Protecting foundry equity takes planning now.
There are several reasons why the owner of a small foundry needs to put his or her head down into the wind and obtain an understanding of what is necessary for compliance with state and federal environmental laws before the assets are threatened, along with the ability to predict expenses and remain operating. Real Estate
The foundry and its land are usually the chief assets of a small foundry. Aside from equipment, which is depreciated, and what is probably a too-long list of receivables, the most valuable asset may be the real property itself. It is one of the few assets that actually appreciates. The value of an asset, however, is what it will bring at sale on the open market.
Most commercial real estate contracts now have riders or clauses involving inspection of the property by the buyer for compliance with environmental laws, or require warranties from the seller regarding environmental compliance. What this means in practical terms is that the property will have to survive an environmental audit.
A team of engineers takes samples of dust, air, oil , dirt, any standing water or filled areas outside the building, and gives the property a very general inspection looking for representative samples. The samples are then tested for "listed" hazardous or toxic substances.
if any of the substances are found, the amount of the substance is evaluated for acceptable levels. Exceed the levels and you have just failed your Phase I environmental audit.
You must now move to a Phase II audit, after you first negotiate with a potential buyer as to which party is to pay its cost. Phase I is usually paid for by the buyer, and typically runs about $3000. A Phase II audit, which is much more extensive in terms of sampling and testing, will cost several thousands of dollars for engineering and lab testing costs.
I should mention that if any unacceptable levels of listed hazardous substances have been found in Phase I, there are reporting requirements that must be followed under federal and most state statutes. If you do not report what has been found, your engineers may do it for you. There are stiff penalties for failure to report hazardous substances. For example, polychlorylbiphenols (PCBs), a suspected carcinogen used until the mid-1970s in a variety of industrial equipment, can be present in levels that require reporting to state environmental agencies and the EPA. They could be high enough to be considered "spills" of hazardous waste. Spills require immediate reporting under federal statute to the 24-hour spill hotline within a certain number of hours. Failure to do so places the owner at risk of substantial penalties.
When the environmental audits are complete-and there may be a Phase III, depending on how severe matters were in Phase IIthe owner cannot stop the investigatory process. The owner is now on notice of hazardous waste or contamination of the foundry property. Once notice is given, you are responsible under federal and most state statutes to report everything to the regulatory agencies and begin the very expensive business of cleanup.
The regulatory agencies involved will tell you what to do and how to do it. There is very little margin for cost cutting because there are procedures in the regulations that must be followed to bring contamination within acceptable levels. This can cost hundreds of thousands of dollars and the liability is what is known as "strict liability" under the law. It doesn't matter what you intended to do, or that you did not know there was contamination. It is your land, you clean it up.
If you choose not to clean up, the state or federal government will perform the cleanup and charge for the costs. Read that as "sue you for the costs."
Your best course is to negotiate a work order with the regulatory agency heading up your hazardous waste problem (usually the state, but it can be the EPA) and structure a cleanup timetable you can afford.
I should stress that it does not require large numbers of leaking, foaming barrels of unknown chemicals on your property for you to be forced into an expensive cleanup.
One foundry with which I was involved had old oil stains on the floor that tested positive for PCBs. Additionally, there were "hot spots" around an old compressor site that tested high in PCB levels. Regulatory procedures required reporting, further and continuous testing of the property and air monitoring.
Since it was porous, the concrete floor would have to be ground down several inches until no PCBs were detectable, or the floor would have to be sealed and the ground where foundry sand had been dumped would have to be excavated and tested.
The property also had to be tested for any off-site movement of groundwater and groundwater monitoring wells dug. The county health department became involved because it required certain measures to secure the property from trespassers who might track contaminants off-site.
These measures included placing signs and fencing around the perimeter of the property and notifying the local fire department. The firefighters must use special protective equipment in the event of a fire at a contaminated property.
The company was required to produce all books and records to document a history and use of its property, including the destination of all equipment removed from the site.
This situation took place in the mid-1980s when no PCBs had been used for over 10 years. The estimated cost of the cleanup was placed at over $250,000 with $500,000 a more realistic number because the cleanup took place over time. All of this occurred because the foundry property was under contract to sell. It is virtually unsalable now. Lenders
Environmental issues often come into play in the context of borrowing money. Commercial lenders have become understandably wary of lending on industrial or commercial property. Most lending involves the bank taking back a mortgage on the property to secure the loan. By its terms, this security means that in the event of default, the bank may foreclose on its chief security, the real property, and sell it to recoup its loss.
If the bank becomes the owner of title after foreclosure or takes over the property to manage it, to protect its security or to help the borrower avoid default, the bank can become one of the parties liable for site cleanup costs.
To avoid this risk, banks now are routinely requiring at least a Phase I environmental audit of a property as a condition of a lending commitment. This has the effect of: * adding to the cost of borrowing; * putting buyer and seller on notice of any possible hazardous
conditions; * and triggering reporting and cleanup requirements
according to various state and federal statutes.
Insurance usually does not cover the cost of environmental cleanup. Most policies strictly exclude environmental damages, even if the company that previously owned the property created the problem. And, needless to say, your bank will probably not lend you the money for the cleanup-their security just tested contaminated. Worker Safety
Federal and state statutes protect workers from hazardous substance exposure in the workplace. More often the courts and state legislatures are making it possible for workers to sue many years after the fact for exposure to substances that have injured them or shortened their lives.
The Occupational Safety and Health Act, for starters, protects workers from a dangerous work environment. Not knowing whether you are operating with what is defined under statute and regulation as "unsafe" or "hazardous" can prove to be disastrous later. Knowing what is required of you and what substances are in the workplace can prevent liability that can become truly staggering.
Complying with environmental law after there has been a contamination or spill can be extremely expensive. It is much less expensive to inspect before the fact. Determine how best to be in compliance before listing real property for sale or applying for bank financing.
Large companies sometimes hire a full-time employee to handle compliance issues. Smaller firms might find this alternative expensive, but that does not mean they shouldn't be looking at how to present the best front, environmentally speaking. History of the Property
A foundry should establish a legal title history of the real estate involved. This can be accomplished by obtaining copies of the abstract of title to the property. The abstract of title is the recorded history of the property, usually drawn from records at the county clerk or recording office.
If the property is liened or leveraged, the lender will usually retain a copy of the abstract. However, copies may be obtained from the lender, or the abstract may be borrowed. It is a good idea to know the property's prior usage.
For example, a foundry may never have installed or used underground fuel storage tanks, but is being investigated because of a leak in the area. If the property were purchased from an oil or gas company, or if there is such a party in the title to the property, it may give the current owner clues as to where the problem originated.
While the owner is looked to for cleanup, it is possible to prove that the responsible party is another owner or user of the property. The owner or the regulatory agency can then proceed against the responsible party. In other words, you or the agency can "sue your way up the chain" of title. Equipment History
It is extremely useful to know where your equipment originated and where it went if it was sold. Chances are that if the inside of your foundry is contaminated, the equipment is too. Maintaining detailed records can lessen the amount of inquiry from a regulatory agency to which the company is forced to respond. If cleanup of a hazardous situation becomes necessary, the regulatory agency in charge will more than likely require a chain of custody on equipment. Company History
A company's records-including suppliers, haulers, waste disposal, construction work, equipment purchases, notices regarding environmental violations and remediations-can be useful if a cleanup becomes necessary.
Complete records can potentially simplify the investigation regarding contamination and any possible off-site movement of hazardous substances.
Nothing can take the place of knowing what is expected of you regarding environmental compliance, including materials currently listed as hazardous, how to use and dispose of them and how to keep workers safe around them. It is essential for minimizing costs.
This information can be gathered from several sources, including various federal and state environmental conservation publications and regulatory agencies.
You should have some idea of what actions or omissions can get you into trouble, and consult legal counsel if you think you may already be in trouble.
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|Title Annotation:||Small Foundry Directions|
|Author:||Berman, Sarah M.C.|
|Date:||Dec 1, 1990|
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