The Impact of Environmental Liabilities on Real Estate Contract Negotiations

The author examines environmental issues facing a prospective seller of industrial real property. Because a seller generally will not be able to transfer statutory responsibility for environmental problems, it is advisable for the seller to investigate and remedy environmental problems prior to transferring the property. An environmental investigation may be required for the seller to make representations and warranties to buyers and lenders. Both lenders and buyers will want to conduct some degree of investigation to protect themselves from environmental liability, particularly liability arising from Superfund and similar state statutes. Information gained from environmental investigations can be useful during negotiations for sale and for contractual allocation of environmental responsibility. Where a site cleanup is required, information gained from an environmental investigation can serve as the basis for a remediation plan. As a result of an environmental investigation and site remediation, the seller will be in a stronger position to negotiate limitations on indemnity provisions requested by the buyer. The author concludes that given the current level of environmental awareness and regulation, cleaning up contaminated industrial property is not only good policy, it is good business