, by law, accompany every shipment of hazardous waste from a facility which generates the waste to the ultimate disposal or recycling site.

One copy of the manifest is given to the generator for its files, another is sent to DEP.

Manifests are generally filled out by the hazardous waste transporter, but are signed by the facility.

Site Assessment Report

• The Site Assessment will document the manifests found at the facility and at DEP, as well as any spills or releases of record and any areas of concern noted during the site walkover (staining, waste piles, etc.).

• If any single manifest, or a combination of manifests dated within the same calendar month, indicates that a hazardous waste was shipped from the establishment in a quantity greater than 100 kg, the site is presumed to be an “establishment,” unless the owner can document that the waste was generated over a longer period..

The Problem with Manifests

• It is not unusual for the waste hauler to fill out a

manifest incorrectly and identify a non-hazardous

waste as a hazardous waste.

• This has frequently occurred with shipments of with

waste gasoline.

• The potential effect of such an error is to turn a facility

with no other hazardous waste shipments into an

“establishment.”

Forms to Be FiledForm I

• Prior to the transfer, the Transferor must prepare and sign the appropriate DEP form, provide it to the Transferee for signature, and then the Transferor must file the completed form with DEP.

• Form I (rarely filed): Applies where there has been no release of a hazardous waste or hazardous substance.

The Transferor certifies under oath, based on an investigation performed in accordance with prevailing standards and guidelines, that there has been no release and files the Form with the Department, along with an Environmental Condition Assessment Form (“ECAF”), prepared and certified by a Licensed Environmental Professional (“LEP”) and documentation of the investigation.

• Not uncommon for DEP to reject a Form I after reviewing the documentation, creating a major post-closing issue for the Transferor.

Forms to Be FiledForm II

• Form II (rarely filed): If there has been a release, and it has been cleaned up to the satisfaction of DEP, as evidenced by a DEP approval or a “verification” signed by an LEP, the Transferor certifies under oath to that effect and files the Form with documentation of the approval and the fact that no release has occurred since the approval.

• Note: It is not uncommon for the Commissioner to reject a Form II based on a review of the documentation submitted, with attendant post-closing issues for the Transferor.

Forms to Be Filed:Form III

• If there has been a release that has not been cleaned up, or if the Transferor does not know whether there has been a release, a Form III must be filed, which will include a certification by a party to the transaction that it will investigate and remediate the parcel to the satisfaction of the DEP. An ECAF must also be filed.

Forms to Be FiledForm IV

• If there has been a release and it has been cleaned

up, but post-remediation ground water monitoring has

not been completed, a Form IV must be filed, which

will include a certification by a party that it will be

responsible for completing the monitoring, and if

monitoring indicates the release was not completely

cleaned up, do the necessary follow-up remediation.

An ECAF must also be filed.

Timelines

• When a Form III is filed, the certifying party

has two (2) years to complete the

investigation, and three (3) years to

commence remediation.

• A certifying party that submits a Form III after

October 1, 2009 must complete the

remediation within eight (8) years.

Cost Estimates for Clean-up

• The certifying party on a Form III should expect to spend a minimum of six figures to achieve a sign-off by an LEP.

• According to a conservative estimate from 2009, the costs to complete the studies and paperwork necessary to demonstrate that a Form III site complies with all requirements is $95,000.

That estimate assumes no actual remediation takes place.

• At sites where remediation and post-remedial ground water monitoring are required, the eight year deadline may be difficult to meet.

Exempt Transactions

• The Transfer Act has numerous exemptions from the definition of a “transfer” which triggers the Act.

• Examples which might be helpful from a business succession perspective are:

An intra-family transfer: e.g., parent to child;

Transfer of a leasehold of less than 99 years;

Transfer approved by Probate Court;

Transfer of less than 40 percent of the ownership interests.

How to Plan Going Forward

• Avoid the Act in the first place by reviewing your records to see what wastes have been shipped and correct any errors on manifests.

• Keep logs of actual waste generation.

• If your records review indicates that you are squarely within the establishment definition, work with an LEP to identify areas of concern and address them on a cash flow basis so the site may fit within the framework of a Form II by the time you are ready to sell.

• Consider the exemptions available well before contemplating the sale of the business.

Questions?