On June 28, the Supreme Court overturned the 1984 ‘Chevron-Deference’ decision causing potential widespread challenges to Federal agencies abilities to interpret laws and statutes. The decision stemmed from a Supreme court case involving Chevron in a dispute against the Natural Resources Defense Council (NRDC) involving the Clean Air Act, that established that Federal judges should defer to agencies interpretations of congressional statutes. This gave agencies greater perceived power and provided a level of protection against legal challenges to their decisions. Overturning ‘Chevron’ has potential large ramifications for various industries and the nation’s legal system as companies may now be more willing to challenge those Federal agency decisions.
Regarding impacts to deals involving commercial real estate and private equity, although some businesses may applaud the decision as it could result in further reduction in administrative requirements, it could also have negative impacts that should be contemplated. On the one hand, challenges to regulations applicable to commercial development and ongoing remediation activities could set the stage to ease the due diligence, potential permitting, and closure activity burden from a Federal standpoint. Interpretation of some of the major regulatory programs used to help guide and inform commercial real estate transactions and development, including CERCLA and the Clean Air Act, could be called into question. These challenges could ultimately ease the path for dealing with environmental remediation of contaminated properties, or at least afford companies the opportunity to challenge decisions, which could string out timelines for achieving compliance or completing remedial activities. These are factors that should be considered during M&A activities of industrial companies, many deals of which are the focus of major private equity backed companies, that have general timelines associated with exiting deals. However, it should be noted that the existing regulatory requirements on state and local municipality levels would still need to be complied with, regardless of the success of legal challenges to Federal regulations.
On the oppositesside of the spectrum, without a broad reaching overall consistent playing field, things could become murky, forcing companies to spend even more time and effort to understand how new legal decisions could impact their plans for geographic expansion and developments. This could incur more consulting and legal fees along the way during diligence activities. Additionally, successful challenges could have a longer term damaging impact to the environment if companies are able to bypass certain regulatory closure activities long considered a requirement.
Regardless, although changes may be coming, it will take time to play out, so companies should be vigilant and remain aware of new legal cases on the horizon. As always, current best practices of full due diligence and adherence to current regulatory standards and applicable industry guidelines should be employed for acquisitions and developments in the commercial real estate and private equity industries. Read about some of the work VERTEX has performed in this arena here: VERTEX Projects
